If the heir is willing to give up, at least partially, the idea of maintaining an asset balance of $1,000,000 throughout life, how would that alter the picture? If you were, say, 40, and inherited a million net, could you sink all or part of it into an annuity and guarantee yourself a more solidly middle-class lifestyle for your remaining decades?
How about if it were an annuity for a certain period (i.e., if you buy it and die tomorrow, your heirs be paid for the life of the contract).
Assuming that a house in a nice urban area costs around $250,000, and that the interest from the remaining funds brought in at least $20,000 a year, I could live on this inheritance. Easily.
**Otto, Dangerosa: ** Further nitpicking regarding the estate tax–it’s a Senate vote away from being permanently repealed. The House of Representatives voted on April 13 to repeal it. Cite.
Screw the deficits, Paris Hilton has gotta eat!
I have to agree with the idea of buying a house/paying off the mortgage rather than investing the entire lot. Eliminating housing costs is going to make a huge difference to the standard of living you get out of the investment income, plus the house will in all likelihood appreciate in value, providing you with some degree of protection from inflation. It’s investing for all intents and purposes, but you get the house out of it too. I agree that the living one would get off of 1 million is pretty skimpy, but wouldn’t be too bad for a single person in a low cost of living area.
One thing you have to watch out for here: in some areas property taxes keep going up and up, particularly with home price appreciation. I need to pay about $6,000 a year in property taxes alone, let alone home upkeep. If someone thinks they can buy a house for $250,000 now and then live on $20,000/year in perpetuity, and they expect to live for more than 10-15 years, they are seriously deluded. One good run of inflation and you’ll go broke. Of course you can always sell the house later and pocket the money (or most, depending on the capital gains taxes at the time), and eat into the equity. I don’t know why you wouldn’t want to eat into the equity, since in 30-40 years a cool million might be worth a lot less than it is now.
As a general rule:
If I were 18-25 years old, I would use the 1 million to spend on a good education, some investments, as capital for a business, or a blend of all three.
If I were 26-40 years old, I would use the money to put a good amount for kid’s college expenses (assuming kids, of course), get a good downpayment on a house, create a vacation fund, pay off any outstanding credit cards or bills, and some fun investments.
If I were 40-59 years old, I would use the money to help pay down my mortage, outstanding bills, pay off any education debts occured, maybe fund education to start a second career, pay off debts associated with starting my own business.
If I were 60-80 years old I would put the money in very conservative investments, splurge on some nice trips, eat out at a nice restaurant once a week, visit family, etc.
I’d definitely have to keep working, but I’d be able to have a “fun” job instead of a more serious, higher-paying one.
I’d take about 250K and pay off my house and fix it up, have a vacation and get some stuff. I’d invest the rest, only taking out for major expenses like buying a car, college tuition, the occaisional vacation or house repair. That would leave plenty of money for retirement.