I am 54 and have inherited $1,000,000. How many years can this sum last me?

January 30, 2014
Money is invested in stock market; I own my home debt-free, but have high cost of living because I pay my own health care and I live in New York City. Monthly cost to run house is: $2,000, not counting food and health care (another $2K)

Advisor answers

Ken Stanley

Ken Stanley

PFS, CPA, CFP®

25 years

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Good question: It depends on many factors. What % stocks? The last 2 bear markets have seen stocks drop by 50%. If that were to happen, the money could last as short as 10 to 12 years if you were 100% stocks.

The first question for you to consider is: Are you getting your "fair share" of investment returns? If you have high expenses for investing and high advisor fees, your "safe withdrawal rate" may be much lower than expected.

1) Are you using a low cost, fee-only advisor? Is this advisor ...

Jon Warner

Jon Warner

MBA, EA

If you can match the annual inflation rate ((or CPI) which historically is about 3%, you can spend $4,000 a month for 34 years before your money runs out. AAA rated 30 year munis are currently paying over 4%. At 4% your money would last 46 years.

Your in great shape if this is your plan and you are not concerned about leaving a legacy for your heirs. If you start to withdraw more capital then $4,000 a month (in today's dollars) sometime in the future, you''ll need to readjust your plan.

Anyone can easily do these calculation...

Sorry to hear about your loss.

It is impossible to give you a certain answer because there are too many variables. You definitely need a financial plan, to determine how much you can take and to lay out the future of your finances. I suggest using a CFP, Paladin Registry or NAPFA.

An old rule of thumb is that with a diversified portfolio you could withdraw 4% annually and still expect to keep up with inflation over the long run.

Best wishes and please go consult an advisor.

Martin Weil

Martin Weil

MBA, CFP®

The standard advice is that you can draw between 3-5% per year from an invested portfolio and have that portfolio last 30 years. There is much debate of what is a "safe" sustainable withdrawal rate but most studies conclude that a 4% draw will survive whatever the markets throw at you over a 30 year period. In your case that would mean $40K a year, increased annually only by inflation. This would be more than your stated expenses for housing, food and medical. Your stated $48K of expenses would be pushing the "safe" ...

If you invest your $1 million in high quality tax free bonds currently paying 4%, you would earn approximately $40,0000 from your million dollars. If that is enough income, then your million will last indefinitely. If you need more income, you could purchase premium bonds by paying more than the face value of your bonds. That would return a portion of your principal with each interest payment, while still preserving the bulk of your principal.

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At 54 and living in NYC area like I do, you can never have enough!

First the basics.

Do your budget including all taxes.

Ask yourself (or find out) what the real rate of inflation is on your expoenses. Do not use the standard rates paticularily in NYC as they will be too low.

Build in the standard "emergency" 3 to 6 month cash reserve.

Now find an advisor or software to project out the expenses over time. Get an estimate on how much money you will need today to provide the increasing needs. Try putting in various rates of g...

If you are prudent and disciplined with your inheritance it should last you 25 years or more.

Most people that inherit a healthy sum spend the money in the initial 18-36 months as it is seen and handled as windfall wealth and they treat it like winning the lottery. Since most have not managed a significant sum, they spend the money instead. You asking your question shows you want to look at this responsibly. Unless you are comfortable with what to do next and are process oriented in managing assets, you should seek counsel of a couple ...

Others have given some good financial advice; allow me to address the behavioral aspect of inheriting a large lump sum:

Most who inherit a large lump sum think they are rich. They aren't. $1 million is not enough to retire successfully for most people. Your question implies that you will be spending the account down beginning now. That is likely a mistake. It would be wiser to invest it for a later retirement; pretending it is not available for any withdrawals until that time.

Those who accumula...

Allan Moskowitz

Allan Moskowitz

CFP®, AIF®

The answer depends on how the money is invested, how much is withdrawn, and success of the investment process. You can make it last many years if you withdraw less than the account accumulates. You didn't account for taxes in your question. At an earnings rate of 5%, you could withdraw $50,000 per year, which should cover your expenses, excluding taxes. $4000 per month=$48000 per year. If your account is invested in the stock market, then it should keep up with inflation and get higher than 5% per year. &...

You should consider taking 6-12 months to educate yourself about investing, then take a small portion of the funds and "learn" with it. Many people rush in as they feel they need to "do something" with the funds. The funds would last you 25 years if you kept it in cash and didn't worry about inflation. Don't feel rushed into a decision. Your emotions might be getting the best of you if this is from a close family member, so take your time.

Most of the good talking points have already been said, so I'll try not to rehash them again here...

Guy Baker

Guy Baker

CLU, ChFC, AEP, CFP®

If you take 4% a year and invest it to earn 7% - you could make it last your entire life. If you draw out more, it is unlikely to make it more than 20 years. Find a low cost, low turnover portfolio that is widely diversified. Maybe 40% equity and 60% fixed. You should do fine at $40,000 a year growing with inflation.

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If you are charitably inclined, there is an additional answer that has not been posted here. It is possible to find a charity you support and make a donation to that charity with the stipulation that the donation be made to buy you an annuity. That annuity will provide you with a stream of income you cannot outlive. You may also receive a federal tax deduction for your gift. At your death, the charity receives the funds for their operations. If you do not have an inclination for philanthropy, you can also use a portion of your newly r...

It depends upon your long-term plan and goals. You are spending $4k/mo now, but you will surely have other expenses in the future - travel, for example. In addition, how you manage your investment portfolio and how you have allocated your portfolio is critical. I recommend you read the 2013 version of Simple Wealth, Inevitable Wealth (www.nickmurray.com/bkwealth.htm) and interview (bit.ly/1N4Hd0I) fee-only financial planners (onforb.es/1N4Hktg) to start an ongoing relationship.

Good luck and I hope this helps!

A single premium immediate annuity would get you about $2,500 per month with a 3% annual cost of living increase.

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