Suze Orman discusses 8 things you ‘definitely should do’ with your inheritance, including your retirement savings

Suze Orman discusses 8 things you ‘definitely should do’ with your inheritance, including your retirement savings

Renowned personal finance expert Suze Orman, host of the Women & Money podcast, recently shared a few things she thinks people should do if they receive an inheritance. “You need to look at your financial situation, and you need to write everything down,” she begins.

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Orman emphasizes that before you do anything with your inheritance, it’s important to understand what your current money is, what it’s being used for, and how your inheritance can be most useful.

Let’s look at eight things Orman says someone should do with their inheritance, and then discuss them in detail:

  1. Pay off all debts at the highest interest rate, depending on the size of the inheritance.

  2. Deposit $1,000-$2,000 into an emergency savings account.

  3. Set aside eight months of expenses in a high-yield or mandatory money market savings account.

  4. Put aside as much as you can into your retirement accounts throughout the year until they are exhausted.

  5. Create a 529 plan for your children’s college funds.

  6. Start paying into long-term care insurance.

  7. Set up additional investment accounts for retirement.

  8. If they are still alive, take care of your parents.

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Orman says eliminating credit card and personal debt should be a priority. He also suggests paying down your mortgage if the debt is significant and the interest rate is high.

On the topic of debt, Orman describes Dave Ramsey’s debt snowball model, which involves writing everything down and getting rid of the debt with the highest interest rate first — with one exception: “If I inherited money and someone lent me money that I couldn’t pay back, even at 0% interest, I would pay it back before I did anything else with any of my inheritance.”

After you’ve paid off all your debts, if you still have extra money from an inheritance, Orman suggests putting $1,000 to $2,000 into an emergency savings account. “Now I want to differentiate between an emergency savings account and a savings account that you have to pay into,” he says. “An emergency savings account is for real emergencies, like your car breaking down and costing $400 to fix.”

According to a recent Bankrate survey, 27% of Americans have no emergency savings. Orman even states on his podcast that 74% of people can’t cover a $400 emergency expense without borrowing money.

Once your emergency savings account is funded, the next thing Orman recommends is setting aside eight months of expenses, which is more than the typical three to six months most of us are familiar with.

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“And once I do that, if I have money left, I’ll look at my retirement accounts,” Orman says. “And if I can fully fund them this year and put money into them, I definitely will.”

Orman then talks about setting up a 529 plan for your children’s education, but emphasizes that you have to take care of your parents first, if they’re still alive. “The reality is, right after debt, emergency savings, savings you have to pay down, and your own retirement accounts, your parents have to come before your kids.”

Finally, Orman recommends starting long-term care insurance if you’re 50 or older. If you still have money, he suggests investing outside of your retirement account in bonds, ETFs or individual stocks.

When receiving an inheritance or other lump sum, many people may want to give the money away to help their children or other family members, but Orman warns against that. As people age, they have more health care costs, can’t work as much and may need the inheritance to survive, especially as people live longer. “Be careful not to be too generous with your children,” she says. “The greatest gift your children can give each other is the gift of independence.”

While Suze Orman’s advice provides a solid foundation for managing an estate, everyone’s financial situation is different. Consulting with a financial advisor can help you tailor these strategies to your needs, ensuring your estate is used most effectively for your long-term financial health.

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