Inheritance Advice: Mortgage or Investing

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
INTJVirgo
Posts: 18
Joined: Mon Jun 10, 2019 9:20 am

Inheritance Advice: Mortgage or Investing

Post by INTJVirgo »

I will be inheriting about 200K. I'm 47 years old and single with one child (college senior graduating in May).
I'm currently maxing 401K (19,500), maxing HSA (7,100) and maxing Roth (6,000). My salary is 70K.
Right now my remaining mortgage balance is 78K @ 2.75%
My total retirement savings is 396K broken down as follows
Taxable: 75K
Roth: 146K
Tax-Advantaged: 175K
Allocation is: 70% VTSAX 13% VTIAX 8% cash 5% various ind. stocks 4% VBTLX

I'm debating whether to pay off my mortgage (and invest the remaining amount) or invest the entire amount given the market highs (although I know it could keep climbing and nobody knows anything for sure). Thanks for any advice!
brian91480
Posts: 683
Joined: Fri Jan 29, 2021 6:44 pm
Location: Minnesota

Re: Inheritance Advice: Mortgage or Investing

Post by brian91480 »

There's no right answer. Trust your gut of what makes you the most happy.

Straight math says invest it all. If I were you though, I'd probably eliminate the mortgage and be debt freeeeeeeeeeeee!
LearningtheRopes
Posts: 51
Joined: Sat Jun 06, 2015 4:34 pm

Re: Inheritance Advice: Mortgage or Investing

Post by LearningtheRopes »

brian91480 wrote: Sat Apr 17, 2021 12:58 pm There's no right answer. Trust your gut of what makes you the most happy.
Totally agree! Well, blowing them on scratch off lottery tickets would be the wrong answer. :)

If it were me, I would like the peace of mind of paying off the mortgage. You're getting a guaranteed rate of return that is higher than you'll get in any safe investment (interest, bonds). I would take the balance and put a small part aside for some fun money -- you'll probably regret it if you don't splurge just a little -- whether it be a vacation, clothes, whatever -- and then the balance in a total market index fund, probably half now, half in a few months. But that's just me.

Edit/update: You didn't say anything about a cash emergency fund. If you don't have one, I would say mortgage, then a 3-6 month cash emergency cushion, then the splurge, then the total market in two tranches.
User avatar
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Inheritance Advice: Mortgage or Investing

Post by bertilak »

I say get the mortgage out of the way as there is only 78K left.

Invest the remaining $122K to "top up" your actual AA to met your target AA.

You can use your improved cash flow to invest from here on in.

You might want to be sure those individual stocks are worth the complications.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Topic Author
INTJVirgo
Posts: 18
Joined: Mon Jun 10, 2019 9:20 am

Re: Inheritance Advice: Mortgage or Investing

Post by INTJVirgo »

I don't have a dedicated emergency fund. I always planned on withdrawing from taxable if necessary. I am gradually phasing out my individual stocks.
LearningtheRopes
Posts: 51
Joined: Sat Jun 06, 2015 4:34 pm

Re: Inheritance Advice: Mortgage or Investing

Post by LearningtheRopes »

INTJVirgo wrote: Sat Apr 17, 2021 1:42 pm I don't have a dedicated emergency fund. I always planned on withdrawing from taxable if necessary.
The potential problem is that if the market is in a correction/bear territory and you're forced to sell, you're doing real long-term damage to your investment horizon. The benefit of having an emergency fund is that you never are forced to sell in a down market -- think late 2008/early 2009, the weeks after 9/11, etc. Yes, with an emergency fund you're not getting any (real) interest and are losing a little bit to inflation, but that's a less-bad consequence than having a forced sale to cover an emergency when the market is down 20, 30, 40% for whatever reason -- which has happened quite a number of times since 2000. My two cents.
mbasherp
Posts: 735
Joined: Mon Jun 26, 2017 8:48 am

Re: Inheritance Advice: Mortgage or Investing

Post by mbasherp »

If there’s a FAFSA involved for that college senior, it might good to pay off the mortgage because more funds in taxable would potentially lower aid. Of course that gets into more details than your post provided.

I think it depends at least partially on when you plan to retire. At 47 some people are looking at less than a decade and others picture 20+ more years. The closer retirement is for you, the more benefit there is to the paid off home and reduced sequence of returns risk.

There’s also the emotional aspect of inheritances for some - if there would be heightened risk of regret after losses in the market, perhaps getting rid of the mortgage is a good way to honor the person who left the funds to you.

I typically say invest instead, but in your shoes with just a 78k mortgage, I would probably pay it off for simplicity and then mentally thank that person for that specific gift.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Inheritance Advice: Mortgage or Investing

Post by grabiner »

LearningtheRopes wrote: Sat Apr 17, 2021 2:19 pm
INTJVirgo wrote: Sat Apr 17, 2021 1:42 pm I don't have a dedicated emergency fund. I always planned on withdrawing from taxable if necessary.
The potential problem is that if the market is in a correction/bear territory and you're forced to sell, you're doing real long-term damage to your investment horizon.
Unless you can sell bonds (possibly by selling taxable stocks for a capital loss, and then selling bonds to buy an equal amount of stocks in your IRA). This strategy works as long as your taxable account is large enough for your cash needs even in a bear market; see Placing cash needs in a tax-advantaged account on the wiki.
Wiki David Grabiner
phxjcc
Posts: 1329
Joined: Thu Aug 23, 2018 3:47 pm

Re: Inheritance Advice: Mortgage or Investing

Post by phxjcc »

INTJVirgo wrote: Sat Apr 17, 2021 12:55 pm I will be inheriting about 200K. I'm 47 years old and single with one child (college senior graduating in May).
I'm currently maxing 401K (19,500), maxing HSA (7,100) and maxing Roth (6,000). My salary is 70K.
Right now my remaining mortgage balance is 78K @ 2.75%
My total retirement savings is 396K broken down as follows
Taxable: 75K
Roth: 146K
Tax-Advantaged: 175K
Allocation is: 70% VTSAX 13% VTIAX 8% cash 5% various ind. stocks 4% VBTLX

I'm debating whether to pay off my mortgage (and invest the remaining amount) or invest the entire amount given the market highs (although I know it could keep climbing and nobody knows anything for sure). Thanks for any advice!
IIn your specific case....if you at all feel vulnerable to the mid-50's layoff possibility then invest. If civil service then payoff the mortgage.
gideon trumpet
Posts: 72
Joined: Sat Feb 27, 2021 1:44 pm

Re: Inheritance Advice: Mortgage or Investing

Post by gideon trumpet »

How many years are left on the mortgage? If you have less than ten years to go on the mortgage, I'd say pay it off. If you have fifteen or more years left, I'd probably keep it at that rate. It also may depend on how long you plan to stay in the home. If you were planning to move anytime soon, I wouldn't bother paying it off. If you're going to stay there indefinitely, paying it off makes more sense. Ultimately, there's is no "right" or "wrong" answer for all purposes, but there is an answer that is more or less likely to increase your long-term net worth, if that's what you're trying to do. If you're trying to maximize (or minimize) something other than net worth (such as minimizing risk), the answer will be different. It's not clear to me what your objective is.
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: Inheritance Advice: Mortgage or Investing

Post by HMSVictory »

You will never and I mean never regret being totally and completely debt free. Pay that house off today and invest the rest of the money into your AA.

Something snaps inside you when you are completely debt free - its hard to explain. Also once you have all your income freed up you can invest like a crazy person.
Stay the course!
trueblueky
Posts: 2365
Joined: Tue May 27, 2014 3:50 pm

Re: Inheritance Advice: Mortgage or Investing

Post by trueblueky »

INTJVirgo wrote: Sat Apr 17, 2021 12:55 pm I will be inheriting about 200K. I'm 47 years old and single with one child (college senior graduating in May).
I'm currently maxing 401K (19,500), maxing HSA (7,100) and maxing Roth (6,000). My salary is 70K.
Right now my remaining mortgage balance is 78K @ 2.75%
My total retirement savings is 396K broken down as follows
Taxable: 75K
Roth: 146K
Tax-Advantaged: 175K
Allocation is: 70% VTSAX 13% VTIAX 8% cash 5% various ind. stocks 4% VBTLX

I'm debating whether to pay off my mortgage (and invest the remaining amount) or invest the entire amount given the market highs (although I know it could keep climbing and nobody knows anything for sure). Thanks for any advice!
I don't see the concern with No Emergency Fund. OP has 8% cash, about $32,000. Salary minus contributions to Roth, HSA, 401k is $37,400. As long as the cash in taxable is most of the $32,000, OP should be ok.
Topic Author
INTJVirgo
Posts: 18
Joined: Mon Jun 10, 2019 9:20 am

Re: Inheritance Advice: Mortgage or Investing

Post by INTJVirgo »

Thanks for everyone's feedback. I have less than 10 years on the loan. I haven't decided whether this is my retirement home or not. I think I'm in a stable job and will be okay through my 50's but no one knows. I'm not a civil servant. I do have about 20K of the cash in my taxable account but no bonds. My objective is to make the most out of the money I've been given. Leaning towards investing the entire amount over next 3 months...but I'm not 100% sure yet.
Post Reply