If money were no object, what would your life look like? This week we look at a man whose financial situation took a turn for the better with an unexpected inheritance.
The situation
Paul, 60, has worked for 20 years as a veterinarian in Parker. He has always been money-conscious yet admittedly unorganized when it comes to tracking where his money is and how it is invested. He currently makes $80,100 a year and has saved $607,894.51 in his 401(k). Paul also has $79,723 in mutual fund accounts, $52,150 in stocks, $10,303 in annuities and $70,000 in cash and bonds. His home is valued at $250,000 and he owes an additional $39,692 on the mortgage.
Paul befriended an elderly neighbor, Bob, assisting him with yard work and errands, and the two became close friends over the past 15 years. Bob, having no children and only distant relatives, asked Paul to serve as the executor of his estate. When Bob died in 2014 Paul learned that Bob had left a large inheritance to him. Over the past year Paul has been evaluating how to invest his new assets, and he wrote in to What’s The Plan to find out “how to make this money go to work!” Paul had encouraged Bob to invest his money in investments with a higher yield, and he has begun to realize that he needs to take his advice and seek guidance.
His inheritance included a home valued at $350,000 and $2.07 million in CDs and cash.
I posed the question to Paul, “What would you be doing right now if money were no object?”
Recommendations
Paul is in a unique and fortunate position! He’s right, it is time to make his money work for him. This is going to be a transition for Paul as he can begin to focus solely on doing the things he loves. If Paul reasonably invests his money, he will have the freedom to design the next chapter of his life.
Paul is still working on creating this picture, and while he decides, it will be important for him to keep his money flexible. In addition to buying a camper, truck and doing some traveling, he hopes to make more time for his garden and continue to volunteer. I advise Paul to look at who and what are important to him and spend his time and money enjoying everything that matters most.
Our projections show that Paul can spend approximately $10,600 per month after taxes beginning at age 60, including his current assets and estimated Social Security. This number is adjusted for inflation until 95. In order to achieve this annual spending figure, Paul needs to ensure that his money is working for him. The majority of his assets are in lower-yielding CDs, which he invested soon after inheriting. I recommend investing this money in a diversified portfolio including stock and bonds to retain his purchasing power against inflation for the future.
It is important that Paul update his estate plan, will and powers of attorney. He mentioned that the current beneficiaries are family members who have become estranged over the years, and now that there is more at stake he wants to make sure it is allocated to those closest to him.
I encourage Paul to spend some time evaluating what matters most. He has been given the gift of financial freedom and has every opportunity to make the most of it.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan? Ask Pam what you should do — e-mail whatstheplan@consistentvalues.com to get advice. Names and identifying information are changed to protect confidentiality.
