Inheriting money in your 20s, 40s, and 60s
How to invest an inheritance at different ages
If you have inherited a sum of money from a loved one, you can honor their generosity by making smart decisions about what do with your inheritance.
In your 20s, it is important to secure your own financial health through basics like an emergency fund, then think about long-term investing.
In general, the younger you are, the more risk you can introduce to your portfolio, as long as volatile investments trend upward over the long term.
In your 40s, balance is the key: avoiding high-risk investments while keeping returns as robust as possible.
If you inherit money in your 60s, you’ll want to focus on ways to bolster your retirement plans as you near that milestone.
If you’ve just inherited some money from a loved one, you might be feeling overwhelmed by the decision of what to do with it.
We all know that it’s wise to invest your money, but how to best go about this isn’t so simple.
Your best strategy will depend on your age, lifestyle, and other factors. For example, your asset allocation strategy should be different in your 20s than if you are close to, or in, retirement.
If you aren’t familiar with these terms, that’s perfectly OK. For many people, investing strategies don’t come up until they have a significant chunk of savings. Perhaps this inherited money is your first experience with having savings or money to set aside and, hopefully, grow.
Of course, everyone’s financial situation is unique, so everyone’s plan will be different. People also reach different career paths at different ages, so don’t worry if you feel that the advice that speaks to you doesn’t correspond with your age bracket.
It’s not about your age so much as your stage in your life and career. For this reason, it is always advisable to consult a professional financial advisor. Before you meet with a pro, there are many things to think about as you decide what to do with an inheritance—no matter what your age is.
Investing an inheritance in your 20s
Generally, the younger you are, the more long-term your strategy should be. Even a small investment in your 20s will put you in a better place down the road, whether your goal is to save up for family planning or travel, purchase a home, or begin saving toward retirement. What you invest now will help you reach your goals in the future.
With the money you’ve inherited, before you begin investing, it’s important to prioritize paying off any debts that may be accruing high interest (think credit cards, loans, etc).
Creating an emergency fund
The next priority, if you have not done so already, is to set up your emergency fund. A good rule is to have enough savings in this fund to cover three to six months of your living expenses, to prepare for the unexpected, such as job loss or illness.
The point of the emergency fund is to have a small safety net, so try not to touch it until you really need to. If you still have cash left after setting up your emergency fund, then it’s time to talk investing.
Once you have an idea of what your investment goals are (retiring at 65, traveling every 2 years, etc), you can start looking into opening up investing accounts.
If you’re already thinking of the legacy you’ll leave your children, buying life insurance in your 20s is an excellent way to ensure benefits at a much lower cost than if you bought a policy later.
But if you’re thinking about retirement or more short-term goals, there are several options to begin growing your wealth.
Assessing risk: stocks, bonds, mutual funds, and IRAs
Another important thing to consider is your risk tolerance. Your 20s are the best time to go for some of those riskier assets, like stocks or cryptocurrencies, since you’re getting an early start and any volatility may average out to substantial returns over time.
However, it might not be worth the stress to invest in an asset that can be super volatile if you are averse to risk. Bonds and mutual funds are typically less risky than stocks.
The younger you are, the more long-term your strategy should be.
Fro a risk-averse approach that focuses on long-term gains, focus on contributing to an individual retirement account (IRA). A Roth IRA, for instance, offers tax-free income when you retire, and they historically have delivered 7% to 10% in average annual returns. Even if you contribute a small amount to your IRA today, because of your age, that money will have grown a lot by the time you retire.
Investing an inheritance in your 40s
There are a number of ways that you may want to use money you inherit in midlife: everything from buying real estate to bolstering your children’s college funds and, in some cases, paying for parents’ elder care.
You may already have a retirement plan and an investment portfolio going, and it will just be a question of incorporating your new savings into your existing accounts. If not, now is the time to set up your retirement plan. Even if you have an employer-provided 401(k), you may want to dedicated more funds to retirement via an IRA.
While you can still take a long-term approach to investing, now is the time to invest in less of those volatile, risky assets than when you were in your 20s. That said, you shouldn’t eliminate all elements of risk, or else you might stunt the growth of your savings.
It’s all about creating a balance: not too risky, but not stagnant either. But, again, it depends on how you feel about risk. These are the considerations you should have in mind while building your portfolio.
Most importantly, now is the time to take stock of your goals: Are you where you planned to be at this age? Take that into account as you consider ways to invest your inheritance, so that it helps you with both your short-term goals and your long-term retirement plan.
Investing an inheritance in your 60s
If you inherit money in your 60s, you’ll probably want to focus on a short-term strategy. This is a great time to zero in on your retirement plan, now that the transition may be getting closer.
Take some time to think about the following: When do you want to retire? What kind of lifestyle do you want after you retire? A useful rule is to have enough money for 25 years of living expenses before you fully retire. That might mean that you will plan to work 5 more years at a full-time job or 10 or so more years at a part-time job.
If you’re already happy with your retirement plan as it stands, you might think about some other ways to utilize your inheritance.
You’ll want to have enough money for 25 years of living expenses before you fully retire.
In terms of investing, a portfolio of mutual funds or exchange-traded funds (ETFs) is a low-risk way to go. Now isn’t the time to take a gamble on volatile cryptocurrency, or risky stocks, even if you see the younger folks in your life doing so.
Lastly, if you haven’t done so already, this is also an excellent time to get serious about estate planning. Of course, you have lots of time ahead of you, but this is the time to begin getting your end-of-life plans in order, so you don’t have to scramble down the road. Maybe you’d want to set up a trust for your loved ones, or set aside a fund for your family to complete your end-of-life wishes.
Whichever age bracket you fall into, your investment plan will correspond to your unique assets, wants, and needs. There is no one-size-fits-all solution to financial planning, but there are age-related considerations that may help guide you to reach your financial goals and make the best use of the money you’ve inherited from your loved one.
You may be eligible for free bereavement support. Empathy can help with everything from funeral planning to estate administration, with step-by-step guidance and real-time expert support. Many people get free premium access to Empathy as a benefit with their life insurance claim. We partner with New York Life, Guardian Life Insurance Company, Bestow, Lemonade, and other leading carriers. When you make your life insurance claim, talk to your representative about whether Empathy is a benefit they offer.
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