Coming into an inheritance – what are my options?

Receiving an inheritance is usually a bittersweet occasion – especially as the outcome of losing someone you love. Yet, as the dust settles from your loss, you will need to think about how to manage the bequest. Choosing what to do with your inheritance will depend on many factors such as your income level, outstanding debt, risk appetite and how close you are to retirement.

While your personal way forward will depend on your financial situation at the time, here are some things to consider:

Pay off debt

In addition to easing your financial stress both currently and in the future, paying off outstanding debt is a great feeling. You can utilise your inheritance to either settle or reduce your home mortgage and lower your interest payments over the long term. Alternatively, it is a good idea to clear out any high-interest debt that you may currently have – ranging from credit cards, car loans or short-term loans.

Contribute to Super

Contributing into your Super is a tax-effective way to accumulate wealth and save towards your retirement. While directly contributing your inheritance into Super is a non-concessional contribution that is not very effective, your inheritance can be used to boost your Super in other ways. For example, you can make concessional contributions into your Super via salary sacrifice, and supplement this loss in income through your inheritance. Just stay aware of the contribution caps that apply to ensure that you don’t pay additional tax.

Invest in your future

Investing your inheritance is another smart way to set yourself up for financial success. Though you may have many options in front of you, keep in mind the risks and rewards associated with how you choose to invest your inheritance. How you invest will also depend on your stage in life – younger individuals with employment income will be able to take on higher risks, while individuals dependent on investment returns should focus on growing their nest egg.

Treat yourself

You can also use part of your inheritance to do the things you couldn’t do before. If your pre-inheritance financial situation didn’t allow you to take that dream vacation, now might be the time to consider it! However, don’t make rash decisions and allocate too much of your inheritance towards discretionary spending. Spending too much now will limit how much you have for your future.

While these are just a few of the options available to someone that has come into an inheritance, what you choose to pursue will depend largely on what your priorities are. As mentioned before, it is unwise to act rashly as soon as you receive an inheritance. Take some time to think about your current financial situation, what you want to achieve in the future and ultimately, how you can live a more fulfilling life – be it saving up for your children’s university fees or giving back to society.

No matter the path you choose, these are big decisions, and it is a good idea to speak to a planner on the best way forward. Should I pay off my high-interest debt before reducing my mortgage? How can I use my inheritance for my retirement? How should I invest my inheritance? These are all questions that you may have, and spending time with a professional will help you develop a strategy to achieve your long-term goals.