You just inherited $250,000. What do you do with it?

[ScrimpAndSave]

And you have no debt, owe $150,000 on your home and your own your car outright. You make 60k a year and you are 30 years from retirement (and you will get a pension when you retire that will cover about 70% of your living expenses).

What would you do? Invest it all?

[creditcardfree]

Tempting to pay off the house, but I'm not sure I would do that in this case. I would project future cash needs for a car, home improvements that may happen in the next 5 years. I would likely invest the rest, some for college if that applies.

[fruitbowlk]

In that situation I would payoff the house and invest the rest. That assuming I have a fully funded EF and My car isn't going to need to be replaced with the next few years and my house doesn't need any major repairs done.

[graceful]

I would probably invest the bulk of it but plan on accelerating the payment of my mortgage depending on if it was my "forever" house.

[jefffou]

Not a lot to go on, but.....

Pay off the house, fund the EF, and then take a vacation.

Upon returning from vacation, begin saving/investing large quantities of monthly take-home money like a a mad-man.

[feh]

Assuming you have a decent rate on your mortgage, I'd invest 1/2 of it immediately, and DCA the rest of it over the next couple years.

[jIM_Ohio]

And you have no debt, owe $150,000 on your home and your own your car outright. You make 60k a year and you are 30 years from retirement (and you will get a pension when you retire that will cover about 70% of your living expenses).

What would you do? Invest it all?

I would weigh the cash flow of the mortgage payment vs the lump sum investment risks/ rewards.

Two examples

You have a mortgage of 150k which is "costing" you $900/mo and $10,800 per year (30 yr fixed)
or costing you $1265/mo and $15,180/year (15 yr fixed)


You can either
a) invest 100k and $15,180 per year now with a paid off mortgage now. 8% return is $3.1 M in 30 years.
risks here are market performance "later", money is tied up in house (if you need 200k of cash the month after doing this, you will not have easy access to that money). Much of the 3.1 M saved can be in a tax deferred (401k/403b) type account or tax free (Roth) type of account. This is because the $15k is contributed annually, so you are under income limits and can contribute most years. The 100k is in a taxable account and you have liquidity with a portion of the money.

b) keep current mortgage, invest the 250k, then once mortgage is paid off "catch up" on the savings with $10,800 of contributions (or $15k of contributions) once mortgage is paid off. I assume you pay extra on mortgage if 30 year fixed or nothing extra on 15 yr fixed and I will do some derivatives of this. For the main example I assume you did not pay off the mortgage early and used the 15 year fixed payment.

Main example b) I am assuming 15 year fixed payment of $15180 per year ($1265/mo). I have $3.2 M as the end figure in 30 years (8% return). More of this would be in a TAXABLE account than above. If you would invest the 15k in a 401k type plan, this means the second example is more money (not just 100k more, but about 25% more...) because the money in example A will be taxed, where as you have already paid taxes on the money in example B. If taxes were the reason you did or did not do something, consult a tax specialist before deciding.

The risks to get here- you carried a mortgage for 15 years, even though you could have paid it off (early). The reward for that is a huge next egg (25% larger than if you had paid off mortgage). The cons or downside here is for next 15 years you have cash flow tied up to mortgage payment.

You need to put a risk/reward/value on the cash flow to the mortgage payment... if you would spend more of the mortgage payment than you would save, keep the mortgage payment and invest the 250k...

Other comments
I assume you are still single? If you do a), then sell house, its possible your spouse gets half house proceeds (s/he lived there too). I don't know the rules in PA, but consult an attorney if you think this could happen to you (consult before you get married). (To me) its easier to list an account in a prenup than an asset... meaning if you did b) you could specifically state spouse has no claim to money at all in accounts X and Y (within a prenup).

Derivative comments on example b)
B) is going to depend on a couple of variables- the sooner you pay off the house and invest the mortgage payment ($1265/mo) the better the outcome of b). 2 years early payoff (13 years instead of 15 years) puts another 100-200k in account.

B) if you plan on retiring early, IMO B is the only choice. You want the liquidity and access to money. I could still make a) work and retire early, but that would be dependent on tax code (not a bad thing or good thing, just dependent on government is all I'm saying)


If it were me and I was going to work 30 years, the numbers suggest a) is my plan of choice.
I can tuck 5k per year of the 15k getting invested into a Roth IRA (pay taxes now- which is the positive of plan B). For the 10k I invest tax deferred, I can find a way to withdraw it and avoid a tax bite with the limited information available. Because you have a pension, having money in the Roth is going to be a great thing (you may not realize it now, but your personal tax bracket is going to be going up in retirement if you save beyond the pension because the personal contributions allows income to double dip raising income and tax bracket).

If this were me and it was my life now... I only have 18 or less years I want to work (I am older than you) and that sways the answer to B (invest the whole thing) in hopes of retiring early.

It is also worth it to consider investing the whole thing, then finding a way to use income to pay down mortgage aggressively. This is best of both worlds- you get liquidity (you always have the 250k available) and can probably pay off house in 5-10 years if you change how you manage the money (instead of sending 15-30% to retirement accounts, send 5% to retirement and 25% to mortgage for example).

[coach2wealth]

I'm with pay off the mortgage, invest 80% of the rest and enjoy the other 20%.

There is not formula that is going to tell you what it FEELS like to owe nobody nothing!

[tripods68]

Invest the whole amount.

Asset allocation breakdown ($250K)

50 percent Vanguard Total Stock Market Index
15 TIPS (Inflation protected Treasury)
20 International/Emerging Markets
10 Vanguard Ginnie Funds
5 Money Market

[cptacek]

I would wait a year before I did anything. Put it in the bank (or two banks) or a CD for a year just to think about it. Once you have a plan, execute that plan at that time.

I would definitely make some of it blow money...vacation or some piece of art you have always wanted.

[jpg7n16]

Without thinking much about it, I pay off half the remaining debt, or enough so that my house is worth twice what I owe.

Then I personally put the rest into a equity mutual fund. All of it. No vacation no nothing. Well maybe 2k into checking for fun Max the IRA's. Rest is invested as is in a tax efficient equity mutual fund. My goal is to have a really large buffer built up so that when I retire, my family has enough to live off of for decades. The more I have invested, the easier that goal is to reach.

But that's me answering you in like 2 minutes online. It's not necessarily what's best for you and your situation.

Do you have kids you're hoping to send to college? Married? What are your goals?

Or is this just a "what if" discussion?

[maat55]

Payoff my house, donate some, take a trip, invest the rest along with my house payment and regular investment monies.

[PetMom]

Is this awful to suggest but I would be careful who you tell about this much of an amount.

Years ago our family got a settlement and word got out and a 'friend' came forward with a request for a loan with dire financial need.

Of course, the answer was no, but be aware of this - the situation was awkward and ended the friendship.

This was our situation with a friend and do not want to imply you have friends like that.

[kilapapipa]

Pay off the house. Invest the rest. You should be able to take a vacation in a few months once you have a few former house payments still in the bank. Live well on 60k with no debt.

[cptacek]

After thinking about this some more, I think I would pay off all of our land. Then I could use the money that was going to land payments for a few years to put a house on it.