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How Should I Invest My Inheritance?

Sudden and unexpected wealth isn't all it's cracked up to be. It is not uncommon for heirs to experience anxiety, stress and guilt over benefiting from a loved one's death. Some heirs actually end up financially worse off than before. Time and time again, this can be seen with lump sum life insurance proceeds.

Why all the problems? Inexperience at handling large sums, suggests syndicated columnist Jane Bryant Quinn. Few people have the expertise to deal with sudden wealth. Oddly enough, people who manage well on tight budgets often have the most difficulty adjusting to a large, sudden influx of cash. ("It's Easy to Blow an Inheritance," (Seattle Post-Intelligencer, 11/02/99, page C1))

With your inheritance, your goal should be to get the best long-term value for your money, not go on a spree, well-deserved or otherwise. Here are some tips:

  • Avoid drastic, knee-jerk decisions. Consider doing nothing for at least six months. Maintain your present spending habits and lifestyle. Resist the temptation to increase your spending, or treat yourself to that cruise you've talked about for years.
  • Set — or review — your financial goals during that time. Set objectives and then identify how you can use the funds to achieve those objectives. Also, distinguish between wishes and goals. Ask yourself: "What do I want accomplish with this money?" not "What do I want to spend it on?"
  • Choose advisors carefully, double-checking qualifications. Especially if your windfall is sizable and/or you are inexperienced in money management, talk with reputable financial experts only.

Financial Options
Consider financial vehicles such as life insurance and annuities.

Life Insurance
You may decide that one thing you'd like to do is provide financial protection for your loved ones in the same spirit that it was provided for you. The loss of your loved one may mean that others are even more dependent on you, and that's when the importance of life insurance becomes evident. Since life insurance proceeds may not be subject to probate, they can provide a lasting legacy and offer immediate protection against financial loss in the event of your death.

Permanent life insurance can also offer many living benefits such as tax-deferred cash value accumulation, the ability to borrow from cash value on a tax-free basis, and eligibility to earn dividends as declared by the insurance company.* In addition, loans will accrue interest and reduce the death benefit. (* Please note that dividends are not guaranteed. For information on your eligibility to receive dividends, see your policy.)

Many people choose to place inheritance money in annuities to grow long-term funds for the future. There are some solid reasons for this choice. Annuities are flexible, tax-deferred vehicles that can be used to help achieve long-term financial goals and provide a source of retirement income. Additionally, the money in an annuity accumulates tax-deferred, which means you only pay taxes on your earnings when the money is withdrawn. (However, any withdrawals made prior to age 59 1/2 may be subject to a 10% IRS penalty tax.)

Annuities also offer flexibility. With some annuities, you can "lock in" a guaranteed interest rate for a specific period of time. With others you can choose from a variety of funding options offering different levels of risk and growth opportunity, and you can change your funding choices regularly. Ultimately, annuities can help offer you protection against outliving your savings. Lifetime income annuities are guaranteed to keep paying you for as long as you live. Lastly, an annuity can provide the security of a guaranteed death benefit for the protection of your loved ones.

There are several different types of annuities from which to choose. Which one may be right for you? There is no general answer, as it all depends upon your individual needs and objectives. But when you're ready to manage the last gift from a loved one — your inheritance — it's a good idea to speak to a professional who can clearly explain the options available to you.

A New York Life agent — professionally trained and experienced — can help you analyze your needs and recommend appropriate solutions through insurance and financial products and concepts. Click here to request a no obligation review with a New York Life agent.

This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisors for legal, tax and accounting advice.

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How Should I Invest My Inheritance?

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