What to do when you receive an inheritance

What to do when you receive an inheritance


Suddenly finding yourself with a large chunk of money at your disposal sounds like a dream come true for many people, but receiving an inheritance without a plan for what to do with the funds can cause quite the pickle for young people. Many times, inheritances are viewed as a short-term financial gain that can be spent on frivolous items—never meant to last in the long-term.

But if we’ve learned anything in our time in the financial industry, it’s that what lasts one week for some can last years for another. When handled properly, inheritances can have a big impact on your future finances and can become part of a successful long-term retirement strategy. You just have to have a plan in place.

Tips for making an inheritance last long-term

If you want to make sure your new fortune lasts as long as you do, or even longer, you’ll want to have a plan in place before you even accept the funds. Following these tips may make the difference between a lifetime of financial independence and another story of an heir foolishly blowing through an inheritance.

· Take your time

Receiving a lump sum of cash may feel like it warrants immediate action but, practically speaking, the opposite is true. Instead of thinking rashly and looking for ways to spend your newfound money, deposit it into a cash bank account and really think through next steps.

· Reconcile your emotions

The circumstances surrounding the inheritance may be emotionally charged, inviting the possibility of making impulsive decisions. Instead, acknowledge that your feelings may encourage impulsive actions and choose to wait it out. Days, weeks, months—however long it takes to restore rational thought and provide objectivity about your financial decisions.

· Pay down debt with higher interest rates first

Depending on the inheritance amount, it may be tempting to pay off big-ticket items first, like a house or vehicle. However, smaller account balances with higher interest rates—think credit cards—may actually be a better option. Interest paid on this debt quickly eats into money that could otherwise be saved or applied toward some other budget item.

· Improve your retirement position

Should money remain after making selective payoffs, determine if putting the balance toward the future results in a better retirement situation. If so, seriously consider doing it—especially while you’re young. Investing early in life provides extra time for compounding, the snowballing effect that occurs when interest on an investment begins earning interest itself. Compounding is powerful and can lead to significant changes in retirement account balances in the long-term.

· Seek personalized advice from a financial professional

There is absolutely no shame in asking for help—and in many cases, seeking financial assistance just makes sense. Financial advisors are trained and are uniquely qualified to evaluate individual circumstances, offer personalized advice, and structure financial plans that provide the best opportunity for a financially secure future. And if you’re already investing before receiving the inheritance, financial advisors will be able to guide your investment strategy to help you reach your goals.

Receiving an inheritance can free up some money in your budget and force you to make some decisions about your future—like making larger contributions to your retirement plan or adjusting your investment strategy to be more aggressive with your new supplemental income available to fall back on. There are a number of choices you’ll need to make related to an inheritance and its implications for your retirement. The first one—the best one—you should make is to get some objective financial advice. Contact us online or give us a call at 800.236.7400, option 1.


Nicholas Crary, CPFA - Financial Services Representative - nccrary@pai.com - 800.236.7400 Ext. 3381

Nick is a subject matter expert on 401(k), retirement savings, participant advice, small business 401(k), investments, education on options.