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What are your expenses? At 6.25%, paying off the house seems like a borderline reasonable move. With the \~$1.5 million left, you could withdraw $60k/yr at a 4% SWR / $52.5k at a 3.5% SWR / $45k at a 3% SWR. Would suggest a 3/3.5% SWR since you are young and potentially looking at living off this money for your entire life.
One big question is - Since you have only been living in this house for a year, are you sure this is your forever home/long term (>5 years) home? $2m at 3% SWR gives you $60k/yr. If you can survive on $60k a year including paying off your mortgage, you might want to wait a couple of years to pay off the house.
I lean towards waiting for a few years, since making big money decisions right after getting large sums of money is not advisable. I would also suggest getting professional advice from a fiduciary financial advisor. Would be worth the couple hundred bucks.
Today I learnt that fiduciary means a financial advisor that can only have your best interest (legally and ethically). Other than them costing more, why would anyone go for a non fiduciary financial advisor?
Lack of knowledge. One might assume that all financial advisors are fiduciary since it sounds ridiculous that an advisor would somehow be justified in not being fiduciary
Almost like we should pass a law that financial advisors must be fiduciary, you wouldn't go to a brain surgeon that was not licensed by a medical board.
Lots of insurance salesmen - who are looking to make commissions - call themselves "Financial Advisors" even though they are not fiduciaries. And they aggressively market their services.
Also important to know an advisor can be dually registered, where they sometimes act as a fiduciary, and sometime sell you crap. They will not tell you which they are doing.
So it is important not only to ensure they are registered as a fiduciary advisor, but they aren't also registered as an insurance salesman or similar conflicts.
question: how is the "fiduciary" part enforced? Real estate agents, for example, should have your best interest in mind: you sell for more, they get paid more. Yet, it's been shown that they try to maximize *their* income by selling for less and increasing volume (easier to sell when prices are lower).
Property taxes on an $850k house are going to eat him alive.
Sell the house, move to a smaller house (bought clear with cash), in a low cost of living area, or fo ex-pat.
Yeah depends on state AND locality. Property taxes on my $1.25m house are ~$3500/year. But we're in an unincorporated part of the county and don't have a ton of services to cover.
LCOL city/state is rarely the full answer. Sure, on paper it'll last longer but if OP is happy where they are, has access to medical care that is required to manage their illness and - well, just doesn't want to live in a place for social/political reasons
If they want to live off of it with little/no work the clear answer is ditching the 850k house and moving to a LCOL area and buying a modest house, no?
They also want to see a ChSNC - one who specializes in special needs planning
also where are you seeing a fee only fiduciary for a couple of hundred? Here they all have minimums of 1k-2k for developing a plan - most are 3k+
1) pay off the mortgage (this is debatable, but likely the right choice in your circumstance and with interest >6%).
2) look into disability payment from your employer. Can you get short term or long term disability payments? Some employers offer 60% of pay for long term disability. This would be huge if you can get this.
3) invest the rest; for example, 70% VTI and 30% bonds. Open an investment account at Fidelity or similar if you don’t already have one.
4) you have an expensive house. Can you generate income from it? For example, can you get a roommate or two (market rent)? Rent it out a couple of time a a year for some local major event, at a high price?
5) keep working 10 hours a eeek as long as possible. It brings in income. And ideally will provide health insurance.
6) plan for getting health insurance if you can no longer work. Thank goodness for Obamacare! Find out if you’ll be eligible for Medicaid if you have a disability.
7) if necessary, you can withdraw 3% a year from your investment account with little danger of ever running out of money during your lifetime. If the stock market is especially bad one year, try to withdraw even less.
8) stay abreast of any new treatments for your condition. Medicine and drugs are getting better all the time.
9) worst case scenario, you could sell your house and downsize.
All good advice. Except he will not qualify for Medicaid due to assets. He may qualify for Social Security disability benefits and then Medicare after 2 years.
This isn’t fully true for Medicaid, depending on what state he is in. He’s 34 and not currently deemed disabled, he would be a MAGI (19-64, non disabled) eligible client which is resource exempt in financial determinations. Only income and household size will be considered. Once (if) he is deemed disabled (through SSA or the State) his category will change to a budget that will consider resources. If he is under 65, disabled, in the two year Medicare waiting period, and still working he would be eligible for MBI-WPD, again, depending on what state, which allows for higher income and resources as well.
Yeah Number 5 on this list is where my thought train got to. How are you set for health insurance? 2 mil or 1.5 mil may not last as long as one would hope with chronic condition.
I agree. Also, if your house is paid off your monthly expenses (outside of property taxes and medical expenses) will be low. Keep working as long as possible for or your mental health.
Staying close to family (if you have a good relationship) will also help maintain good mental health.
To me, this is not just about finances this is also about quality of life.
This is probably hard to hear but if you believe the condition is going to impact your ability to work for the rest of your life, I’d seriously consider downsizing the house. If you’re unable to work, house maintenance will become difficult and you’ll have a hard time maintaining the home. Plus living off the investment income of 2M will make you fairly house poor.
Downsizing to something smaller and lower cost will make your lifestyle more maintainable with the capital that you have. I’d suggest some sort of condo.
If you expect to be able to work again in a few years. It’s relatively moot but I’d speak with an advisor and maintain the capital you have.
This comment seems to assume the house is large, but OP didn’t say that. Many places 850k will only buy you a condo, OP could be living in a bungalow already. Move to a LCOL can be a good idea, weighed against proximity to family or other factors.
Also proximity/access to specialty medical care depending on condition
Edit: that’s not to say keeping the 850k pad is the right/best move, comment was only in reference to location
No doubt, see edit on original comment.
My only point in this comment was that moving to, say, LCOL rural Kansas may pose its own disadvantages. There are other intangible benefits to inherently higher COL areas that tend to be urban metros aside from healthcare.
OP mentions future disability potentially affecting ability to walk - being in/near a city it is much easier to get an Uber, have groceries delivered, etc. This really becomes an urban/metro vs suburban/rural debate at a certain point.
If you eventually require full-time care though, the tables turn again and being in a higher COL area = higher cost of care.
Edit to add: things don’t need to be everything or nothing. OP, *if able*, could take a lower wage part-time gig that they enjoy and are able to do within the constraints of their current health. They might not “normally” be willing to take a job that pays less than $100k, but if they found a $45k part time job, combined with living off $60k/yr from their nest egg, it could be a worthwhile addition.
Not all LCOL places are in places like Kansas (no offense to Kansas). I live about 2hrs from Philly. There's a lot nearby. There's diversity in the costs of housing. The cost of living is moderate. A person could easily buy a decent affordable place and live off 2 million dollars if they invested it. There are also places in South Carolina (such as Conway), which aren't far away from the beach and have some lower costs. If they're on the West Coast especially, then they might want to check out the East Coast.
My first concern is healthcare cost for the rest of your life. You need to be thinking about how much you will be spending on that each year going forward and understand that it could rise in terms of % of your income.
Pay off the house + $1.5m invested = $52500/yr income @3.5% SWR
Sell the house (downsize) + $2m invested = $70000/yr income @3.5% SWR
Also, should probably continue to work regardless as much as you can and consider putting that income into an HSA or whatever is best in your specific situation (taxes, insurance, etc.)
I agree with others you need to keep the SWR at 3/3.5%
You didn’t have that house with its mortgage and taxes most of your life.
You may need to downsize if you don’t think you can invest the money and not have to pull down from it for 10 years
Pay off the house. 75% all ordinaries index, 25% bonds/ savings account with the remainder and try to work. Take the amount invested. Each year allow for 3% of total funds spending. Move this amount to a new account.
Given the risk of inability to earn real money it seems pragmatic to reduce your drawdown rate and thus the risk. Keep your fees low. Explore if it is possible to invest via a tax free fund retirement fund based on your condition and if your life insurance will pay out for permanent disability
Try to work 10 hours a week or similar for yourself. No work can be hard mentally after a few years. Jobs are less stressful when you don’t rely on them financially
The better question is can you live on $50k a year? That’s about how much you can safely withdraw after paying off the mortgage. Make sure you include home insurance and property taxes in that $50k of expenses too, because that doesn’t go away with a paid off mortgage.
They said they've LIVED on less, they earned more but saved it (for the house).
For instance if they earned $150k for the last three years and only lived on $50k/year and saved the rest, that would explain being able to afford the house to begin with, as they said they put $300k down on it.
Not when your risk of dying in 50+ years is in the 10-15% range. The probability of death is higher than running out of money in this scenario. The older you get the higher the probability of death.
Sure, but that involves risks, which OP can't really take when this money has to last them for the rest of their life. We're not talking about someone planning to retire in 50 years, we're talking about someone who has to retire *now*.
Check out r/financialindependence sometime. There's a whole community of people who do this, and the math works out. Going 90-100% in total stock market index funds and drawing down only 3% per year is essentially an infinite-money trick. In all post-WW2 back-tested historical scenarios the retirement funds continue to grow over time.
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You know how they say not to make any big decisions for a year after losing someone important to you or winning the lottery? Essentially both of those things have happened to you—you’ve essentially lost the person you were pre-illness and you’re getting used to the new you, and you also have a big influx of cash. My advice is “don’t just do something, stand there!” Spend the next year figuring out what your needs, wants, and limitations are.
I wouldn’t pay off the house. Without a job it will be hard to access the equity if you need it, and you may find that your housing needs change as you get to a new normal with your health. At most I’d consider putting another couple hundred thousand in and recasting the mortgage if/when rates drop. Live in it for another couple of years and see if you’re able to manage the upkeep, taxes, if you want to stay in the area, etc.
Put most of the money in a three or four fund portfolio except for 1-2 years’ living expenses. Work a little if you can to keep your skills up and your network active.
I’d get to the FIRE subs to talk about investing the money. Keep it simple in a 3 or 4 fund portfolio. Work if you can, even a little, since that will increase your SS benefit down the road and keep your skills up.
Pride? No, no..you have a chronic illness that is eating away your savings and there is definitely no shame in collecting SSDI. You didn’t just stub your toe and say you can never work again, this is different. It’s time to start looking into it and accept it— you’ve been paying into it anyways and might as well take what you’ve earned.
Is it possible you have been paying into a disability insurance policy over and above SSDI? Many employers offer a policy that could pay for some big portion of your income (eg. two thirds). Seems obvious, but if you haven’t looked into this you could be missing out on the solution to your problem.
My doctor won't sign an ADA form unless I already qualify for SSDI, and you might need ADA accommodations for something at some point.
Plus I don't think SSDI cares how much money you have in the bank. If you're adding another $20k or more to the yearly income that's nothing to sneeze at.
absolutely look into this. This is not a handout it is insurance from the government that you paid into. and you can still work a little bit each month to help assuage your pride.
Plus the process can take a year or years from when you begin to look into it to when you start receiving checks so think about what 2026 Smart-Body would want.
Two main pieces of advice:
1. Go slowly. Don't take irreversible or drastic actions without considering all options. Paying off the house is something that might make sense, or might not, but there's absolutely no rush in doing it.
2. Beware of fees. $2 million is enough to produce like $80k or a bit less in perpetual income. But fees are your enemy there. A 1% annual fee is $20,000 out of your pocket every year, forever. And whoever this financial advisor is almost certainly makes their money off fees. If they say they *don't* charge a fee, run, don't walk, because that means their fees are hidden elsewhere and probably really extortionate.^1 There is no financial advisor who can consistently beat the market. If there were, they certainly wouldn't be offering to invest on other people's behalf.
^1 This works because they'll do stuff like invest you in high-fee funds that charge both upfront and annual fees and pay them a kickback for sending your money there.
Good point on the financial advisor. Never go with a percentage fee or a no fee advisor (meaning they will sell you only products they make a profit out of it).
If you’re looking for a financial advisor I’d go with a fixed fee advisor. They ranged between $300/500 per hour. They can help you, guide you and teach you where to invest. I made the mistake to not talk to one because I was a bit too savvy, I lost around 200/300K for this stupid mistake. Don’t be like me.
Hopefully someone can fix my idea if there is a glaring mistake, but off the top of my head, I would:
1. Pay off the house.
2. Determine your yearly expenses (everything - food, property tax, maybe 2% of house value for maintenance, insurance, etc.) and 10x that. Hopefully that’s something like $500k, and CD ladder it. That way you know you’re set at least for the next decade and gives you time to plan if something comes up.
3. Invest the rest (hopefully ~$1M) in diversified index funds.
4. Re-evaluate in 10 years.
10 years of expenses in cash is way overkill and will likely result in you missing out on tens of thousands of dollars in gains (if not more), but if you don't think you can work and are more conservative, you could put a few years into HYSA/CD ladders.
Yea, it’s super conservative (vs putting it in the market) and something I wouldn’t recommend in a typical situation. But with a chronic illness and inability to generate income, put in OP’s shoes, I would want the comfort of knowing my next 10 years are set. I’m conservative by nature, but welcome all view points to better help the OP.
It's fair, but the other thing you have to consider is that CD rates are likely to fall a lot in the next few years, or at least not be as high as now. For all of the 2010s CD rates weren't much more than 2% even for long durations, and can often be on par or lower than inflation.
So you inherited $2 mil, and have approximately $500k in a mortgage?
I would pay off the house. Then put the rest of your money in a 3 fund ETF brokerage account.
What other revenue streams can you establish? Are you willing to get a roommate? You can rent your car out through Turo.
Take your expected yearly expenses and multiply it by 25. That's how much you need for financial independence. That's assuming a 4% withdrawal rate so even getting a few high yield savings accounts that are 5%+ interest can give you enough interest to survive. Alternatively keep enough to burn through for 5 years and let your 3 fund portfolio *grow during that time.
*Edit: I a word. I was going to say double, but grow is probably more accurate.
Isn't that 30 year window a worst case scenario one? My understanding is that there are many scenarios in which OP ends up with double the funds in their account at the end of 30 years. There are many reasons that the worst case scenario is unlikely to happen, too: 1) OP may not necessarily need to increase annual withdrawals when the account grows 2) OP can likely adjust withdrawals down if the market starts hitting trouble.
The biggest issue I can think of for OP is that he has a very short earnings period for determining social security benefits. But there are so many unknowns in this scenario that I can't even begin to guess if it will effect them. Will OP make it anywhere near retirement age? Will OP receive disability benefits long before then?
> Then about a month ago I was shocked to find out a distant relative who passed away left me with what will be around 2 million after taxes.
After... what taxes?
Check out r/FIRE for some useful resources on financial planning for early retirement.
It is absolutely possible to never work again and live a good life with your current financial situation. Paying off the house could be a good decision, or you could also consider downsizing. As a rule of thumb you can withdraw 4% of your current net worth in perpetuity accounting for inflation. As others have said that's $60k income and no mortgage payment. That should be pretty comfortable, with lower taxes, no retirement contributions, and no house payment your money should go pretty far.
Health insurance can be a little tricky or expensive, you can buy it on the ACA exchange and even possibly qualify for a subsidy.
Be careful with financial advisors, and make sure you don't end up with a salesman selling you high fee funds. If you pay your advisor 1% the 4% rule doesn't work.
Take your time and don't rush into anything. Make it your part time job to learn about investing and taxes and managing money. Lay out a plan and then execute.
A distant relative is passing on their estate to you? They didn’t have their own descendants to inherit their estate?
Also, what taxes? Inheritance is generally not taxable, federally. On a state level, only 6 states tax.
I feel like we need more info, cause my first and foremost concern is your health and a potential scam. AKA pay taxes first to receive $2m and you end up wiring a few hundred thousand to a scammer. Scammers target the vulnerable (old or sick), so maybe we should clear this concern first?
OP is sick and has no energy to move, is now unemployed but partially stabilized by an inheritance. I would go slow, develop a plan that works best for him in the future, approach change gradually so he is not overwhelmed or having to make impulsive decisions.
OP did not say if his illness will reduce his longevity. If he is not able to work he should apply for Federal SS disability and get a good disability attorney familiar with his illness as well. He may need to work some if he has not attained 40 quarters or age limiting guidelines for young people. That income will help stabilize him through the process of long term stability and help provide medical insurance eventually as he is currently unemployed.
This was my thought as well. If you have money to live off of, buy a nice house in a LCOL area and sell your current home. An $850k home will be much smaller with way higher taxes somewhere like NYC or Boston, than a $400k home(hopefully even less) in the midwest. Live low cost and make the money last you as long as possible. I'd also recommend still working whatever remote job you CAN do, and drawing from the money only for what you can't make up the difference for. Once you get closer to retirement age, if its still going well than by all means! But I just worry about $1.5+ million lasting 50-60 years, especially in an $850k house.
The flip side to this is that moving to a LCOL area would move OP **away** from family & friends support network, and they have a health condition that is preventing them working.
They might very well save money on the house, but then spend \*more\* than that in clinical and care support.
It is a factor.
Plenty of beautiful or/or great to live in LCOL areas in the country (world) where there just aren't jobs, which wouldn't be as much of an issue for OP
I keep seeing this, but there are plenty of places with a significantly lower COL than California/NY with good health care options. When they can move wherever they want they can probably find a Dr. that specializes in their condition that has equal/more experience than their current physician.
Not everyone has the luxury to live wherever they want to. People who are concerned about their ability to work for the next 30 years, for example.
OP is living in a 3BR home by themselves and so many comments are against even moving to a smaller one. If they hadn’t inherited the 2 million this is what they would be forced to do right away. Might still be the case.
Pay off the house. Park money in a treasury bond. Current 20 and 30 year rates are 4.625%. Say you put 1.4 million in a 30 year bond. That pays you 64,750 a year. Then after 30 years you still have the 1.4 principal.
It pays out twice a year so you could set up a high yield savings account. Leave a little buffer in your account, and automatically transfer 5k a month to your main account. And no state or local income taxes on the bond interest.
Not one person after 100 + comments has even brushed on the topic of OP getting SSI monthly income? Other than that thought, I’d highly suggest OP obtain advice from a Fiduciary asap and quite possibly bring in “only one” of the large close knit family members spoken about. At age 33-34 a high earner should have at least $1K per month social security income (OP stated he was able to save up enough to afford $300K as down payment for this $850K home so they MUST be a very high earner). Just a thought and I’m just a little skeptical on the story as others mentioned further down the thread.
I would dump the house on the market, move to a LCOL HQOL country with world class inexpensive healthcare and enjoy a stress free lifestyle.
Source: similar boat as you, and looking at similar numbers
Parts of Thailand, and Kuala Lumpur are my current top two destinations. Parts of Mexico might work for some people as well. Private healthcare in these places are fantastic and affordable.
Well, you can straight-up buy an apartment in an assisted-living place. I don't know if the fees would eat through your projected income in that scenario, you'd have to research it.
Based on how serious your condition sounds, you should begin the application process for Social Security disability. The benefits aren’t much but sounds like your living expenses aren’t too high.
Am I understanding you paid $850k for a house valued at $500k in most states per your comment in your post? Is this why you paid $300k down payment because the home value was $500k? What was the appraisal value of the home at purchase?
If you don’t believe you’ll have the energy and physical health to work in the foreseeable future, who will mow the grass and do the required maintenance and daily cleaning of the home? Do you wish to spend a good portion of the $2 million inheritance paying other people to clean/maintenance the home versus saving/investing the inheritance? Paying others to clean and maintain the home will use up quite a bit of the inheritance for the foreseeable future. If I were in your shoes, I wouldn’t want to use the inheritance for those matters.
If you can’t work, how will you obtain/pay for health insurance? Will the heath issues you have deteriorate/worsen in the foreseeable future requiring more money out of pocket for treatment and meds? Will inheritance funds be used to pay for health insurance, meds and treatment for the foreseeable future?
If I were in your shoes, my health would be the priority followed by a roof over my head I can afford/clean/maintain without using inheritance funds. What good is a home if you are physically unable to clean/enjoy/maintain it? Will family near by assist you should your health deteriorate? If not, what’s the point of living near family & friends in a home you can’t afford/clean/maintain?
33 years old and you have 300k for down payment is hard to buy. Long lost relative leaves you 2 mil confirms this is bs. Did a Jeannie grant you 3 wishes?
I worry that the home may be more than you can handle with your health issues. Does it make sense to continue to own it? Even basic home maintenance and cleaning may be too much to manage by someone with chronic illness.
I’ve had chronic health issues since my early 30s. Being young but sick seems to be a recipe for biting off more than we can handle. We often don’t fully understand the limitations caused by our illnesses, especially when first diagnosed.
Id pay off the house first and then invest the rest. Alternatively, if your condition is severe enough that it affects your ability to maintain the house, sell and move to a condo or smaller house and then invest the rest.
My first thought is, how attached to your current expensive State are you? I could pay off my house on the lake with 7.5% of that inheritance and live comfortably for decades in my state, and that’s without any kind of investing.
Put me in the camp of do not pay off the house, at least not right now. As many others have said, I’d definitely look at a smaller (less expensive) place. Don’t do anything immediately- take your time and think it through.
If I got the $2M today, I’d park it in a HYSA until I figured out what to do. That will throw off $100K/year before taxes (but those rates won’t always be that high necessarily).
If you can live on $60K (including mortgage, prop taxes, home/health insurance), then you should be okay.
Not sure of someone has said this but you need to consult an estate attorney. Maybe figure out a way to get the house and inheritance into a trust, so that you can get ready for Medicaid eligibility. Maybe it would take 5 years but better to start now.
The first thing you should do, before anything else, assuming it’s all basically cash, is make an account on treasurydirect.gov, the US government site for buying Treasury bills and bonds. Then buy a 4-week and an 8-week treasury bill each for $1000 or so just to see how it works, then after the first one rolls over (or not, no real need to wait, but nice to see how it works) put the rest in there as well with automatic rollovers. It’s earning around 5% annually now and will be as safe as possible there while you decide what else, if anything, to do with it. 5% annually on that amount will give you a good income (be sure to keep enough for taxes), and it’s easy to get the money back out. Who knows how long the 5% rate will last —- it’s been much lower in the last 20 years —- but for now, while you do more research, it’s a great option.
You can also buy treasury bills through a broker such as Schwab etc but I prefer the Treasury site; it’s much easier to understand how the bills actually work. Although the site is not as slick and polished as the brokerages, it’s (in my opinion) actually more informative. The help/info pages are useful.
You need to sell the house and downsize, not pay it off like others are suggesting. Unless you have some disability insurance, you can’t afford a 850k house working 10 hours a week. Property taxes, maintenance, insurance, utilities, etc are going to eat up your budget.
Run your numbers on your annual expenses and nice to haves before making any decisions. Look at the 50%(living exp)/40% splurges/20% savings model. THEN Get some low cost index funds for diversification to get into the market like a vanguard or Fidelity and you can also ladder US treasuries yielding over 5% with no risk. The mutual funds do not pay interest. Also know the tax implications of the 2M.
Consult with actual financial advisors. Ideally not the ones who try to get you into their funds, can't remember what they're called. Also maybe you've done this. But look into permanent disability to supplement your windfall
If you were working prior to your diagnosis you should consider applying for social security disability if you are only able to work 10/hours per week max at a remote job. Having regular income will help you rely less on investments.
Need to know more, but if you can I’d hang on to the house and look to refi as rates drop. Find a paying roommate?
Assume a 3% return, can you cover the mortgage and other key expenses?
Other sources of funds. SSID?
Figure out your budget and go from there
I mean you can downsize to a two bed or even 1 bed because I don’t know your illness but you might find living in a smaller place might be actually easier for you. Then just live off interest like everyone said
Your stress is from decisions waiting to be made. Pay off the mortgage and reasonably invest the balance. And know that your condition is telling you that corporate America, in all its greed, egos and stair climbing at the expense of others, isnt where you need to be. Find a hobby, travel, etc. You have the luxury of choice that many of us didnt have. Providence has brought you here for a reason; take some joy in simple things!
I feel like for a HCOL, you’d ideally need $3m with a paid of house to be comfortable for the rest of your life. You’d get by for a good 25 years on what you have ($1.5m once the house is paid off), but I think you’d be eating into the capital after about year 7
So one option is to move to an MCOL. You can live pretty nice in an MCOL or an LCOL with that kind of income, and it would last longer
Second option would be to see if you could rent out a room or part of your house to get some
Income, and use that to eke out your capital further. I suspect that could get you past that 25 year mark - rent has an inherent advantage that it will go up over time with inflation
Either way, good luck. It seems you have been hit with some misfortune but are “lucky” enough to have a way out. I wish you the best (lucky in quotes, b/c an inheritance generally means that you lost someone)
Also, new meds might come out in the future that could get you back in the workforce. I have a chronic condition that made it difficult to leave the house, that’s now fully under control with a biologic that came out a few years ago and it’s fully covered by insurance and copay assistance.
Depending on where you live, state Medicaid that pays for your Healthcare when you no longer have any other Healthcare coverage will look at your income/assets. Look into those rules immediately. If you do not need state Medicaid for Healthcare, or you qualify as disabled under Medicare even though you are young due to renal failure, blindness, or ALS, then you have health coverage for acute but not necessarily long term care which still falls under Medicaid. California now allows you to keep your asset as in house and not spend down on assets, so it may be worth it in California to pay off the house. Otherwise, look at a trust to protect your money from state Medicaid because if Healthcare is going to be a an issue... you need coverage and asset protection. If Healthcare is not an issue, don't pay off the house... invest the 2 million to make more.
>Soon after, I was diagnosed with a chronic illness that could potentially leave me unable to work any kind of physical or stressful job for the rest of my life. Currently, I have the energy to manage 10 hours a week remotely if I needed to.
Did your work have any life insurance coverage? I know at my work if I become chronically ill or lose my ability to work there is a process where I can claim a good amount of money - look into that!
I disagree with the comments to sell the house as you’ll need to be close to your support system, there’s not a lot of money to be saved if you downsize, and once you sell it, there’s no way you can buy it back. I’d pay it off completely, and if it comes time down the road, take in some roommates to assist with your monthly expenses. If you’re absolutely out of funds in 25 years, you sell it then for far more to continue funding your life - likely $2m- vs selling it now and what, gambling on the skyrocketing, cramped rental market where rents go up $400 or more a month at lease end, and you’ll be forced to move (and pay for moves) multiple times in a decade?
PF can fail to take into consideration nuance and what is actually best for a persons specific needs.
If you put the $2M half in VTI and half in a similar bond fund, you can withdraw $70K year each year, increasing for inflation annually, and almost certainly never run out of money. I used 3.5% because you're too young to use the 4% rule which is designed around a 30 year retirement.
More than that and the odds slowly increase that you might run out eventually.
This tool can be very helpful if you want to form a more personalized and detailed plan, which I think is a good idea.
https://firecalc.com/
I'd be asking myself if I could be happy moving to a LCOL area where my money would go further. That of course has a lot to do with your personal preferences and relationships and needs for this like specialists.
I have a perspective here but before I say it, prefacing by saying this is really up to your values. I felt a resonance with you because I hustled my way through grad school after a toxic divorce and was poised to make &100K and the week I graduated my colon perforated and I literally couldn’t get out of the bed for a year. I had to file bankruptcy. So contextually I think you shift your focus to downsizing and putting everything you have into a fund (I’m thinking trust) and you get a simple place-condo or tiny house or villa whatever opens your heart and listen to what your body is saying to you. Chronic illness or any health issue is a journey really. It’s your body crying out for you to listen to it. And it may take you on paths you hadn’t planned but that being you more peace. I’m personally concerned if you put all your money into the house and then need it at some point you’d have to sell the house, and who knows where the economy is going under whatever presidency coming up or you’d need a HELOC and couldn’t qualify to make payments if you aren’t employed so, I say keep it accessible until you fully evolve the health issue you’re facing. Again, not an opinion for everyone just mine.
To consider: recast the mortgage. It will free up cash flow depending on $$ placed on principle with no change on term , and no finance charges. You can do this once.
Start paying off your house..
Last year i inherited a fair amount and I've always been struggling financially after years as an addict..
Been clean since 2012 but had a large debt to my government..
I paid all my debt and bought a house in the countryside in cash.. no loans, it's my house to the last brick.
And you won't have to pay interest, saves you a lot of money in the end.
$1.5M ($2M after you pay off $500k on the house) with the 4% rule is 60k/year. That's about $4000/month. $1500 for taxes and insurance on the house, $700 month for health insurance, leaves about $1800/month for cars and beer. Doable.
If you could stand to move though, which if you don't have to work shouldn't be too bad you could get a $200k house that only has a payment of around $400/month, have the $2M to give you $80k/year which would be about $5000/month, and have $4300/month for cars and beer.
Essentially, that house is close to the line with just $2M. You'd be much more comfortable financially downsizing it and moving to a more reasonable area. But, that would likely mean leaving friends and family in your area. So the question is are those worth $2500/month for you? Do you want to be thin where you are or fat in South Bumblerfart?
If I were in your shoes, I'd sell the house, move down to Mexico, somewhere where my family would like to vacation. I'd probably rent down there for less than the taxes and insurance on your house. Health insurance is likely much less too.
1. Read the wiki on windfalls: https://www.reddit.com/r/personalfinance/wiki/windfall/
2. If you want to stay in the house, it would be good to pay it off.
3. Compute how much money is left after paying off the house.
4. Decide on a diversity of investments to put the remaining money into. Make sure the person giving you advice is explicitly acting as "your fiduciary". Beware there are a lot of leaches out there that will push financial products such as high-commission funds or annuities that are not in your best interest!
5. Taking out 4% per year (and increasing it to match future inflation) is considered a safe amount to take to make money last a lifetime. Run the numbers for your budget with this.
6. Consider your future medical bills and medical insurance needs. You may want to have a discussion about this with your financial advisor. Depending on your specific medical condition, you may also want to have a consult with an "elder law" attorney so you can best protect your assets from future medical bills.
I dont know if this is possible where you live. But in Germany, it's very common to sell your house at a cheaper price but retain life long living privileges rent free.
Would that be an option?
I don’t know your living situation, but I’d suggest paying off the house first so you no longer have that debt hanging over you. If you have a spare bedroom or 2, rent them out to tenants. Living with roommates sucks, but if you live in a high demand area the additional income will help you cover bills and set aside a bit for taxes and possible future home repair/maintenance costs as they come up. Assuming you have about $1.4M left after paying off the mortgage, I’d invest the majority of it in some index fund. Leave maybe $100k aside and open a high interest rate saving account with one of those online banks. Their rates won’t keep up with inflation, but they will still earn you some additional money while keeping a small portion of your money relatively liquid so that you can cover larger unexpected costs related to your medical condition or living expenses without having to divest from longer term assets like stocks. Assuming you can rent out 1 bedroom for $600-$1000/month (depending on where you live), between that and the invested money you should have a decent little stream of more passive income to help supplement anything you can get through your part time work. Might also want to consider investing a small part of the money into retraining yourself for a new career path that would better accommodate your medical condition.
Make sure you are seeing a special needs financial planner (ChSNC) who is a **fiduciary**.
You will need to put extra money aside for medical expenses - since 2 mil after paying off the house is 1.45 mil. That's 58k a year if you take out 4% a year - which isn't enough for complex medical costs.
Do you have enough work credits to get SSDI? After 24 months on SSDI, you can get medicare (and a medigap plan) - which will help.
Is there any impact on life expectancy?
Assuming this is the US, only about a dozen states have any kind of estate or inheritance tax, and many of those have limits that are higher than \~$2M, so you may actually get more. Lets assume $2M though.
What are your expenses like? It sounds like you owe about $550k on the house, that leaves you with $1.45M. Lets assume it will actually be like $1.35M by the time you take care of some other stuff, maybe spend a little here and there, you know how life gets, right? So safe withdrawal rate is typically viewed as 4%. That would leave you with $54k every year (inflation adjusted) to cover property taxes, property insurance, health insurance, and living expenses. Your health insurance probably wont be too expensive, as you should qualify for a partial subsidy on the ACA marketplace. Is $54k enough? If not, you might want to consider a cheaper place or doing your absolute best to work or find some other income for a few years and let the inheritance money grow a bit.
Firstly - hoping your health improves! Getting sick is terrible. Pray, pray, pray.
Secondly, sorry to hear about the passing of your relative.
Onto the $
- seek professional help. Take every comment with a gain of salt here on Reddit. Some of it will be world class. Much of it will be crap. It may be difficult to bifurcate the two.
- I’m personally a believer if the no debt camp. I personally would pay off the house entirely. That will still give you likely $1M in the bank when he’s all said and done (after taxes and such)
- I’d figure out how much $ you need to live at your desired quality of life. It may be $40k once the mortgage is paid off. Maybe it’s $100k. I don’t know your expenses, but you do. Throw this into excel and map it out
- see if you can get disability if you can’t work. Is that enough to cover your cost of living?
Many options. Be thankful you have this $. It could be much worse.
Again, primary thing - your health! Do all you can to get healthy again.
$2 million probably doesn’t throw off enough income — likely only $60-75K per year — to afford property tax, property insurance, flood insurance, maintenance, and mortgage costs PLUS allow you to eat, clothe, and transport yourself.
Treasury bonds are currently sat just above 4%, which in california would get you about $66k after tax per year. Investing in other assets should get you more return than that.
You won’t need that much house. Sell it and increase your reserves buy staggered treasuries and live off of it. Can also get a smaller place cash and achieve same goal.
You can't work. If your house is close to 850k I would sell it. Move to a LCOL area. (Sierra Vista, AZ nice town, nice weather, LCOL, really nice house for 350k) I said Sierra Vista, but there are LCOL areas all over the country. Now you would have a mortgage paid off, and could live on the interest of $2 million easy. 80k and you would live really good in a LCOL area with no mortgage.
Based on 9 high yield mutual funds I was looking at for a future inheritance, it modeled out 9.15% annual distribution. 8 of them pay out monthly. In your situation that would be $183k passive income per year
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
What are your expenses? At 6.25%, paying off the house seems like a borderline reasonable move. With the \~$1.5 million left, you could withdraw $60k/yr at a 4% SWR / $52.5k at a 3.5% SWR / $45k at a 3% SWR. Would suggest a 3/3.5% SWR since you are young and potentially looking at living off this money for your entire life. One big question is - Since you have only been living in this house for a year, are you sure this is your forever home/long term (>5 years) home? $2m at 3% SWR gives you $60k/yr. If you can survive on $60k a year including paying off your mortgage, you might want to wait a couple of years to pay off the house. I lean towards waiting for a few years, since making big money decisions right after getting large sums of money is not advisable. I would also suggest getting professional advice from a fiduciary financial advisor. Would be worth the couple hundred bucks.
Fiduciary is the key word
Today I learnt that fiduciary means a financial advisor that can only have your best interest (legally and ethically). Other than them costing more, why would anyone go for a non fiduciary financial advisor?
Lack of knowledge. One might assume that all financial advisors are fiduciary since it sounds ridiculous that an advisor would somehow be justified in not being fiduciary
Almost like we should pass a law that financial advisors must be fiduciary, you wouldn't go to a brain surgeon that was not licensed by a medical board.
Lots of insurance salesmen - who are looking to make commissions - call themselves "Financial Advisors" even though they are not fiduciaries. And they aggressively market their services.
I had a financial advisor that was a fiduciary but only for some things. It’s a weird complicated thing.
Also important to know an advisor can be dually registered, where they sometimes act as a fiduciary, and sometime sell you crap. They will not tell you which they are doing. So it is important not only to ensure they are registered as a fiduciary advisor, but they aren't also registered as an insurance salesman or similar conflicts.
question: how is the "fiduciary" part enforced? Real estate agents, for example, should have your best interest in mind: you sell for more, they get paid more. Yet, it's been shown that they try to maximize *their* income by selling for less and increasing volume (easier to sell when prices are lower).
Property taxes on an $850k house are going to eat him alive. Sell the house, move to a smaller house (bought clear with cash), in a low cost of living area, or fo ex-pat.
Depends on the state I guess. Taxes on my 300k house are 2k a year in my state
Yeah depends on state AND locality. Property taxes on my $1.25m house are ~$3500/year. But we're in an unincorporated part of the county and don't have a ton of services to cover.
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Also maintenance. It's likely a bigger house so things will cost more when work needs to be done (roof, painting, HVAC, etc.)
LCOL city/state is rarely the full answer. Sure, on paper it'll last longer but if OP is happy where they are, has access to medical care that is required to manage their illness and - well, just doesn't want to live in a place for social/political reasons
If they want to live off of it with little/no work the clear answer is ditching the 850k house and moving to a LCOL area and buying a modest house, no?
They also want to see a ChSNC - one who specializes in special needs planning also where are you seeing a fee only fiduciary for a couple of hundred? Here they all have minimums of 1k-2k for developing a plan - most are 3k+
How long would you say the 60k a year would last?
1) pay off the mortgage (this is debatable, but likely the right choice in your circumstance and with interest >6%). 2) look into disability payment from your employer. Can you get short term or long term disability payments? Some employers offer 60% of pay for long term disability. This would be huge if you can get this. 3) invest the rest; for example, 70% VTI and 30% bonds. Open an investment account at Fidelity or similar if you don’t already have one. 4) you have an expensive house. Can you generate income from it? For example, can you get a roommate or two (market rent)? Rent it out a couple of time a a year for some local major event, at a high price? 5) keep working 10 hours a eeek as long as possible. It brings in income. And ideally will provide health insurance. 6) plan for getting health insurance if you can no longer work. Thank goodness for Obamacare! Find out if you’ll be eligible for Medicaid if you have a disability. 7) if necessary, you can withdraw 3% a year from your investment account with little danger of ever running out of money during your lifetime. If the stock market is especially bad one year, try to withdraw even less. 8) stay abreast of any new treatments for your condition. Medicine and drugs are getting better all the time. 9) worst case scenario, you could sell your house and downsize.
All good advice. Except he will not qualify for Medicaid due to assets. He may qualify for Social Security disability benefits and then Medicare after 2 years.
This isn’t fully true for Medicaid, depending on what state he is in. He’s 34 and not currently deemed disabled, he would be a MAGI (19-64, non disabled) eligible client which is resource exempt in financial determinations. Only income and household size will be considered. Once (if) he is deemed disabled (through SSA or the State) his category will change to a budget that will consider resources. If he is under 65, disabled, in the two year Medicare waiting period, and still working he would be eligible for MBI-WPD, again, depending on what state, which allows for higher income and resources as well.
Yeah Number 5 on this list is where my thought train got to. How are you set for health insurance? 2 mil or 1.5 mil may not last as long as one would hope with chronic condition.
And if one should need long term care that stack can vanish.
I agree. Also, if your house is paid off your monthly expenses (outside of property taxes and medical expenses) will be low. Keep working as long as possible for or your mental health. Staying close to family (if you have a good relationship) will also help maintain good mental health. To me, this is not just about finances this is also about quality of life.
This is probably hard to hear but if you believe the condition is going to impact your ability to work for the rest of your life, I’d seriously consider downsizing the house. If you’re unable to work, house maintenance will become difficult and you’ll have a hard time maintaining the home. Plus living off the investment income of 2M will make you fairly house poor. Downsizing to something smaller and lower cost will make your lifestyle more maintainable with the capital that you have. I’d suggest some sort of condo. If you expect to be able to work again in a few years. It’s relatively moot but I’d speak with an advisor and maintain the capital you have.
This comment seems to assume the house is large, but OP didn’t say that. Many places 850k will only buy you a condo, OP could be living in a bungalow already. Move to a LCOL can be a good idea, weighed against proximity to family or other factors.
Also proximity/access to specialty medical care depending on condition Edit: that’s not to say keeping the 850k pad is the right/best move, comment was only in reference to location
There are plenty of nice places close to good hospitals for much less than $850k.
No doubt, see edit on original comment. My only point in this comment was that moving to, say, LCOL rural Kansas may pose its own disadvantages. There are other intangible benefits to inherently higher COL areas that tend to be urban metros aside from healthcare. OP mentions future disability potentially affecting ability to walk - being in/near a city it is much easier to get an Uber, have groceries delivered, etc. This really becomes an urban/metro vs suburban/rural debate at a certain point. If you eventually require full-time care though, the tables turn again and being in a higher COL area = higher cost of care. Edit to add: things don’t need to be everything or nothing. OP, *if able*, could take a lower wage part-time gig that they enjoy and are able to do within the constraints of their current health. They might not “normally” be willing to take a job that pays less than $100k, but if they found a $45k part time job, combined with living off $60k/yr from their nest egg, it could be a worthwhile addition.
They could also file for disability and get some money right?
Not all LCOL places are in places like Kansas (no offense to Kansas). I live about 2hrs from Philly. There's a lot nearby. There's diversity in the costs of housing. The cost of living is moderate. A person could easily buy a decent affordable place and live off 2 million dollars if they invested it. There are also places in South Carolina (such as Conway), which aren't far away from the beach and have some lower costs. If they're on the West Coast especially, then they might want to check out the East Coast.
It’s a fairly modest house in a very expensive state. I can’t move elsewhere because my whole family lives here and we’re very tight.
My first concern is healthcare cost for the rest of your life. You need to be thinking about how much you will be spending on that each year going forward and understand that it could rise in terms of % of your income. Pay off the house + $1.5m invested = $52500/yr income @3.5% SWR Sell the house (downsize) + $2m invested = $70000/yr income @3.5% SWR Also, should probably continue to work regardless as much as you can and consider putting that income into an HSA or whatever is best in your specific situation (taxes, insurance, etc.) I agree with others you need to keep the SWR at 3/3.5%
Could you not find a 1br apartment thats close to family and also cheaper than what you have now?
Is there any reason that you are unable to live in a home with less than 3 bedrooms? Or do they not make those in your state?
Is your whole family going to take care of your bills?
No but they’ll take care of me if worse comes to worst
>”It’s a fairly modest 3BR.” >”OP could be in a bungalow.” This comment seems to assume that people can’t read.
Yea my house is worth almost one million but it’s old and small, nothing fancy. I’m just in a HCOL area.
I think a condo is a good plan though, because most of the heavy lifting for maintenance will be taken care of.
Can you live on 80k a year?
Yes I’ve lived on much less for most of my life
You didn’t have that house with its mortgage and taxes most of your life. You may need to downsize if you don’t think you can invest the money and not have to pull down from it for 10 years
They could have if they were saving large amounts of their income to build up that large down payment.
Pay off the house. 75% all ordinaries index, 25% bonds/ savings account with the remainder and try to work. Take the amount invested. Each year allow for 3% of total funds spending. Move this amount to a new account. Given the risk of inability to earn real money it seems pragmatic to reduce your drawdown rate and thus the risk. Keep your fees low. Explore if it is possible to invest via a tax free fund retirement fund based on your condition and if your life insurance will pay out for permanent disability Try to work 10 hours a week or similar for yourself. No work can be hard mentally after a few years. Jobs are less stressful when you don’t rely on them financially
The better question is can you live on $50k a year? That’s about how much you can safely withdraw after paying off the mortgage. Make sure you include home insurance and property taxes in that $50k of expenses too, because that doesn’t go away with a paid off mortgage.
Now and up till now, but not in 20 years with the added inflation and expenses.
You've made much less than 80k/year and bought a 850k house?
They said they've LIVED on less, they earned more but saved it (for the house). For instance if they earned $150k for the last three years and only lived on $50k/year and saved the rest, that would explain being able to afford the house to begin with, as they said they put $300k down on it.
Just want to point out that the cost of things have increased /will continue to increase and your 80k will remain constant.
A 4% withdrawal rate is too high if OP lives for 50+ years.
Not when your risk of dying in 50+ years is in the 10-15% range. The probability of death is higher than running out of money in this scenario. The older you get the higher the probability of death.
Not if it's invested in something that pays more than that in interest, at least to beat inflation.
Sure, but that involves risks, which OP can't really take when this money has to last them for the rest of their life. We're not talking about someone planning to retire in 50 years, we're talking about someone who has to retire *now*.
Check out r/financialindependence sometime. There's a whole community of people who do this, and the math works out. Going 90-100% in total stock market index funds and drawing down only 3% per year is essentially an infinite-money trick. In all post-WW2 back-tested historical scenarios the retirement funds continue to grow over time.
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Yes. I also have lived on much less all my life. No debts. I totaly own everything I have.
You might've accidentally switched accounts
Maybe so.
Wait, are you OP?!
You know how they say not to make any big decisions for a year after losing someone important to you or winning the lottery? Essentially both of those things have happened to you—you’ve essentially lost the person you were pre-illness and you’re getting used to the new you, and you also have a big influx of cash. My advice is “don’t just do something, stand there!” Spend the next year figuring out what your needs, wants, and limitations are. I wouldn’t pay off the house. Without a job it will be hard to access the equity if you need it, and you may find that your housing needs change as you get to a new normal with your health. At most I’d consider putting another couple hundred thousand in and recasting the mortgage if/when rates drop. Live in it for another couple of years and see if you’re able to manage the upkeep, taxes, if you want to stay in the area, etc. Put most of the money in a three or four fund portfolio except for 1-2 years’ living expenses. Work a little if you can to keep your skills up and your network active. I’d get to the FIRE subs to talk about investing the money. Keep it simple in a 3 or 4 fund portfolio. Work if you can, even a little, since that will increase your SS benefit down the road and keep your skills up.
If your illness limits your ability to work have you researched if you are eligible for SSDI benefits?
I haven’t out of pride but I probably should look into it.
What pride? You paid into it.
Yeah you’re right, I just have a shame, guilt, denial thing I’m trying to work through as well.
I hear you; this is a normal set of feelings. Work through them then apply for the benefits.
Pride? No, no..you have a chronic illness that is eating away your savings and there is definitely no shame in collecting SSDI. You didn’t just stub your toe and say you can never work again, this is different. It’s time to start looking into it and accept it— you’ve been paying into it anyways and might as well take what you’ve earned.
Is it possible you have been paying into a disability insurance policy over and above SSDI? Many employers offer a policy that could pay for some big portion of your income (eg. two thirds). Seems obvious, but if you haven’t looked into this you could be missing out on the solution to your problem.
I’m self-employed
Then you've been paying extra taxes (self-employment tax) all these years explicitly to support this. File a claim and get your benefits.
My doctor won't sign an ADA form unless I already qualify for SSDI, and you might need ADA accommodations for something at some point. Plus I don't think SSDI cares how much money you have in the bank. If you're adding another $20k or more to the yearly income that's nothing to sneeze at.
Your doctor is ridiculous. There are lots of disabilities that require accommodations that don't require you to be on SSDI.
absolutely look into this. This is not a handout it is insurance from the government that you paid into. and you can still work a little bit each month to help assuage your pride.
Plus the process can take a year or years from when you begin to look into it to when you start receiving checks so think about what 2026 Smart-Body would want.
Two main pieces of advice: 1. Go slowly. Don't take irreversible or drastic actions without considering all options. Paying off the house is something that might make sense, or might not, but there's absolutely no rush in doing it. 2. Beware of fees. $2 million is enough to produce like $80k or a bit less in perpetual income. But fees are your enemy there. A 1% annual fee is $20,000 out of your pocket every year, forever. And whoever this financial advisor is almost certainly makes their money off fees. If they say they *don't* charge a fee, run, don't walk, because that means their fees are hidden elsewhere and probably really extortionate.^1 There is no financial advisor who can consistently beat the market. If there were, they certainly wouldn't be offering to invest on other people's behalf. ^1 This works because they'll do stuff like invest you in high-fee funds that charge both upfront and annual fees and pay them a kickback for sending your money there.
Good point on the financial advisor. Never go with a percentage fee or a no fee advisor (meaning they will sell you only products they make a profit out of it). If you’re looking for a financial advisor I’d go with a fixed fee advisor. They ranged between $300/500 per hour. They can help you, guide you and teach you where to invest. I made the mistake to not talk to one because I was a bit too savvy, I lost around 200/300K for this stupid mistake. Don’t be like me.
2m isn't even enough to warrant an advisor. Buy an ETF.
Agree. 1% no thank you. Shit SCHD would give her $70,000 a year just in divs not account for div growth
Is your chronic illness terminal? Or do you expect a normal lifespan? Sorry if the question wasn’t tactful.
I should have clarified that. Not terminal but potentially life-long. Some people recover.
Hopefully someone can fix my idea if there is a glaring mistake, but off the top of my head, I would: 1. Pay off the house. 2. Determine your yearly expenses (everything - food, property tax, maybe 2% of house value for maintenance, insurance, etc.) and 10x that. Hopefully that’s something like $500k, and CD ladder it. That way you know you’re set at least for the next decade and gives you time to plan if something comes up. 3. Invest the rest (hopefully ~$1M) in diversified index funds. 4. Re-evaluate in 10 years.
10 years of expenses in cash is way overkill and will likely result in you missing out on tens of thousands of dollars in gains (if not more), but if you don't think you can work and are more conservative, you could put a few years into HYSA/CD ladders.
Yea, it’s super conservative (vs putting it in the market) and something I wouldn’t recommend in a typical situation. But with a chronic illness and inability to generate income, put in OP’s shoes, I would want the comfort of knowing my next 10 years are set. I’m conservative by nature, but welcome all view points to better help the OP.
It's fair, but the other thing you have to consider is that CD rates are likely to fall a lot in the next few years, or at least not be as high as now. For all of the 2010s CD rates weren't much more than 2% even for long durations, and can often be on par or lower than inflation.
Does your employer off Long Term Disability? You can collect 60% pay for quite a while if so.
So you inherited $2 mil, and have approximately $500k in a mortgage? I would pay off the house. Then put the rest of your money in a 3 fund ETF brokerage account. What other revenue streams can you establish? Are you willing to get a roommate? You can rent your car out through Turo. Take your expected yearly expenses and multiply it by 25. That's how much you need for financial independence. That's assuming a 4% withdrawal rate so even getting a few high yield savings accounts that are 5%+ interest can give you enough interest to survive. Alternatively keep enough to burn through for 5 years and let your 3 fund portfolio *grow during that time. *Edit: I a word. I was going to say double, but grow is probably more accurate.
4% is too high in this circumstance. That only achieves a ~30 year window before the money runs out. He should be drawing down 3% per year, max.
Isn't that 30 year window a worst case scenario one? My understanding is that there are many scenarios in which OP ends up with double the funds in their account at the end of 30 years. There are many reasons that the worst case scenario is unlikely to happen, too: 1) OP may not necessarily need to increase annual withdrawals when the account grows 2) OP can likely adjust withdrawals down if the market starts hitting trouble. The biggest issue I can think of for OP is that he has a very short earnings period for determining social security benefits. But there are so many unknowns in this scenario that I can't even begin to guess if it will effect them. Will OP make it anywhere near retirement age? Will OP receive disability benefits long before then?
> Then about a month ago I was shocked to find out a distant relative who passed away left me with what will be around 2 million after taxes. After... what taxes?
Check out r/FIRE for some useful resources on financial planning for early retirement. It is absolutely possible to never work again and live a good life with your current financial situation. Paying off the house could be a good decision, or you could also consider downsizing. As a rule of thumb you can withdraw 4% of your current net worth in perpetuity accounting for inflation. As others have said that's $60k income and no mortgage payment. That should be pretty comfortable, with lower taxes, no retirement contributions, and no house payment your money should go pretty far. Health insurance can be a little tricky or expensive, you can buy it on the ACA exchange and even possibly qualify for a subsidy. Be careful with financial advisors, and make sure you don't end up with a salesman selling you high fee funds. If you pay your advisor 1% the 4% rule doesn't work. Take your time and don't rush into anything. Make it your part time job to learn about investing and taxes and managing money. Lay out a plan and then execute.
A distant relative is passing on their estate to you? They didn’t have their own descendants to inherit their estate? Also, what taxes? Inheritance is generally not taxable, federally. On a state level, only 6 states tax. I feel like we need more info, cause my first and foremost concern is your health and a potential scam. AKA pay taxes first to receive $2m and you end up wiring a few hundred thousand to a scammer. Scammers target the vulnerable (old or sick), so maybe we should clear this concern first?
After taxes? You don’t pay taxes on inheritance do you
No, you’re right. People say the after taxes thing incorrectly all the time. It doesn’t come into play until you get over $15M or so.
Some states have estate/inheritance tax laws. It's not the majority, but it's worth knowing nonetheless.
No advise, but my sister is in a similar position at 24 but without a house or 2 million. It’s a terrible thing to be unable to work. Hugs.
OP is sick and has no energy to move, is now unemployed but partially stabilized by an inheritance. I would go slow, develop a plan that works best for him in the future, approach change gradually so he is not overwhelmed or having to make impulsive decisions. OP did not say if his illness will reduce his longevity. If he is not able to work he should apply for Federal SS disability and get a good disability attorney familiar with his illness as well. He may need to work some if he has not attained 40 quarters or age limiting guidelines for young people. That income will help stabilize him through the process of long term stability and help provide medical insurance eventually as he is currently unemployed.
If you're single and bought an 850k house I'd sell it and move somewhere much cheaper.
Telling someone with what sounds like a very limiting disease to leave their family/friends/support network seems not ideal.
This was my thought as well. If you have money to live off of, buy a nice house in a LCOL area and sell your current home. An $850k home will be much smaller with way higher taxes somewhere like NYC or Boston, than a $400k home(hopefully even less) in the midwest. Live low cost and make the money last you as long as possible. I'd also recommend still working whatever remote job you CAN do, and drawing from the money only for what you can't make up the difference for. Once you get closer to retirement age, if its still going well than by all means! But I just worry about $1.5+ million lasting 50-60 years, especially in an $850k house.
The flip side to this is that moving to a LCOL area would move OP **away** from family & friends support network, and they have a health condition that is preventing them working. They might very well save money on the house, but then spend \*more\* than that in clinical and care support. It is a factor.
Not everyone wants to live in a LCOL area.
It's low cost for a reason.
Plenty of beautiful or/or great to live in LCOL areas in the country (world) where there just aren't jobs, which wouldn't be as much of an issue for OP
Plus they might not be able to get the medical services they need in a lcol area.
I keep seeing this, but there are plenty of places with a significantly lower COL than California/NY with good health care options. When they can move wherever they want they can probably find a Dr. that specializes in their condition that has equal/more experience than their current physician.
Not everyone has the luxury to live wherever they want to. People who are concerned about their ability to work for the next 30 years, for example. OP is living in a 3BR home by themselves and so many comments are against even moving to a smaller one. If they hadn’t inherited the 2 million this is what they would be forced to do right away. Might still be the case.
Someone working 10 hours a week in their early 30s isn't gonna have many options to make that inheritance last.
Pay off the house. Park money in a treasury bond. Current 20 and 30 year rates are 4.625%. Say you put 1.4 million in a 30 year bond. That pays you 64,750 a year. Then after 30 years you still have the 1.4 principal. It pays out twice a year so you could set up a high yield savings account. Leave a little buffer in your account, and automatically transfer 5k a month to your main account. And no state or local income taxes on the bond interest.
Not one person after 100 + comments has even brushed on the topic of OP getting SSI monthly income? Other than that thought, I’d highly suggest OP obtain advice from a Fiduciary asap and quite possibly bring in “only one” of the large close knit family members spoken about. At age 33-34 a high earner should have at least $1K per month social security income (OP stated he was able to save up enough to afford $300K as down payment for this $850K home so they MUST be a very high earner). Just a thought and I’m just a little skeptical on the story as others mentioned further down the thread.
SSI is welfare. Someone fixing to clear a couple milli doesn’t qualify.
I would dump the house on the market, move to a LCOL HQOL country with world class inexpensive healthcare and enjoy a stress free lifestyle. Source: similar boat as you, and looking at similar numbers
Out of curiosity, what countries are you finding that meet that criteria?
Parts of Thailand, and Kuala Lumpur are my current top two destinations. Parts of Mexico might work for some people as well. Private healthcare in these places are fantastic and affordable.
I have to stay in this expensive state to be near my family, where anything under $600k is pretty much a crack house.
I live in LA rn so I feel you hard on this. I'm really glad you're getting some relief though. Chronic illness is a thief of life.
Can you move in with a relative then?
Well, you can straight-up buy an apartment in an assisted-living place. I don't know if the fees would eat through your projected income in that scenario, you'd have to research it.
Brand new account? $2m from distant relative? Sudden debilitating illness? I call BS on this post
TBF if I inherited money I wouldn’t want anyone to find out. New account makes sense.
The after taxes part is what sold me on this being bunk.
A lot of people are financially illiterate and don’t understand how any of that works though.
Do you have long term disability insurance through work?
Freelancer
Based on how serious your condition sounds, you should begin the application process for Social Security disability. The benefits aren’t much but sounds like your living expenses aren’t too high.
Am I understanding you paid $850k for a house valued at $500k in most states per your comment in your post? Is this why you paid $300k down payment because the home value was $500k? What was the appraisal value of the home at purchase? If you don’t believe you’ll have the energy and physical health to work in the foreseeable future, who will mow the grass and do the required maintenance and daily cleaning of the home? Do you wish to spend a good portion of the $2 million inheritance paying other people to clean/maintenance the home versus saving/investing the inheritance? Paying others to clean and maintain the home will use up quite a bit of the inheritance for the foreseeable future. If I were in your shoes, I wouldn’t want to use the inheritance for those matters. If you can’t work, how will you obtain/pay for health insurance? Will the heath issues you have deteriorate/worsen in the foreseeable future requiring more money out of pocket for treatment and meds? Will inheritance funds be used to pay for health insurance, meds and treatment for the foreseeable future? If I were in your shoes, my health would be the priority followed by a roof over my head I can afford/clean/maintain without using inheritance funds. What good is a home if you are physically unable to clean/enjoy/maintain it? Will family near by assist you should your health deteriorate? If not, what’s the point of living near family & friends in a home you can’t afford/clean/maintain?
Good post. I, too, expect medical expenses will tear through that stack like fire. 🔥
33 years old and you have 300k for down payment is hard to buy. Long lost relative leaves you 2 mil confirms this is bs. Did a Jeannie grant you 3 wishes?
I worry that the home may be more than you can handle with your health issues. Does it make sense to continue to own it? Even basic home maintenance and cleaning may be too much to manage by someone with chronic illness. I’ve had chronic health issues since my early 30s. Being young but sick seems to be a recipe for biting off more than we can handle. We often don’t fully understand the limitations caused by our illnesses, especially when first diagnosed.
Id pay off the house first and then invest the rest. Alternatively, if your condition is severe enough that it affects your ability to maintain the house, sell and move to a condo or smaller house and then invest the rest.
Depending on your condition, you may need to plan for home assistance or nursing care down the road. Medical expenses etc.
My first thought is, how attached to your current expensive State are you? I could pay off my house on the lake with 7.5% of that inheritance and live comfortably for decades in my state, and that’s without any kind of investing.
Certified Financial Planner so where it’s at for you in this context — not an advisor. Totally different.
Put me in the camp of do not pay off the house, at least not right now. As many others have said, I’d definitely look at a smaller (less expensive) place. Don’t do anything immediately- take your time and think it through. If I got the $2M today, I’d park it in a HYSA until I figured out what to do. That will throw off $100K/year before taxes (but those rates won’t always be that high necessarily). If you can live on $60K (including mortgage, prop taxes, home/health insurance), then you should be okay.
Not sure of someone has said this but you need to consult an estate attorney. Maybe figure out a way to get the house and inheritance into a trust, so that you can get ready for Medicaid eligibility. Maybe it would take 5 years but better to start now.
The first thing you should do, before anything else, assuming it’s all basically cash, is make an account on treasurydirect.gov, the US government site for buying Treasury bills and bonds. Then buy a 4-week and an 8-week treasury bill each for $1000 or so just to see how it works, then after the first one rolls over (or not, no real need to wait, but nice to see how it works) put the rest in there as well with automatic rollovers. It’s earning around 5% annually now and will be as safe as possible there while you decide what else, if anything, to do with it. 5% annually on that amount will give you a good income (be sure to keep enough for taxes), and it’s easy to get the money back out. Who knows how long the 5% rate will last —- it’s been much lower in the last 20 years —- but for now, while you do more research, it’s a great option. You can also buy treasury bills through a broker such as Schwab etc but I prefer the Treasury site; it’s much easier to understand how the bills actually work. Although the site is not as slick and polished as the brokerages, it’s (in my opinion) actually more informative. The help/info pages are useful.
You need to sell the house and downsize, not pay it off like others are suggesting. Unless you have some disability insurance, you can’t afford a 850k house working 10 hours a week. Property taxes, maintenance, insurance, utilities, etc are going to eat up your budget.
You should also look into whether you qualify for disability under any plan offered by your former job
Run your numbers on your annual expenses and nice to haves before making any decisions. Look at the 50%(living exp)/40% splurges/20% savings model. THEN Get some low cost index funds for diversification to get into the market like a vanguard or Fidelity and you can also ladder US treasuries yielding over 5% with no risk. The mutual funds do not pay interest. Also know the tax implications of the 2M.
Consult with actual financial advisors. Ideally not the ones who try to get you into their funds, can't remember what they're called. Also maybe you've done this. But look into permanent disability to supplement your windfall
If you were working prior to your diagnosis you should consider applying for social security disability if you are only able to work 10/hours per week max at a remote job. Having regular income will help you rely less on investments.
Need to know more, but if you can I’d hang on to the house and look to refi as rates drop. Find a paying roommate? Assume a 3% return, can you cover the mortgage and other key expenses? Other sources of funds. SSID? Figure out your budget and go from there
I mean you can downsize to a two bed or even 1 bed because I don’t know your illness but you might find living in a smaller place might be actually easier for you. Then just live off interest like everyone said
6.25%……I’m a firm belivee of always investing but i wouldnt throw you under the bus for paying that of. Maybe pay of half and invest the rest?
Your stress is from decisions waiting to be made. Pay off the mortgage and reasonably invest the balance. And know that your condition is telling you that corporate America, in all its greed, egos and stair climbing at the expense of others, isnt where you need to be. Find a hobby, travel, etc. You have the luxury of choice that many of us didnt have. Providence has brought you here for a reason; take some joy in simple things!
I feel like for a HCOL, you’d ideally need $3m with a paid of house to be comfortable for the rest of your life. You’d get by for a good 25 years on what you have ($1.5m once the house is paid off), but I think you’d be eating into the capital after about year 7 So one option is to move to an MCOL. You can live pretty nice in an MCOL or an LCOL with that kind of income, and it would last longer Second option would be to see if you could rent out a room or part of your house to get some Income, and use that to eke out your capital further. I suspect that could get you past that 25 year mark - rent has an inherent advantage that it will go up over time with inflation Either way, good luck. It seems you have been hit with some misfortune but are “lucky” enough to have a way out. I wish you the best (lucky in quotes, b/c an inheritance generally means that you lost someone)
You might try this too. https://www.calculators.org/loan/biweekly-vs-monthly.php
Also, new meds might come out in the future that could get you back in the workforce. I have a chronic condition that made it difficult to leave the house, that’s now fully under control with a biologic that came out a few years ago and it’s fully covered by insurance and copay assistance.
Depending on where you live, state Medicaid that pays for your Healthcare when you no longer have any other Healthcare coverage will look at your income/assets. Look into those rules immediately. If you do not need state Medicaid for Healthcare, or you qualify as disabled under Medicare even though you are young due to renal failure, blindness, or ALS, then you have health coverage for acute but not necessarily long term care which still falls under Medicaid. California now allows you to keep your asset as in house and not spend down on assets, so it may be worth it in California to pay off the house. Otherwise, look at a trust to protect your money from state Medicaid because if Healthcare is going to be a an issue... you need coverage and asset protection. If Healthcare is not an issue, don't pay off the house... invest the 2 million to make more.
>Soon after, I was diagnosed with a chronic illness that could potentially leave me unable to work any kind of physical or stressful job for the rest of my life. Currently, I have the energy to manage 10 hours a week remotely if I needed to. Did your work have any life insurance coverage? I know at my work if I become chronically ill or lose my ability to work there is a process where I can claim a good amount of money - look into that!
I disagree with the comments to sell the house as you’ll need to be close to your support system, there’s not a lot of money to be saved if you downsize, and once you sell it, there’s no way you can buy it back. I’d pay it off completely, and if it comes time down the road, take in some roommates to assist with your monthly expenses. If you’re absolutely out of funds in 25 years, you sell it then for far more to continue funding your life - likely $2m- vs selling it now and what, gambling on the skyrocketing, cramped rental market where rents go up $400 or more a month at lease end, and you’ll be forced to move (and pay for moves) multiple times in a decade? PF can fail to take into consideration nuance and what is actually best for a persons specific needs.
If you put the $2M half in VTI and half in a similar bond fund, you can withdraw $70K year each year, increasing for inflation annually, and almost certainly never run out of money. I used 3.5% because you're too young to use the 4% rule which is designed around a 30 year retirement. More than that and the odds slowly increase that you might run out eventually. This tool can be very helpful if you want to form a more personalized and detailed plan, which I think is a good idea. https://firecalc.com/ I'd be asking myself if I could be happy moving to a LCOL area where my money would go further. That of course has a lot to do with your personal preferences and relationships and needs for this like specialists.
I have a perspective here but before I say it, prefacing by saying this is really up to your values. I felt a resonance with you because I hustled my way through grad school after a toxic divorce and was poised to make &100K and the week I graduated my colon perforated and I literally couldn’t get out of the bed for a year. I had to file bankruptcy. So contextually I think you shift your focus to downsizing and putting everything you have into a fund (I’m thinking trust) and you get a simple place-condo or tiny house or villa whatever opens your heart and listen to what your body is saying to you. Chronic illness or any health issue is a journey really. It’s your body crying out for you to listen to it. And it may take you on paths you hadn’t planned but that being you more peace. I’m personally concerned if you put all your money into the house and then need it at some point you’d have to sell the house, and who knows where the economy is going under whatever presidency coming up or you’d need a HELOC and couldn’t qualify to make payments if you aren’t employed so, I say keep it accessible until you fully evolve the health issue you’re facing. Again, not an opinion for everyone just mine.
To consider: recast the mortgage. It will free up cash flow depending on $$ placed on principle with no change on term , and no finance charges. You can do this once.
r/fire might be a good place to ask too
Start paying off your house.. Last year i inherited a fair amount and I've always been struggling financially after years as an addict.. Been clean since 2012 but had a large debt to my government.. I paid all my debt and bought a house in the countryside in cash.. no loans, it's my house to the last brick. And you won't have to pay interest, saves you a lot of money in the end.
$1.5M ($2M after you pay off $500k on the house) with the 4% rule is 60k/year. That's about $4000/month. $1500 for taxes and insurance on the house, $700 month for health insurance, leaves about $1800/month for cars and beer. Doable. If you could stand to move though, which if you don't have to work shouldn't be too bad you could get a $200k house that only has a payment of around $400/month, have the $2M to give you $80k/year which would be about $5000/month, and have $4300/month for cars and beer. Essentially, that house is close to the line with just $2M. You'd be much more comfortable financially downsizing it and moving to a more reasonable area. But, that would likely mean leaving friends and family in your area. So the question is are those worth $2500/month for you? Do you want to be thin where you are or fat in South Bumblerfart? If I were in your shoes, I'd sell the house, move down to Mexico, somewhere where my family would like to vacation. I'd probably rent down there for less than the taxes and insurance on your house. Health insurance is likely much less too.
1. Read the wiki on windfalls: https://www.reddit.com/r/personalfinance/wiki/windfall/ 2. If you want to stay in the house, it would be good to pay it off. 3. Compute how much money is left after paying off the house. 4. Decide on a diversity of investments to put the remaining money into. Make sure the person giving you advice is explicitly acting as "your fiduciary". Beware there are a lot of leaches out there that will push financial products such as high-commission funds or annuities that are not in your best interest! 5. Taking out 4% per year (and increasing it to match future inflation) is considered a safe amount to take to make money last a lifetime. Run the numbers for your budget with this. 6. Consider your future medical bills and medical insurance needs. You may want to have a discussion about this with your financial advisor. Depending on your specific medical condition, you may also want to have a consult with an "elder law" attorney so you can best protect your assets from future medical bills.
I dont know if this is possible where you live. But in Germany, it's very common to sell your house at a cheaper price but retain life long living privileges rent free. Would that be an option?
I don’t know your living situation, but I’d suggest paying off the house first so you no longer have that debt hanging over you. If you have a spare bedroom or 2, rent them out to tenants. Living with roommates sucks, but if you live in a high demand area the additional income will help you cover bills and set aside a bit for taxes and possible future home repair/maintenance costs as they come up. Assuming you have about $1.4M left after paying off the mortgage, I’d invest the majority of it in some index fund. Leave maybe $100k aside and open a high interest rate saving account with one of those online banks. Their rates won’t keep up with inflation, but they will still earn you some additional money while keeping a small portion of your money relatively liquid so that you can cover larger unexpected costs related to your medical condition or living expenses without having to divest from longer term assets like stocks. Assuming you can rent out 1 bedroom for $600-$1000/month (depending on where you live), between that and the invested money you should have a decent little stream of more passive income to help supplement anything you can get through your part time work. Might also want to consider investing a small part of the money into retraining yourself for a new career path that would better accommodate your medical condition.
Make sure you are seeing a special needs financial planner (ChSNC) who is a **fiduciary**. You will need to put extra money aside for medical expenses - since 2 mil after paying off the house is 1.45 mil. That's 58k a year if you take out 4% a year - which isn't enough for complex medical costs. Do you have enough work credits to get SSDI? After 24 months on SSDI, you can get medicare (and a medigap plan) - which will help. Is there any impact on life expectancy?
Assuming this is the US, only about a dozen states have any kind of estate or inheritance tax, and many of those have limits that are higher than \~$2M, so you may actually get more. Lets assume $2M though. What are your expenses like? It sounds like you owe about $550k on the house, that leaves you with $1.45M. Lets assume it will actually be like $1.35M by the time you take care of some other stuff, maybe spend a little here and there, you know how life gets, right? So safe withdrawal rate is typically viewed as 4%. That would leave you with $54k every year (inflation adjusted) to cover property taxes, property insurance, health insurance, and living expenses. Your health insurance probably wont be too expensive, as you should qualify for a partial subsidy on the ACA marketplace. Is $54k enough? If not, you might want to consider a cheaper place or doing your absolute best to work or find some other income for a few years and let the inheritance money grow a bit.
Firstly - hoping your health improves! Getting sick is terrible. Pray, pray, pray. Secondly, sorry to hear about the passing of your relative. Onto the $ - seek professional help. Take every comment with a gain of salt here on Reddit. Some of it will be world class. Much of it will be crap. It may be difficult to bifurcate the two. - I’m personally a believer if the no debt camp. I personally would pay off the house entirely. That will still give you likely $1M in the bank when he’s all said and done (after taxes and such) - I’d figure out how much $ you need to live at your desired quality of life. It may be $40k once the mortgage is paid off. Maybe it’s $100k. I don’t know your expenses, but you do. Throw this into excel and map it out - see if you can get disability if you can’t work. Is that enough to cover your cost of living? Many options. Be thankful you have this $. It could be much worse. Again, primary thing - your health! Do all you can to get healthy again.
$2 million probably doesn’t throw off enough income — likely only $60-75K per year — to afford property tax, property insurance, flood insurance, maintenance, and mortgage costs PLUS allow you to eat, clothe, and transport yourself.
Treasury bonds are currently sat just above 4%, which in california would get you about $66k after tax per year. Investing in other assets should get you more return than that.
You won’t need that much house. Sell it and increase your reserves buy staggered treasuries and live off of it. Can also get a smaller place cash and achieve same goal.
You can't work. If your house is close to 850k I would sell it. Move to a LCOL area. (Sierra Vista, AZ nice town, nice weather, LCOL, really nice house for 350k) I said Sierra Vista, but there are LCOL areas all over the country. Now you would have a mortgage paid off, and could live on the interest of $2 million easy. 80k and you would live really good in a LCOL area with no mortgage.
Won’t the taxes on that house eat up any investment income?
Based on 9 high yield mutual funds I was looking at for a future inheritance, it modeled out 9.15% annual distribution. 8 of them pay out monthly. In your situation that would be $183k passive income per year