Using an Inheritance or Windfall for Retirement Planning

Daniel Penzing
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How Much?

If you are fortunate enough to receive an inheritance or windfall, you have to decide the best way to use it. It is not going to be easy to make a sound decision because of the well-known fact that many people spend an inheritance or a windfall in a short amount of time.

Your financial status is the first factor to consider. If you are saving for retirement and you know how much savings you will need to provide for all your financial goals, you should think twice before you spend your inheritance.

If you are behind in your savings and you are close to retirement or planning to retire early, then an inheritance or a windfall might be of great value to you. This is especially true if you have financial goals and you are behind on savings.

Another key component of deciding is to assess your life goals. Are you interested in taking some time off? Are you looking for some time to enjoy yourself before you decide on a direction or a new career?

If you have always wanted to do something and you have decided that now is the time for that new hobby, then you should seriously consider spending your inheritance. There is nothing wrong with having a little fun.

What Is the Nature of the Windfall?

There is an old adage about how to make more money in the stock market: the best time to sell a stock is very often. A windfall or a short term gain is a beautiful thing, and the very advice for someone with an earnings windfall is to put it aside and not sell it. But, for retirement planning, a short term gain makes planning a bit more complex.

Before you sell it with the intention to commit the profit to retirement, you need to decide how you are going to get that money invested into your long term plan. It will have a lot of tax swings and stops that windfall will not appreciate until a long time down the road! That is why we reiterate the need to look at your ratio of stock and bond investment.

Generally speaking, a windfall will hurt your long term retirement planning more than it will help. You can take a long term gain with the intention at converting that gain into your retirement plan, but you’ll have to play the tax game well.

Depending on your overall portfolio, some of this tax will be coming off the top of your long term retirement plan. You’ll want to make sure that your portfolio can withstand that before you make the change.

Are There Any Restrictions?

So what happens if you want to use your inheritance or windfall for retirement planning? In most cases, it is possible to use your inheritance or windfall in these ways, but there might be conditions attached. For example, many retirement accounts have minimum contribution amounts and/or penalties for early withdrawals. In situations where you are inheriting a retirement plan, you must be cautious because there is already an owner with a vested interest in how the inheritance is used.

It is important to understand that when you inherit a retirement plan, such as an IRA, 401k, or pension, it is not treated like a personal asset. Naming yourself as beneficiary on anything of this nature will result in the account being passed directly to you. The advantage of this is that it eases the process of transferring funds into your account.

Typically, when a retirement plan owner dies, a beneficiary must file paperwork with the IRS and set up a beneficiary form. This form is then used to transfer the plan to the beneficiary, typically through a direct deposit.

The disadvantage of immediately inheriting is that the account must be treated as a personal asset and, in most cases, it must be named as a beneficiary on your own existing retirement accounts.

For example, let’s say that you inherit your parents’ retirement account. You are able to seamlessly transfer the money to your bank account in just a couple of weeks.

Don’t Forget Taxes

As a family grows and the children move out, the parents always tell them that a happy, secure future means a great education, a nice home and a good job. But certainly, a lack of any one of these things won’t prevent the other two. That’s why, when parents retire in their 60s, they often find themselves in sudden “inheritance” situations as schools, relatives and friends rejoice at their leaving and decide to celebrate in a manner beneficial for everyone involved.

The truth of the matter, however, is that the parents aren’t retiring because they’re sick of working. They are retiring because after decades of living, they are now aging, and maybe not always healthy. Ideally, this is the time in their lives when their children would take care of them. Unfortunately, although the money’s great, there’s often a whole lot of strings attached – like having to live remotely with the family, for example.

Come Up With a Plan

Most retirees did not start thinking about retirement planning until they were nearing retirement age. Of course, some may have taken steps to ensure they would be financially able to retire early. But, most people take steps to plan for retirement in their 50’s or later. The reason why most retirement planning is a “last minute” undertaking is that it takes a lot of discipline to save money.

A lot of people may face a similar challenge when they suddenly have some money to invest. It’s not often that someone receives a large sum of money and doesn’t know what to do with it. None the less, it’s important that when this occasion does arise, you take the time to come up with a plan.

It can be tempting to blow the money on a luxury or a force of extravagance. But, you need to get your ducks in a row first. You need to carefully consider your financial situation, your goals, and how you plan to achieve them. The good news is that if you can come up with a plan for your inheritance, you can probably apply part of it to windfalls and other windfalls.

It doesn’t matter how much you have – you can always start a systematic plan that will enable you to create wealth and build financial stability.

Using the Windfall for Retirement

Is a Lot of Work — If you have a sudden windfall, especially if it is an inheritance, it means that you have a once-in-a-lifetime opportunity to put yourself in retirement. A windfall can significantly reduce your retirement plan's failure rate and make it much more likely that your retirement will be smooth sailing.

But a windfall also brings a lot of stress, because you will need to review your retirement plan, update it, and get it working for you soon.

One important thing to know about a windfall is that you have several options, and you can go in any direction you want. If your retirement plan is set up wrongly, it will be really difficult for you to create your retirement using an inheritance or even a pension.

So, if you can, start making arrangements for retirement right away. Tablesaw blades recommendations can be helpful in those cases.


For most people, one of the biggest challenges when retirement planning is figuring out how to save enough money to retire. A major financial goal is to have enough money to live on later in life. However, many people aren’t that great at saving. Some people believe that they have already made enough money for retirement because they just want to enjoy life. Many people aren’t able to invest the money that they do have in the stock market because they are afraid of losing everything.

However, having a large inheritance or winning the lottery can take a lot of the worry out of retirement planning. It is often a lot simpler when you have a large amount of money that you can use to invest. That’s because a lot of the money can simply be invested in stocks and bonds that have a good chance of growing over the years.

However, instead of concentrating on just stocks and bonds, it is a good idea to start thinking about how you would spend the money if you had won the lottery. The biggest pitfall that lottery winners often face is keeping the money for themselves. Many lottery winners end up losing most of their money because they spent it on expensive houses, cars, and vacations.