Dear Quentin,
My spouse is 61, and I’ll be reaching 60 shortly; currently, I do not have employment. We have $15,000 invested, along with a disability benefit totaling $5,500 each month which will reduce by half after four years. There are still 25 years remaining on our mortgage, requiring a monthly payment of $1,800 at an interest rate of 3.5%, plus we pay $1,500 annually for private mortgage insurance. The home belongs solely to him, as my name isn’t listed on the title.
He will receive a significant sum of money, around $180,000. He plans to use this amount to clear his mortgage debt which stands at approximately $168,000. In my opinion, another option could be consulting an investment advisor and putting all the funds into investments. Alternatively, it might be more beneficial for us to manage these resources directly using an internet-based stock trading service. Could you provide advice on how best to utilize this financial windfall? Although I am fully aware that ultimately, the decision rests solely with him regarding what he does with his inherited wealth, your insights would still be greatly appreciated.
I require some sharp thoughts here.
The Wife
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Dear Wife,
You have two main concerns: the reduction in your husband’s private disability income and his current monthly mortgage payments. If this happens, he will be spending approximately 65% of his monthly income on the mortgage alone. Ideally, he should reduce this expenditure so that it accounts for around 30% of his income instead. To achieve this, consider using part of the inheritance to pay off at least half of the remaining balance on his mortgage; ideally, you could even clear $100,000 from it. This amount seems like an appropriate target due to its simplicity. Fortunately, a mortgage interest rate as low as 3.5% is excellent.
This would allow your spouse to utilize $80,000 as he sees fit. Consider allocating some of this amount into a high-return savings instrument such as an investment account or certificate of deposit, while ensuring not less than $5,000 remains accessible in a checking account for unforeseen costs. Recently, financial indices like the S&P 500, Dow Jones Industrial Average, smaller-capitalized stocks within the Russell 2000 index, along with the tech-heavy Nasdaq Composite Index, have experienced significant fluctuations due to President Donald Trump’s retaliatory tariff policies. Therefore, anticipate further market instability.
If you’re feeling optimistic about the long-term prospects for U.S. equity markets, based on historical trends, you might consider allocating part of your inheritance ranging from $10,000 to $20,000 into an exchange-traded fund that mirrors the overall market, such as the S&P 500 or another broadly diversified index like the Vanguard Total Stock Market ETF. It should be obvious enough not to purchase single company shares directly.
No room for financial risks
While maintaining good health, it might be beneficial to look into taking up part-time employment to boost your earnings and savings. This period is also ideal for reflecting on individual inheritance strategies. Ideally, you should attempt to revise your private mortgage insurance terms as your home equity grows. Regarding investments, both you and your spouse ought to avoid significant financial gambles due to limited flexibility. Instead, focus on growing your retirement fund while safeguarding whatever assets you currently possess.
Funds required in the short term might call for an investment approach with lower volatility and risk,” explained Teresa Greenip, senior wealth manager at Aspirant. “Conversely, if these funds won’t be used for several years or even decades, you could afford to take on greater risks since you’ll have ample time to bounce back from market ups and downs.
In terms of investing, both you and your spouse don’t have much room to undertake significant financial gambles.
Consider the mortgage payoff as earning a guaranteed return equivalent to the interest rate on your mortgage,” she said. “Should this interest rate surpass the expected yield of your investment portfolio, it might be wise to fully or partially repay the mortgage. Additionally, take into account any tax deductions from mortgage interest, since they effectively lower the interest rate on your mortgage.
To find safer options, explore shorter-term bonds with durations under five years, think about investing in mutual funds and ETFs within this range, and look into Treasury Inflation-Protected Securities (TIPS), which are inflation-indexed bonds provided by the U.S. Treasury. Morgan Stanley also points out potential gains from ”
value-oriented and defensive sectors
.” The so-called “defensive” sectors comprise non-discretionary consumer products, utilities, and healthcare stocks.
Considering the current economic uncertainties, including the dual challenges of inflation and potential recession, you might consider allocating part of your inherited funds to gold. The price recently surpassed $3,000 per ounce for the first time last month and has been climbing steadily since then. Although gold does not invariably go up during periods of geopolitical unrest or financial instability, it is commonly seen as a secure option during volatile times. At present, gold futures stand around $3,325 an ounce.
Juggling equities, fixed-income securities, and liquidity assets
Charles Schwab offers guidance for couples preparing for their retirement years. He suggests ensuring at the beginning of each year that you have sufficient funds available to complement your consistent yearly earnings from sources like annuities, pensions, Social Security, rentals, and other routine incomes. This reserve should be kept in a secure, easily accessible account, such as an interest-yielding savings account or a money market fund.
Between the 1960s and today, the typical duration for an average diversified stock index to recover from peak to trough levels during bear markets has been approximately 3 ½ years, as noted by Charles Schwab. He suggests maintaining enough funds covering two to four years’ worth of living costs in readily accessible assets such as short-term bonds, certificates of deposit, or similar low-risk investments. This strategy ensures liquidity so that one does not need to sell off equities at disadvantageous times should financial needs arise amid market declines. Of course, this advice applies primarily to individuals who possess sufficient means.
For couples within your age range, Charles Schwab recommends a “moderate” risk portfolio consisting of 60% stocks, 35% bonds, and 5% cash or cash equivalents. As you enter the ages between 70-79, transition to a “moderately conservative” allocation with 40% stocks, 50% bonds, and 10% cash or cash equivalents. For those aged 80 and older, adopt a “conservative” strategy featuring 20% stocks, 50% bonds, and 30% cash or cash equivalents.
This $180,000 ought to assist in cutting your expenses and enhancing your sense of security.
In April, which is observed as National Financial Literacy Month, we will be launching a collection of “Financial Fitness” pieces aimed at assisting our audience in enhancing their financial well-being. These articles will provide guidance on saving, investing, and spending money prudently.
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