This is long - if you take the time to read and comment - thank you!!!!
I know everyone's situation is different, so here is mine. I leave it to those of you much smarter than me to debate.
Wife and I will be buying a modest house in Pflugerville in December. After down-payment and incentives we will be borrowing $235,000.
I am currently the Executor of my mom's estate and waiting on a potential IRS audit. All indications are that I stand to inherit between $100,000 to $200,000, most likely in or after 2021 (depending on whether or not we get audited).
My wife is filipina and has always talked about moving back there in retirement. I don't object because the cost of living is so much less.
My wife and I currently make enough money that we can take a nice vacation each year and set aside about $20,000 to save/invest. However, my job is for a small company with a single owner who probably only has 10 years of employment left that I can count on. Once my boss retires, I have no idea what I can do to make what I make now (I kind of lucked into a good situation). I make make significantly more than my wife. We are in our mid 40's, so we may well pack it up and head to the Philippines in 10 years. Once I reach SS age, we can live on that in the Philippines.
So let's assume -
$235,000 loan starting 1/1/19 (let's say value of the house is $300,000)
$200,000 inheritance on 1/1/2022
$20,000 savings / year
no debt at present (other than car payment, but I treat that as a monthly expense in my mind)
no savings at present (other than down payment and money for some new furniture)
10 more years of employment, then sell house and move to Philippines.
I love a good trip to Vegas, but I take a fixed amount of money and never go over, so I would say that I am not too risky with money at this stage in my life.
It appears to me that I have two options with the inheritance (which is the real question I am asking).
1) Use the inheritance to pay down the mortgage and pay off the remainder within a few years; invest $20k/year over the next 10 years; sell the house in 10 years for hopefully $350,000 or more; take that $350,000 to the Philippines and live off it until SS kicks, hoping to never have to touch the investment account. Probably won't save much of the mortgage payment once we pay off the loan (opting for better vacations) so don't factor that in.
In this option we would have $350,000 from sell of home and have $300,000 or so in the investment account (assuming 7% return on investment)
2) invest the inheritance and continue to make mortgage payments until we sell in 10 years (assume 4.5% interest on house - closing still five months away so unknown) I would think that we would still owe about $185,000 on mortgage at time of sell.
In this option we would have $165,00 from sell of home and about $650,000 in the investment account.
I understand that the math will always work out that investing the inheritance is always going to yield more money (7% return vs. 4.5% interest rate), my question is more along the lines of what risks are there with each option? To me option 1 is the least risky. As stated above, I am definitely risk adverse.
Thanks and look forward to your thoughts.
I know everyone's situation is different, so here is mine. I leave it to those of you much smarter than me to debate.
Wife and I will be buying a modest house in Pflugerville in December. After down-payment and incentives we will be borrowing $235,000.
I am currently the Executor of my mom's estate and waiting on a potential IRS audit. All indications are that I stand to inherit between $100,000 to $200,000, most likely in or after 2021 (depending on whether or not we get audited).
My wife is filipina and has always talked about moving back there in retirement. I don't object because the cost of living is so much less.
My wife and I currently make enough money that we can take a nice vacation each year and set aside about $20,000 to save/invest. However, my job is for a small company with a single owner who probably only has 10 years of employment left that I can count on. Once my boss retires, I have no idea what I can do to make what I make now (I kind of lucked into a good situation). I make make significantly more than my wife. We are in our mid 40's, so we may well pack it up and head to the Philippines in 10 years. Once I reach SS age, we can live on that in the Philippines.
So let's assume -
$235,000 loan starting 1/1/19 (let's say value of the house is $300,000)
$200,000 inheritance on 1/1/2022
$20,000 savings / year
no debt at present (other than car payment, but I treat that as a monthly expense in my mind)
no savings at present (other than down payment and money for some new furniture)
10 more years of employment, then sell house and move to Philippines.
I love a good trip to Vegas, but I take a fixed amount of money and never go over, so I would say that I am not too risky with money at this stage in my life.
It appears to me that I have two options with the inheritance (which is the real question I am asking).
1) Use the inheritance to pay down the mortgage and pay off the remainder within a few years; invest $20k/year over the next 10 years; sell the house in 10 years for hopefully $350,000 or more; take that $350,000 to the Philippines and live off it until SS kicks, hoping to never have to touch the investment account. Probably won't save much of the mortgage payment once we pay off the loan (opting for better vacations) so don't factor that in.
In this option we would have $350,000 from sell of home and have $300,000 or so in the investment account (assuming 7% return on investment)
2) invest the inheritance and continue to make mortgage payments until we sell in 10 years (assume 4.5% interest on house - closing still five months away so unknown) I would think that we would still owe about $185,000 on mortgage at time of sell.
In this option we would have $165,00 from sell of home and about $650,000 in the investment account.
I understand that the math will always work out that investing the inheritance is always going to yield more money (7% return vs. 4.5% interest rate), my question is more along the lines of what risks are there with each option? To me option 1 is the least risky. As stated above, I am definitely risk adverse.
Thanks and look forward to your thoughts.
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