Let’s imagine you just have just come into a lot of money. No matter the circumstances, you have a rare financial opportunity. So, what do you do first? Do you pay off your debts? Invest it? Or do you finally splurge on something you have always wanted? Perhaps you want to quit your job or make a career change? Many people have the urge to resign after an inheritance, especially if they are unsatisfied with their current employer. However, there are a few very important things to consider before you tell your boss off and quit your job.
Reasons Not to Resign after an Inheritance
1. You Will Still Have Bills to Pay.
Even if your net worth suddenly and drastically increases, you will still have bills to pay. Keeping your current job ensures that will continue to have money coming in. Therefore, you do not have to use any of your inheritance to cover these expenses. Not only will you have your current cost of living to maintain, but there are several other major life expenses to consider. Mortgage payments, property taxes, and education costs would greatly reduce your wealth if you do not have another source of income.
Your company’s health insurance plan could be reason enough not to resign after an inheritance. Healthcare costs will be a huge financial responsibility at any stage of life, so it is important to think about unforeseen medical expenses and conditions that could affect you later on.
2. Inheritance and Estate Taxes
Speaking of taxes, you should not forget about the inheritance and estate taxes. Although most inheritances are too small to qualify for federal taxation (more than $11.7 million), there are some states that collect taxes at lower thresholds.
While it is possible that you will not be responsible to pay these taxes, you should check the local laws or consult a financial advisor before you go spending your inheritance. State laws vary and some determine taxes at much lower amounts than the federal government. If you are unfortunate enough to live in one of the states that levy inheritance or estate taxes, or worse yet both, it could cost you a huge chunk of the total sum.
A million dollars is a lot of money. But, it is not as much as you would think. Furthermore, it only depreciates in value thanks to inflation. Most people often overlook how much inflation will affect their dividends, retirement accounts, and savings over time. However, the rate of inflation will greatly impact your buying power and the real value of your retirement dollars. Therefore, it benefits you more to continue working and contributing to your retirement accounts, especially if your employer matches your annual contributions.
4. Social Security Benefits
Lastly, if you quit your job after an inheritance, it could affect how much you receive in Social Security benefits. When you stop working, you no longer make contributions into the system. Since your benefits are calculated based on how much you contribute during your lifetime, it would greatly reduce the amount you receive. So, if you leave your job during your peak earning years, you are minimizing this safety net should your financial plans fail.
Ways to Maximize Your Inheritance without Resigning
You do not want to a cautionary tale of someone who lost a fortune due to irresponsible spending. Instead, most people who have inherited large amounts of money choose to view it as a way to grow their wealth and financial security. With a well-thought out plan and proper management, you can maximize your inheritance instead of wasting it. Most people do not know how to utilize or manage large amounts of money. So, find someone who can offer sound advice and help you plan ahead.
First, you must protect your principle amount and preserve capital to last you for years to come. That means living below your means and not blowing your money on extravagant purchases. Once you cover your monthly expenses, you will need to make a plan for the money you do not need to survive. Then, you can determine the best investment strategy which allows you to live off interest and dividends.
Lastly, set some aside for yourself. After a huge windfall, financial experts actually advise you to spend some on yourself. This does not mean you should go crazy, but psychology suggests that small indulgences prevent you from making foolish financial decisions. If you want to pursue personal ambitions, go back to school, or travel, you can pay yourself a salary while you do it. As long as you create a budget, there is no reason why you can’t live a little and enjoy your inheritance.
Deciding to Resign after an Inheritance
Receiving a large inheritance can change your life. If you are considering to resign from your job, take time to evaluate the full financial impact. There is no need to rush the decision, so seek professional advice to assess your circumstances. You can park your money in high-yield accounts and let it accrue more interest as you weigh your options.
However, if you really hate your job or want to consider another career, look at less extreme alternatives before making decisions you can’t undo. You could work fewer hours as you explore other pursuits. Or, perhaps take personal leave before completely walking away. Sometimes you just need to remove yourself from a stressful situation to gain perspective. Ask yourself how you could use this money to bring more joy and fulfillment to your life.
Deciding to never work again is a huge lifestyle change. Keep in mind that it may not be the best decision for you. Some people discover they really do not want to fully retire and need something to keep them active. Instead of making a rash decision and leaving your job, fully examine all the ways you could use it to build greater financial freedom.