My wife and I are in our fifties. We lost our house in 2008, declared bankruptcy, and ultimately bought another house. We will inherit $ 200,000. How should we invest it?

ByDonald L. Leech

Dec 2, 2021


My wife and I have struggled financially for years. She is disabled and I am the main source of income for our family. I am 59 years old and my wife is 58 years old.

During the housing crisis of 2008, things got worse and we lost our house. We lived in an apartment for three years trying to recover from this financial disaster.

In 2014, we were able to buy our current house, but we had a large down payment and had to finance the balance through a private (retail) lender at an interest rate of 8%. The down payment was $ 50,000 (we worked hard to save) and we funded $ 105,000.

It went well until 2015 when I lost my job and we filed for bankruptcy. We paid the full bankruptcy and were released in April of this year. This prevented us from refinancing our house.

Since we had a private mortgage, we did not include our house in bankruptcy and continued to make our payment. We have no other debt and have an annual family income of $ 98,500. I have been in my current job for six years and plan to retire here (God willing).

“Again, this is such a blessing for my family. I want to make the right choice. I plan to work until the age of 65. ‘

Fortunately, the house has appreciated in value and is currently valued at $ 205,000. Unfortunately, our financial woes continue to challenge us and we have only set aside $ 40,000 in our 401 (k).

Recently, a close relative passed away and left my siblings and myself their entire estate, estimated at around $ 1 million. I have three sisters and a brother.

Once the estate is settled, we expect to receive approximately $ 200,000 each. My uncle has worked, saved and lived a frugal life for many years, and I want to honor this gift and use it wisely.

The question now: do I pay off my house ($ 82,000 remaining on the mortgage) and invest the balance for retirement, or do I invest the entire amount and try to refinance my house? I was told it could take two years to get refinancing after Alabama bankruptcy laws.

Once again, this is a blessing for my family. I want to make the right choice. I plan to work until 65 and will contribute the maximum allowed to my 401 (k) for the next five years.

Blessed, but confused

Dear Blessed One,

Your letter gives me hope.

Your thoughtfulness and composure in recounting these various financial crises will, I hope, help inspire other people to never give up, even if the odds seem against them. I admire your determination to persevere, save and start over. You and millions of Americans had to start from scratch. Well done!

Here is my point of view: pay off your mortgage, especially since you have an 8% interest loan (the sooner you get rid of that burden, the better); maximize your 401 (k); and put at least six months of spending aside in an emergency fund if you have other unforeseen medical or financial events.

A word of caution to others: your inheritance could have been in danger if you had received it sooner. “The general consensus among the courts is that monies received by a debtor from a POD account within 180 days of filing for bankruptcy should not be considered the property of the estate,” according to Favor Swift.

As for you, $ 40,000 is a modest sum in your 401 (k) for your lifetime. But Lorraine Ell, CEO and Senior Financial Advisor at Better Money Decisions, a financial advisory firm near Albuquerque, says, “It’s never too late to save for retirement. The $ 200,000 is a godsend and he is right to respect the value of that gift.

“The goal is to minimize your monthly expenses and maximize your annual pension contributions. “

Greg McBride, Chief Financial Analyst at Bankrate.com, recommends that you create a Roth IRA for you and your spouse. Contribute up to $ 7,000 each, which includes a catch-up contribution of $ 1,000 for each of you this year and next. “In no time at all, you would each have a Roth IRA worth $ 14,000,” he says.

Do you have health insurance through your employer? Is a high deductible plan with a health savings account an option? “If so, you can set aside $ 7,300 plus an additional catch-up contribution of $ 1,000 for 2022 which will increase and can be used tax-free for future health care expenses,” adds McBride.

The goal is to minimize your monthly expenses, maximize your annual pension contributions, and have a secure cash flow cushion. “Aim to pay the current health care costs out of pocket – don’t forget that big emergency fund – so the HSA money can grow and accumulate to be used in your later years,” he says. .

Modest lifestyle in retirement

She also suggests working until age 67 to maximize your Social Security benefits. “Having a paid home will not only allow you to save more in retirement accounts… it will also allow you to lead a modest life in retirement. Social Security benefits are very useful if you don’t have to pay for housing, ”she says.

Setting goals is the fun part. “The remaining $ 120,000 must be invested in a joint taxable account; then every year take some of the money and contribute to a Roth IRA, ”she adds. “This money will be available in five years for withdrawal tax-free and growth, interest and dividends will also be tax-free when withdrawn.”

Leonard C. Wright, CFP and current president of the American Institute of Certified Public Accountants, also recommends the benefits of aggressive savings in your company’s 401 (k) plan. “If the investments you’ve appreciated at 7% per year over the next 10 years, the $ 120,000 plus $ 40,000 can reach $ 320,000.”

“It’s a wonderful gift when you need it, not to mention the impact of saving over the next five years with more discretionary income. A financial plan would clearly guide your peace of mind, ”he adds. “Your resolve has held you firm!” Vision, values ​​and goals. I think you are better off than you think.

Continue to exercise the discipline and patience you have shown so far, and keep your eye on a modest, healthy, and happy retirement.

You can email The Moneyist for any financial and ethical questions related to the coronavirus at [email protected], and follow Quentin Fottrell on Twitter.

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