Large inheritance -- looking for advice

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kaeltor
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Re: Large inheritance -- looking for advice

Post by kaeltor » Mon Jun 11, 2018 10:36 am

delamer wrote:
Mon Jun 11, 2018 10:18 am
kaeltor wrote:
Mon Jun 11, 2018 10:03 am
FoolMeOnce wrote:
Sun Jun 10, 2018 9:57 pm
kaeltor wrote:
Sun Jun 10, 2018 1:24 pm
FoolMeOnce wrote:
Sat Jun 09, 2018 9:56 pm


Because after 30 years, there might be $10 left. That is considered a success in the Trinity study, the basis for the 4% rule if I'm not mistaken. You said to expect the original $6m to grow while withdrawing 4%. That is not a reasonable or evidence-backed expectation. With a horizon of more than 30 years, it gets riskier to withdraw 4% per year.
You can always decrease how much you withdraw with market fluctuations. It depends on market performance. There's been follow up studies to the Trinity study and they are putting the number between 3-4% still...

Furthermore if you FI/RE early on you can still find other ways to make money by pursuing productive hobbies etc...

Check out http://earlyretirementextreme.com/, that's where most of my ideas of FI/RE came from
ERE's wiki notes that a 4% safe withdrawal rate is only for 30 years, and goes in to suggest that this is overly aggressive in light of newer research.

https://wiki.earlyretirementextreme.com ... rawal_rate

Further, these SWRs are about the chance of total depeletion of funds; they are not withdrawal rates at which one should expect their starting balance to increase, let alone have that guaranteed, as you wrote (though it might well increase). OP does not seem like someone who will suddenly spend 4% per year of this large inheritance, but I just wanted to correct misadvice.

Ok, so what can one do? Assuming you have the funds to retire early, and the 4% rule doesn't work like you mentioned... is there no hope of retiring early? (In Op's case for example)
The OP is only 30 years old. Hopefully he’ll live another 50 to 60 years.

For his portfolio to have a survival probability comparable to that for a 30 year portfolio withdrawn at 4%, he needs to lower his withdrawal rate to 2%/2.5%.

The longer your portfolio needs to support you, the lower your withdrawal rate should be.
So let's do the math then, OP uses 2.5% (Assets ~6Mil USD)for a few years until he figures out some side hustle he is passionate about (because he is financially secure at this point.)... 150K/yr...

That was my point to the OP, just live off the investments for a few years until he can figure out something he can dedicate himself to and will increase his cash flow. Even @ 2.5% that's still a lot of money that he can pull.

FoolMeOnce
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Re: Large inheritance -- looking for advice

Post by FoolMeOnce » Mon Jun 11, 2018 12:20 pm

kaeltor wrote:
Mon Jun 11, 2018 10:36 am
delamer wrote:
Mon Jun 11, 2018 10:18 am
kaeltor wrote:
Mon Jun 11, 2018 10:03 am
FoolMeOnce wrote:
Sun Jun 10, 2018 9:57 pm
kaeltor wrote:
Sun Jun 10, 2018 1:24 pm


You can always decrease how much you withdraw with market fluctuations. It depends on market performance. There's been follow up studies to the Trinity study and they are putting the number between 3-4% still...

Furthermore if you FI/RE early on you can still find other ways to make money by pursuing productive hobbies etc...

Check out http://earlyretirementextreme.com/, that's where most of my ideas of FI/RE came from
ERE's wiki notes that a 4% safe withdrawal rate is only for 30 years, and goes in to suggest that this is overly aggressive in light of newer research.

https://wiki.earlyretirementextreme.com ... rawal_rate

Further, these SWRs are about the chance of total depeletion of funds; they are not withdrawal rates at which one should expect their starting balance to increase, let alone have that guaranteed, as you wrote (though it might well increase). OP does not seem like someone who will suddenly spend 4% per year of this large inheritance, but I just wanted to correct misadvice.

Ok, so what can one do? Assuming you have the funds to retire early, and the 4% rule doesn't work like you mentioned... is there no hope of retiring early? (In Op's case for example)
The OP is only 30 years old. Hopefully he’ll live another 50 to 60 years.

For his portfolio to have a survival probability comparable to that for a 30 year portfolio withdrawn at 4%, he needs to lower his withdrawal rate to 2%/2.5%.

The longer your portfolio needs to support you, the lower your withdrawal rate should be.
So let's do the math then, OP uses 2.5% (Assets ~6Mil USD)for a few years until he figures out some side hustle he is passionate about (because he is financially secure at this point.)... 150K/yr...

That was my point to the OP, just live off the investments for a few years until he can figure out something he can dedicate himself to and will increase his cash flow. Even @ 2.5% that's still a lot of money that he can pull.
Respectfully, if that was your point, you could've written that instead of something entirely different. What you wrote ("With the amount you have you can withdraw EDIT: 4% (~240k) per year forever and your 6m will still grow") is false, misguided, and bad advice, which you have defended until now.

I think OP or anyone else reading gets the point by now. I'll stop hijacking this thread now.

kaeltor
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Re: Large inheritance -- looking for advice

Post by kaeltor » Mon Jun 11, 2018 12:47 pm

FoolMeOnce wrote:
Mon Jun 11, 2018 12:20 pm

Respectfully, if that was your point, you could've written that instead of something entirely different. What you wrote ("With the amount you have you can withdraw EDIT: 4% (~240k) per year forever and your 6m will still grow") is false, misguided, and bad advice, which you have defended until now.

I think OP or anyone else reading gets the point by now. I'll stop hijacking this thread now.
My original point was this and go re-read my original post if you need to:

"Find what you enjoy in life, you are set from a financial perspective."

My point still stands, the numbers are corrected though.

I wasn't defending anything I was trying to get more information on your point of view and I did and corrected myself.

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celia
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Re: Large inheritance -- looking for advice

Post by celia » Mon Jun 11, 2018 3:41 pm

Amy, I hope you aren't put off by those arguing above and who assume you are a "he". We have lots of gals here, but many use a neutral-sounding name.

My suggestion is to think of your portfolio as all cash at the moment. Instead, think of what you want the final portfolio to look like. You start by figuring out the appropriate Asset Allocation for you based on your goals, the level of risk you think you can handle, and the timeframe for when you will need the money (major purchase like house or for spending during retirement). After your AA is decided, you should think of where you want to hold each asset. This is part of Tax-efficient Fund Placement.

I noticed you don't have any Roth holdings. I think you should convert some of your traditional IRAs to Roth and take the tax hit over the next few years. Once something is in the Roth, it can grow without being taxed again (as long as you don't withdraw until the account has been open for 5 years and you are over 59.5). You can't convert your Inherited IRA, but if your SEP IRA is not inherited, that can be converted.

As you probably know you don't have to worry about yearly tax consequences in the IRAs, just when you contribute or withdraw from the accounts. So their holdings can be changed any time you like. The taxable assets (anything not in a tax-sheltered account like an IRA, 401K, HSA) will have their interest and dividends taxed each year as well as capital gains from selling. But if your dad died early this year, you may possibly have a loss on some of his stocks/funds as the markets have gone down from their high. I also assume you have put all the holdings in a spreadsheet with the basis for each asset and the current value. For anything from your father, the basis will be the price on the day he died. If the stock market was open that day, you should use the price between the high and the low for that day. For assets that you originally bought, put the price you paid, including the commission, if any.

When this is in a spreadsheet, it will be easy to calculate the gain or loss on each holding. When you sell, the gains and losses in any given year cancel each other out. So if you sell something with a $50,000 loss, you can sell something else that will give you a $50,000 gain in the same year and not have any tax consequences. So I would start by selling your smallest holdings this way to get rid of some of the clutter.

Where you might need help is in preventing an unexpected tax consequence. If you are used to doing your own taxes, you should run everything you plan to do this year through tax software first. But first note that since the tax laws changed last January, the results you get from modeling this in 2017 software won't be as accurate as it usually is when you use the previous year tax software. If you haven't done your own taxes before, you should be aware of what your current tax preparer's strengths and weaknesses are. Most of them are used to taking a stack of papers for a past year (the year that just closed) where things can no longer be changed. You want someone who is familiar with projecting what-if's. We have a lot of folks like that on this forum.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

WhiteMaxima
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Re: Large inheritance -- looking for advice

Post by WhiteMaxima » Mon Jun 11, 2018 3:51 pm

Pretend this never happen. Keep working till 50s or 60s. Put inheritance in low cost index fund. Reinvest RMD into index also. Have a will and estate plan.

bsteiner
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Re: Large inheritance -- looking for advice

Post by bsteiner » Mon Jun 11, 2018 4:07 pm

lookingforadvice739 wrote:
Fri Jun 08, 2018 10:50 am
...
I've never done any kind of estate planning, but that's on the to-do list. At least I know what not to do after going through all this! (Hey everybody -- make sure you have a designated beneficiary on all your accounts!! Oy)
...
You need to name beneficiaries for retirement benefits and life insurance. But most people would be better off not naming beneficiaries for their taxable accounts. Beneficiaries on taxable accounts can wreak havoc with an estate plan.

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Peter Foley
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Re: Large inheritance -- looking for advice

Post by Peter Foley » Mon Jun 11, 2018 10:40 pm

My condolences.

With your level of assets Schwab offers very low cost, if not free, investment advice. I'm not talking about them managing your money just providing advice. If you start the conversation with "I want to invest in low cost diversified mutual funds" you should get a reasonable answer.

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1030danielle
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Re: Large inheritance -- looking for advice

Post by 1030danielle » Sun May 17, 2020 10:31 am

I’m curious what the OP ended up doing.
This has been an informative thread for me, as both my mother and stepfather died within the last year.
—Danielle
Three-funder with a tech tilt.

Silk McCue
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Re: Large inheritance -- looking for advice

Post by Silk McCue » Sun May 17, 2020 10:35 am

1030danielle wrote:
Sun May 17, 2020 10:31 am
I’m curious what the OP ended up doing.
This has been an informative thread for me, as both my mother and stepfather died within the last year.
—Danielle
OP hasn't been back to the site since Fri Jun 08, 2018 7:56 pm per their profile.

Cheers

deltaneutral83
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Re: Large inheritance -- looking for advice

Post by deltaneutral83 » Sun May 17, 2020 10:45 am

I wouldn't mind understanding why naming beneficiaries on taxable accounts can be a bad thing for an estate?

bsteiner
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Re: Large inheritance -- looking for advice

Post by bsteiner » Sun May 17, 2020 10:54 am

deltaneutral83 wrote:
Sun May 17, 2020 10:45 am
I wouldn't mind understanding why naming beneficiaries on taxable accounts can be a bad thing for an estate?
There may not be enough money in the estate to pay debts, expenses and taxes. The executors may have to chase the TOD beneficiaries. Some may resist. That will result in unnecessary expense.

There may not be enough money to pay preresiduary bequests. The TOD beneficiaries may not want to disclaim or make gifts to cover these bequests.

Most of our clients provide for their beneficiaries in trust rather than outright. This keeps the beneficiaries' inheritances out of their estates and protects their inheritances from their creditors and spouses, and Medicaid. While it's possible to do this with beneficiary designations (and we have to do this for life insurance and retirement benefits), it adds additional complexity.

Often beneficiaries of taxable accounts are done without coordinating them with the person's estate plan, so the result is inconsistent with the client's intent.

makingmistakes
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Re: Large inheritance -- looking for advice

Post by makingmistakes » Sun May 17, 2020 12:01 pm

soccerrules wrote:
Thu Jun 07, 2018 4:21 pm
sorry for your loss.

The one piece of advice that I have read on this board often would be -- Take your time. There is really no reason to rush. Financially speaking, you have the potential of hurting yourself more by moving to quickly, than by waiting and gaining wisdom.

I am sure you are overwhelmed and you need to take time to grieve your fathers passing and then understand the enormous gift he has provided for you. Then start considering next steps.

It would not inappropriate to take $30-40K and buy a car, take care of repairs/expenditures that have been delayed- and maybe even a 1-2 week vacation to clear your mind. (that is about what you would pay an FA for 1 years management)

It appears you having a savings mindset if you have $1M already put aside from your own efforts. By taking your time and looking at how to set up your new portfolio- you really could be set for life.

Best of luck
I guess you mean “could be set for life” if you don’t blow it. The vast majority of people will never even gross anywhere close to 6 million dollars over an entire lifetime.

deltaneutral83
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Re: Large inheritance -- looking for advice

Post by deltaneutral83 » Sun May 17, 2020 12:14 pm

bsteiner wrote:
Sun May 17, 2020 10:54 am
deltaneutral83 wrote:
Sun May 17, 2020 10:45 am
I wouldn't mind understanding why naming beneficiaries on taxable accounts can be a bad thing for an estate?
There may not be enough money in the estate to pay debts, expenses and taxes. The executors may have to chase the TOD beneficiaries. Some may resist. That will result in unnecessary expense.

There may not be enough money to pay preresiduary bequests. The TOD beneficiaries may not want to disclaim or make gifts to cover these bequests.

Most of our clients provide for their beneficiaries in trust rather than outright. This keeps the beneficiaries' inheritances out of their estates and protects their inheritances from their creditors and spouses, and Medicaid. While it's possible to do this with beneficiary designations (and we have to do this for life insurance and retirement benefits), it adds additional complexity.

Often beneficiaries of taxable accounts are done without coordinating them with the person's estate plan, so the result is inconsistent with the client's intent.
Thank you for the info, sounds like this is mostly for high net worth clients that blow right through the exemption of 12/24 million? I understand about the protection of a large inheritance in a taxable interfering with one's own estate plan as well in addition to the protection from creditors/spouse. I assume this type of trust/estate planning and Medicaid don't often overlap though?

bsteiner
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Re: Large inheritance -- looking for advice

Post by bsteiner » Sun May 17, 2020 1:49 pm

deltaneutral83 wrote:
Sun May 17, 2020 12:14 pm
bsteiner wrote:
Sun May 17, 2020 10:54 am
deltaneutral83 wrote:
Sun May 17, 2020 10:45 am
I wouldn't mind understanding why naming beneficiaries on taxable accounts can be a bad thing for an estate?
There may not be enough money in the estate to pay debts, expenses and taxes. The executors may have to chase the TOD beneficiaries. Some may resist. That will result in unnecessary expense.

There may not be enough money to pay preresiduary bequests. The TOD beneficiaries may not want to disclaim or make gifts to cover these bequests.

Most of our clients provide for their beneficiaries in trust rather than outright. This keeps the beneficiaries' inheritances out of their estates and protects their inheritances from their creditors and spouses, and Medicaid. While it's possible to do this with beneficiary designations (and we have to do this for life insurance and retirement benefits), it adds additional complexity.

Often beneficiaries of taxable accounts are done without coordinating them with the person's estate plan, so the result is inconsistent with the client's intent.
Thank you for the info, sounds like this is mostly for high net worth clients that blow right through the exemption of 12/24 million? I understand about the protection of a large inheritance in a taxable interfering with one's own estate plan as well in addition to the protection from creditors/spouse. I assume this type of trust/estate planning and Medicaid don't often overlap though?
These problems may arise in various situations. Estate taxes is only one such situation.

A beneficiary of a large estate may want Medicaid, especially if the beneficiary only receives a small share of it.

We've had this happen in various other situations in estates too small to pay estate tax.

1. In one case, a client had a complicated estate plan providing for his wife and his children from a previous marriage, including leaving the common shares of the business to the children who were active in it. A portion of the business was sold, and the broker got him to name his wife as TOD beneficiary. The result was that the children who weren't active in the business were unintentionally disinherited. It was made worse by the wife dying a year later and leaving her estate to her child from a previous marriage.

2. In another case, someone died and all of his accounts had joint owners or TOD beneficiaries. His capacity had dropped considerably in the few years before his death, so there were challenges to his capacity to name joint owners and TOD beneficiaries. However, unlike a Will contest involving capacity at the moment of signing the Will, since he named the joint owners and TOD beneficiaries on different dates, each account involved different facts (his capacity on the date he named joint owners or TOD beneficiaries of the particular account). Since the designations weren't identical, trying to settle the case has been difficult. He died in 2011 and even though there may not have been any probate assets the case is still open.

3. In another case, someone made many small cash bequests. The broker got her to name the beneficiary of her residuary estate as TOD beneficiary of her brokerage account. The estate didn't have enough assets left to pay the cash bequests. Fortunately that person voluntarily made gifts to the beneficiaries of the cash bequests to carry out the decedent's intention. But she didn't have to do that.

4. In another case, a couple provided for their daughter in trust to keep her inheritance out of her estate. Many years later the wife died, and the husband, by then elderly, moved his brokerage account to the daughter's broker. The broker, thinking he was making things simpler, got him to name the daughter as TOD beneficiary. It turned out that the daughter, who never had any children, was leaving her estate to charity, so there wouldn't be any estate tax.

chrisjul
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Re: Large inheritance -- looking for advice

Post by chrisjul » Mon May 18, 2020 10:37 am

livesoft wrote:
Thu Jun 07, 2018 4:26 pm
I'd sell ALL the stocks as soon as possible and not attach any sentimental value to them. The ones in a taxable account: Get them gone before any of the capital gains get bigger. Clearly, you know enough to tell which stocks are US and which are foreign, so you can figure out the current asset allocation and use a Total US or a Total Int'l ETF or mutual fund to replace any of the individual stocks.

There are many investors on this forum with mid-7-figure portfolios that are completely do-it-yourself. A one million portfolio is scaleable to a $10 million portfolio with virtually no changes.

Update your will and estate plan.
LOL...you might actually want to look at the stocks prior to selling them "as soon as possible".

22twain
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Re: Large inheritance -- looking for advice

Post by 22twain » Mon May 18, 2020 11:46 am

chrisjul wrote:
Mon May 18, 2020 10:37 am
livesoft wrote:
Thu Jun 07, 2018 4:26 pm
I'd sell ALL the stocks as soon as possible and not attach any sentimental value to them.
LOL...you might actually want to look at the stocks prior to selling them "as soon as possible".
Look at the date on livesoft's post. :wink: I think it's safe to say that the OP has probably decided what to do, and done it, in the nearly two years since then.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!

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