'I have no savings': I'm inheriting $400,000. I'm 64 with $900 in Social Security. What should I do?

By Quentin Fottrell

 'I have no experience with any life other than paycheck to paycheck' 

 "A few years ago I started a food truck, and I make about $200 per week after bills are paid." (Photo subject is a model.) 

 Dear Quentin, 

 This is a lot - sorry. 

 I am days away from receiving an unexpected inheritance of slightly more than $400,000. I have no experience with any life other than paycheck to paycheck, and sometimes worse. I have no savings, certainly no retirement, and I collect roughly $900 per month in Social Security. A few years ago, I started a food truck, and I make about $200 per week after bills are paid. 

 I am reasonably educated, and at 64, I still have most of my wits. I have no major health problems and no debt other than two credit cards (currently at their $500 and $750 limits). I also inherited my beloved - at least by me - ramshackle family home that has not been lived in for more than 20 years. 

 I have two adult children, both in low-paying fields, and no grandkids. One, 44, is a gas-station cashier, and the other, 26, is a seasonal outdoor educator with a nonprofit. I feel like this is my chance to set them up for success, but I also want to make sure I don't create a burden for them in the 20 or so years I might have left, based on actuarial tables. 

 'I'd like to set both kids up with an HSA and a Roth IRA.' 

 I'm doing my best not to waste this incredible opportunity to leave something for my kids - something none of us ever imagined could happen. I'm extremely grateful, although I would trade this $400,000 to have my loved one back, but I'm also very stressed. I do not want to pay any sort of financial adviser. In my opinion, I could be a sitting duck. 

 My initial thoughts are to make sure all three of us have our own emergency fund (maybe six months of expenses each). I'm also considering getting all three of us solid whole-life insurance policies - so they have accessible, tax-free money of their own. I'd like to set both kids up with an HSA and a Roth IRA. And of course, I'll set aside money for taxes on this windfall. 

 Should I invest the rest in an index fund? Should I try to get a loan to fix up the inherited house and move there so I won't have to pay rent? Selling it probably isn't worth it since the total value is less than $56,000. I'm also wondering whether I should try to grow the food-truck business for better income, or potentially sell the business later. 

 But then what? 

 Grateful 

 You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually. 

 Related: 'When he doesn't get money, he becomes angry': My brother has led a life of chaos and financial ruin. What is my moral obligation? 

 When you break it down and spread the $400,000 across your lifetime, the inheritance should be more realistic and less stressful or intimidating. 

 Dear Grateful, 

 You have a lot in your favor, not least this $400,000. 

 First and foremost: You are in good health. That is the biggest gift of all, and long may that last. You don't mention health insurance, but you will qualify for Medicare at 65 - in less than a year. Remember, Medicare is not free. You will have to pay premiums - Medicare Part B, supplemental insurance or a Medicare Advantage plan, and prescription-drug coverage. These costs can add up to $300 to $600 a month, depending on the plan. 

 The food-truck business was an entrepreneurial move, and you net $200 every week, which I assume covers most of your bills. I tip my cap to you for starting this business. I can understand why you did it: It gave you structure, social interaction, a sense of purpose and some cash. On top of your benefits, you have $1,700 a month. 

 You have an opportunity to think about how you could make extra cash. 

 That $200 might seem like a drop in the ocean, given that you will soon be inheriting $400,000, especially given the time and effort involved, but it may keep you busy and engaged. Even an additional $300 to $500 a month would meaningfully extend your savings if you are able to expand your business. Still, you now have an opportunity to switch gears and think about how else you could use your free time to make some extra cash - a part-time job in a bookstore, for instance. 

 More good news: In most cases, heirs do not owe federal tax on inheritances. Spouses are exempt everywhere, while children, siblings, and others may pay between 0% and 16% depending on the state and kinship. Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania have an inheritance tax, which varies by relationship to the deceased. (These taxes start at 1% to 5% and top out at 16%.) 

 Putting your $400,000 to work 

 Your $400,000 inheritance can be used to supplement your current income and, if managed judiciously - go easy on the gifts - it could last you into your 80s and beyond. 

 As per your suggestion, you could put $360,000 into a low-cost and diversified stock-market ETF and bond-market ETF (60/40 or 70/30 stocks/bonds based on your age). Many retirees use a simple three-fund approach: a broad U.S. stock-index fund, an international stock-index fund and a total bond market fund. 

 When you break it down and spread the $400,000 across your lifetime, the inheritance should be more realistic and less stressful or intimidating. Using the common retirement rule - withdrawing about 4% per year or, given your age, a 3.5% withdrawal rate - taking 3.5% from $360,000 would give you $12,600 a year or $1,050 a month. 

 When you spread $400,000 across your lifetime, it should be less stressful. 

 That amount could bring your total monthly income to $2,700 before taxes. One big caveat: Inflation will gradually reduce your purchasing power, so keep some of your money in stocks so it can continue to grow. 

 Whole-life insurance is one option for a legacy and covering funeral expenses. It provides guaranteed, lifelong coverage with fixed premiums and an ultimate cash value. It's more expensive than term-life insurance, and, in your 60s, it could cost $200 to $350 a month for one $50,000 policy. Given your income, I'm doubtful this would make sense. 

 Look after yourself first. It's a life-changing sum that will give you additional income that can improve your quality of life and allow you to make your home as comfortable as possible. Your loved one would want you to use this money to create the kind of retirement you have dreamed of for yourself; that's why they left you the money. 

 Managing your expectations 

 Whatever you do, take your time, and put your own financial needs first. It's great that you want to make sure that your two children are taken care of, and this is a wonderful opportunity to do that. You could give them $10,000 each as gifts for emergency funds and $20,000 into your own fund; giving too much at once, and leaving yourself open to requests for more money. 

 On that subject, I also urge you to keep the news of your windfall close to your chest. Don't tell the good folks at the dog park or the customers at your food truck. There are a lot of people who need a lot of things, and while many people, your kids included, might be overjoyed for your good fortune, there will be others who will privately nurse jealousy and resentment. 

 Your home is your castle, and if you can, put some money aside as an emergency fund and see if there are immediate repairs you can make that would save you money in a few years. 

 I urge you to keep the news of your windfall close to your chest. 

 As for the inherited property: because it has been vacant for more than 20 years, hire a professional inspector to examine the condition of the roof, plumbing, electrical system, foundation, and possible mold or water damage. If repairs cost a lot, maybe you would consider selling it now and starting anew. 

 Improved insulation could save you on heating bills in the winter months and on electricity for air conditioning in the summer. 

 You could contribute to a Roth for each of your children, assuming they are both working, but given your lack of retirement savings and living in a home worth $56,000 that needs work, even one meeting with a financial adviser would help outline your priorities. Make clear that it's a one-time fee and you don't want recommendations for financial products. 

 Lastly, don't neglect basic estate planning: create/update your will, add beneficiaries to your stock/bank accounts and establish powers of attorney and health-care directives should you become incapacitated. 

 And most importantly of all for this next chapter of your life: Enjoy it. 

 Related: 'I didn't ask a man to rear-end my car': Social Security is replacing my disability benefits. Will the fund run out of money? 

 More columns from Quentin Fottrell: 

 'I don't own a home': I'm 62, unemployed and have $1.5 million for retirement. Can I afford to divorce my husband? 

 'My parents begged me never to put him in a home': I have taken care of my disabled brother my entire life. Am I doing enough? 

 Can I stop my kids from using their inheritance to support political causes I vehemently oppose? 

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 -Quentin Fottrell 

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