Retirement Planning/Small Inheritance

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Question
My wife received a small inheritance of $34,000.We have it in a simple savings account. We would like to invest it for our retirement. Our ages come into play as we are 69 and 68.We are both still working,and would like to retire at 70.Would you make a few recommendations.ROTH,Mutual Funds,etc.

Answer
Hi Chris,
Sorry I couldn't get back to you sooner but I've been having computer issues the last few days and haven't been able to answer questions.

While I really can't make any specific investment recommendations I will certainly try to guide you in the right direction. First of all we need to look at any other retirement accounts that you have and decide what goal you intend to accomplish with the inheritance funds. Are you going to need it as regular income or do you not need income from it and would like to leave it as a lump sum to grow and perhaps make occasional purchases or have it in case of emergency?

Next off we need to look at the tax consequences. If you received this money tax free, your best bet would be to put it where it does not generate more taxes. Most likely a Roth IRA. This would allow you to grow the funds tax free and also to take tax free withdrawals. Plus, if you are not going to need it any time soon a Roth IRA does not require that you take required minimum distributions or RMD's in the year after you turn 70 1/2. Regular IRA's and 401k's require that you make these withdrawals. You could also use these funds to offset taxes you may be paying on your other accounts when taking retirement income withdrawals. The only problem I see here is that you would only be able to contribute $12000 a year combined for you and your wife annually. So you would have to put the money in over 3 years and you would have to have earned income in each of those 3 years.

You could also open a brokerage account and invest it in anything you look. This kind of account would be subject to capital gains tax which looks like they may be on the rise.

As far as what investments to use, you can pretty much invest in anything you want in either a brokerage account or a Roth. The level of risk you are willing to take would not only depend on your age but also what other retirement funds you have which I don't know. Generally at your ages people are pretty conservative unless they can really afford to lose the money or it is a small portion of their retirement funds.

The problem these days for seniors is that interest rates are so low. So to earn any kind of return there is going to be some risk involved. You may want to look at stocks or mutual funds that pay dividends. That way you have 2 ways to make money. By the price of the stock and from the dividends the fund or stock pays you. If you are going to be using these funds any time soon make sure you put it into something that is not going to fluctuate a lot. If you have it in a volatile account while you are taking withdrawals your money won't last long in a down market.

I would highly recommend that you find an advisor that you trust and sit down with them to plan out your whole retirement. You'd be surprised to find out the things people don't consider when they do things themselves.

I hope this helps. Feel free to ask any more questions if you like. Best of luck to you and your wife!

Dave
diannopollo@twcny.rr.com

Retirement Planning

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David M Iannopollo

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I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!

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