Inheriting Money? Here’s How to Make It Last

An anonymous caller and his girlfriend are musicians who dream of building a home with a monetizable recording studio. How do they untangle personal wants from business needs?
Will feels stumped about the options in his defined benefit pension plan. When should he choose a guaranteed annuity over a lump sum payment?
Mark and his partner will soon inherit an IRA worth over a quarter million dollars. With today’s elevated interest rates, would throwing it all at a primary residence be the smartest play?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Anonymous asks (at 02:36 minutes): My girlfriend and I are 27 years old. We’re tired of dealing with the quirky old buildings of New England and we’d like to build a new home within the next two to five years.
Our dream is a five-bedroom home with a basement, a two-car garage, solar panels with batteries, geothermal-assisted HVAC, an EV charging station, a deck, a fenced-in backyard for two dogs, and a recording studio.
This is a lot, and we don’t expect to complete everything together. We'd like to start with a small house and add extensions as we move along.
We project the cost to range from $250,000 on the bare bones end to $700,000 for everything we want. What should be our order of operations, and, most importantly, when should we build the recording studio?
We're both part-time musicians. I recently pivoted from full-time musician to IT. My annual salary is $67,000, and my girlfriend makes $59,000. Our side hustle earns an extra $20,000 to $50,000. We expect our annual earnings to be $250,000 combined in three to five years.
She has $22,000 saved as an emergency fund. I have $4,000 in credit card debt and my girlfriend has $14,000 in student loan debt. We own our cars outright. We can save $6,000 a month, not including the income from our music business.
The ballpark cost of the studio is $100,000 to $300,000. This would be the only income-producing part of the house. We’d like to rent it to artists as a recording studio, a small venue to shoot music videos in, or as a practice space for local bands.
Our current home studio is in our shared apartment. We can't record anything too loud because quiet hours restrict personal practice time. And our bands and musical acts struggle to find practice space.
I'm torn. Building it sooner means we’d have a business asset for longer to increase our income even more. On the other hand, it also means we’d have to wait to build the rest of the house.
What should we do?
Will asks (at 25:10 minutes): How do I choose between a guaranteed annuity and a lump sum payment in a defined benefit pension plan?
I’m 28. I have an investment portfolio of $121,000 and no debt. Along with my W2, I run a small knife-sharpening business that grosses $40,000 annually.
The pension offered by my employer allows for two options. Option One is a guaranteed annuity starting from age 65 until death. Option Two is a lump sum payment I’d roll into a Traditional IRA to self-manage when my employment ends.
Option One sounds easy and would help with longevity risk, but it also sounds like it’ll yield less of a return than Option Two. Of course, more money in the future is better than less money, but, is there a situation where the annuity is a better choice?
What are the unknown unknowns and how do I think through this?
Mark asks (at 40:48 minutes): My partner and I want to buy a $700,000 to $800,000 home within the next year. With this goal in mind, what should we do with the $300,000 inheritance I’m expecting to receive?
We have an additional $80,000 saved for a down payment. Should we offset high interest rates by throwing everything at the down payment? Owning a $700,000 house with less than a $400,000 mortgage sounds nice.
Our household income is $175,000. We rent a single-family home for $3,000 monthly. We have a fully funded emergency fund, max out our Roth IRAs each year and I contribute to my work’s 401k plan up to the company match.
How can we save and grow this windfall while keeping it safe and accessible? And since this is an inherited IRA, are there any tax considerations to watch out for?
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