It provides the huge benefit of locking the funds away until actual retirement.
You can take funds out of a Roth without penalty.
Look, dude, we’re not talking financial advice to a investor. We’re talking to a person who has little income, and a one time windfall who would like to have a little set by for retirement.
Tax Free? This person doesn’t pay income taxes, nor will they when they retire.
You have to tailor your advice to the actual person, not just use Conventional Wisdom.
You have no idea how much this person will pay at retirement, which is why you don’t defer the taxes. They are paying none now.
If you think the OP will continue to make 10k a year for the rest if his or her life, then it’s stupid to think any of these funds will make it to retirement. The funds will never make it that far, and they’ll be pulled out of any account, penalty be damned. The OP will have less money in your scenario either way.
Good thinking. One way to do that is through a website called The Motley Fool at www.fool.com. There you can learn all about personal finance and investing so you can answer your questions for yourself.
No one here is able to answer them for you–so I’d suggest you learn to answer them for yourself and ignore any other advice you get in this thread.
Other than… your advice? I think paying off debt is a universal truth of money management, superseded only if you can somehow get your hands on a copy of the 2015 sports almanac.
Thank you for illustrating why the OP should learn personal finance him/herself instead of just doing what other people tell him to do. Your “universal truth” is very far from it.
If one can earn a rate of return higher than the interest they pay and are willing to take the increased associated risk, then paying off debt is absolutely not the best thing to do for that person.
For example, I have student loan debt at 2.5% interest that I have about 20 years left to pay, and I have enough money to repay it invested in broad stock index ETFs (which have paid a 10% return in every rolling 20-year period since the Great Depression). I’m happy with how I have arranged things and am glad I ignored the “universal truth” to always pay off debt.
Also, to use an absurd example to illustrate the point that “just pay off your debt” is not a universal truth, if someone were willing to loan me $1 billion at 0% interest repayable in one lump sum in 30 years, I absolutely would take that loan (and would not use the proceeds simply to repay the debt I just incurred).
nevermind
Gee, that was covered in post 2, if you had cared to look. The probability of someone making $10k a year having very low interest rate debt seems pretty slim to me.
I concur with the others on paying off any debts.
I think any discussion of education has to be a discussion tailored to your potential strengths, what fields they might pay off in, how much you might have to invest to get whatever credential you needed, and how easy or hard it would be to find jobs in that field, especially at your age. (I’m assuming you’re ~50, given what you said about being ~15 years from retirement.) Talking about it in generalities won’t be very informative; you need a one-on-one with a career counselor.
Physical cash is dangerous: it can get lost, stolen, burned up in a fire, etc. Keeping a few hundred in the house in case of emergencies is one thing, but $50K? Bad idea.
What to do: it depends on you. Money that you can be sure you won’t need for awhile? I’d recommend index funds. But you don’t want to have money you might quickly need in any sort of stock investment, because if the market’s down when you need it, you can’t wait for it to bounce back.
At the very least, I’d recommend the Treasury bonds that are protected against inflation. They may pay 0% over inflation, but that still holds the value of your money constant. I’m not as worried about inflation as some people, given that the Fed seems to treat 2% inflation as a ceiling, but even at 1.5% inflation, money will lose 20% of its value over 15 years. The pegged-to-inflation bonds will keep you from losing that 20%. That’s $10K out of your $50K; no point in throwing it away.
Lots to think about here - thanks for all the suggestions. BogelHeads is proving useful. I’m starting to feel informed. I’ll check out MotleyFool, too.
I have roommates who share the bills. Though I qualify, I do not accept public assistance. I have not discussed this situation IRL with anyone, except the benefactor, and I don’t intend to, atleast not until I’m 100% on a game plan.
My vehicle is 10yo and in good shape. I may consider a new one but, I get more excited thinking about a bona fide education - lucrative or not.
There is no 401k in my life. The last savings acct I had was nearly depleted by the bank’s never ending series of fees. (They paid pennies in interest quarterly yet, took dollars in fees monthly - on a frickin’ SAVINGS acct) Sadly, I don’t qualify for any local credit unions.
I’ve tried the stock market twice in my life - once with a small sum I earned and again with a portfolio gifted by a relative who swore it’d make a bundle. Both failed. Since it went to nothing anyway, I feel like the money should have just been burned - at least I would have gotten some heat out of it.
Anyway, I do appreciate the ideas and suggestions. Feeling like I have a good chance to handle this intelligently. Thanks, again.
That’s fantastic. I hope this windfall comes your way.
You should certainly be able to find no-fee banking if you deposit the entire $50,000. In fact, even a small fraction of that should enable you to get a no-fee account. And I’d be very surprised if you really don’t qualify for any local credit unions. Many have really broad requirements for membership. For some, just living in the area is enough. But if you can’t find a local one for which you qualify, you should be able to qualify for a more distant one and then use the ATMs or branches of the local ones.
If you don’t mind my asking, where exactly do you live? I’m sure we can find a credit union for which you do qualify. And if you’re a veteran, there’s also USAA.
Heck, you qualify for USAA if a parent or grandparent is a veteran.
Well, Op, then here’s my idea. Take 10K out. Bills, newer used car. Find a reliable insurance company. For the other $40K- Buy an annuity, starting at age 62. This should net you monthly payments then of around $300/mo for the rest of your life. If by that time, all you have is SocSec, $300/mo will be a nice little addition.
Both points are irrelevant. I was responding to pancakes3’s assertion of a universal truth, and neither of your points add to the discussion.
Well… this says nothing about a Roth and volumes about how people mis-manage their money.
There are ways to lock up the assets of a Roth to protect it from yourself. For example, you could invest the Roth funds into an annuity, using the terms of the annuity itself as a restriction on your ability to withdraw money penalty-free.
Of course, the real problem with a Roth for the OP, is that it will take nearly a decade to get all of the funds into it. So there’s still a lot of money that needs to be managed in some way outside of the retirement account.
For the record, since we got off topic on ‘universal truth’ the OP did state it was CREDIT CARD DEBT, which is usually 18% or higher. So that should be paid off first, unless you know of an investment that pays higher than that consistently (in which case, I’d also like to know 
). If there is any other type of debt, you should consider the % rate of that debt against what you will make in a typical investment. That is, a 2% student loan, car loan, etc. should NOT be paid off if you can make 5% in an investment since you still net 3%.
Most banks will forego all fees with a few thousand dollars deposited, although I think that number can be high ($10,000 for Bank of America, which is why most people refer to them as ‘Bunch of Assholes’). Many, however, do offer lower balances, usually because they are trying to attract students who are establishing credit. And credit unions will be even better with fewer minimum balance restrictions. You don’t think you qualify? I can virtually guarantee you do. Most of the ones in San Diego where I am only require you to be a resident of the county to join. I’d be surprised if the ones where you are have substantially more restrictive rules.
Well, that’s not true either–there’s no universal rule that one “should NOT” pay off debt in that situation. There are other things to consider, such as (i) the amount of risk and work associated with obtaining the 5% return and (ii) any potential feeling of well-being and avoidance of hassle from simply not having the debt.
If you are seeking a professional financial advisor, I would suggest avoiding any who are not fee-only. You should be able to find a fee-only planner in your area through NAPFA. You should be able to get a plan and some basic education from an advisor for a few hundred dollars. If you go to an insurance agent or a broker or bank for financial advice, they will not charge you up front, but you will pay fees/sales commissions (not always obvious) that will eat into returns.
Lots of advice in this thread, some being debated and argued but FIRST and FOREMOST the OP should - at the very least - take one piece of advice from this thread that is IMO not arguable:
DO NOT keep your windfall in your proverbial mattress! :smack:
Unless you think Civilization as we know it is going to crumble in the next 15 years there is ZERO reason or benefit to it.
Keeping it out of financial vehicle means your money will lose value
Keeping your money at home is FAR less safe than putting in a conservative money market fund or Roth IRA (fire, theft, lost).
Keeping your money at home increases temptation exponentially leading to less saving and before you know it… gonzo.
Depending on your tolerance for risk, you can earn 3-4% to as much as 18-20% annually on that money.
Heck, if civilization as we know it crumbles, then those little pieces of paper probably won’t be worth anything anyway.