Pay Dirt is a financial advice column. Got a question? Reach out to Christine and Iris here. (It’s anonymous!)
Mr. Paydirt
I recently inherited a Roth IRA when my parents passed away unexpectedly. The account must be settled within a decade, which feels surreal. It’s actually a significant amount—30% more than what my salary would typically yield over ten years. I know I could allocate some funds towards retirement during what feels like a turbulent time. But what about the rest? Should I invest in a house? It seems like a tough market right now, doesn’t it? Or maybe just park it all in a high-yield savings account? Each time I ponder this, I’m reminded of my parents and how they should be enjoying retirement.
—The Champagne Problem
Dear Champagne Issues Everyone
Facing big financial choices is challenging, especially while dealing with grief. An inheritance can serve as a poignant reminder of a life that was prematurely cut short, complicating any decision on what to do with that money. Making a purchase, even one that’s financially sound, might just deepen the feelings of loss.
Fortunately, you have some time thanks to the 10-year rule. Since it was your parents’ account, you must withdraw the full amount by the end of the tenth year after their passing. The silver lining is that because it’s a Roth IRA, you won’t face taxes on withdrawals—as long as the account has been established for at least five years—and you’re not obligated to withdraw anything immediately. The key thing is you don’t have to have all the answers straightaway, especially during such an emotional time. However, if you’re dealing with high-interest debts, it’d be sensible to pay that off quickly. You’re on the right track thinking about starting an emergency fund or building your retirement savings. A high-yield savings account that covers six to eighteen months of living expenses is a good place to start.
Moreover, it might be wise to consult a Certified Financial Planner (CFP). Given the substantial amount you’re dealing with, expert advice could be invaluable. A CFP can craft a financial plan that reflects your objectives, spending habits, and risk levels. (We’ve detailed how and where to find a CFP here.) Once they get a grasp on your situation, they’ll offer tailored advice on your finances. For instance, purchasing a home isn’t inherently a bad choice—it really hinges on various factors. Sure, interest rates are high and housing prices can be outrageous. But depending on your location, budget, and personal goals, homeownership could still be a viable option.
It’s definitely tough to lose a parent. Maybe part of your financial approach could involve using some funds for something they would have appreciated. Perhaps a charitable donation in their memory, or taking that dream trip they always talked about, or perhaps starting a meaningful project that keeps their spirit alive.
Mr. Paydirt
I’ve always been cautious with money. Now, at 37, I’ve saved nearly $1 million across various investments, high-yield savings, and retirement accounts (like a 401(k)), but I don’t own real estate yet. My partner and I, after six years together, share similar saving philosophies, but we maintain separate finances due to their children from a previous relationship. I often fret about whether my retirement savings will suffice—knowing that a comfortable retirement typically requires between $5 million to $7 million, even with a conservative budget. My job in tech is lucrative now but, you know, nothing is certain. Is having “just” a million enough at my age, especially without owning property? Like many in my field, homeownership feels elusive. Given the current U.S. economic climate, I’m not counting on Social Security either.
—I’m worried, but unsure if I’m right to be.
Dear concerned,
Retirement calculators can provide a rough estimate on savings, but they often err on the side of caution. Having $1 million saved by 37 is significantly better than what many in your age bracket achieve. Plus, with plenty of time ahead, you can benefit from compounding. While it makes sense to want to boost your savings for peace of mind, keep in mind you’re in a stronger position than many.
Not owning real estate doesn’t mean you’re falling behind. It allows for greater flexibility with your finances. If purchasing a home isn’t feasible where you are right now, that’s perfectly acceptable. Plenty of people enjoy a comfortable retirement while renting for extended periods. It’s wise to not entirely depend on Social Security, yet, realistically, it is unlikely to vanish completely. And even if benefits shrink, they might still cover some fundamental expenses.
In short, your financial prudence places you ahead of the curve. Being frugal is commendable, but it can also evoke anxiety. If financial worries persist, seeking help from a certified financial planner might ease those concerns. They can assess your situation, optimize your savings, and develop a tailored plan that calculators simply can’t provide.
—Kristin
More money advice from Slate
Need help navigating an inheritance in blended families? My recently adopted children received a significant inheritance from their maternal grandparents, yet it’s not placed in a trust.
