How to Start Retirement After a Windfall Inheritance

Estates are made up of more than money or liquid assets such as bonds, stocks and mutual funds. One of your first tasks is to see what you really have and how much it's worth. You also have to determine what liabilities come with the estate. You may have inherited a mansion along with a hefty mortgage. Even if the mansion is debt free, there are still property taxes and utilities to pay and maintenance and repair costs. Make a list of all your newfound property from most liquid to least liquid.

You'll have to decide whether assets such as real estate, cars, jewelry, antiques and artwork need to be sold soon or whether you should wait to convert these properties to cash when you think the market is better. Selling at a fire sale price will bring in the cash quicker, but it will yield less money than if you take your time. The appraised value for insurance purposes may not be the market value. Consider a well-respected auction house to sell antiques and artwork, especially if you're not an expert. Assign a value to each of your asset listings. Cash, stocks and bonds are assigned a market value. It might take more sleuthing to arrive at a value for other assets.

What may seem like a huge amount of money in a lump sum might fool you into thinking the funds will last until you're old and gray. For example, $1 million divided by 35 years is only $28,500 a year -- not exactly enough to live the high life. As the principal is cannibalized, the potential for earning a return diminishes.

Seek the help of an investment counselor who has experience with retirement portfolios. Your objectives change when you're retired and no longer bringing in a steady paycheck. If you put the $1 million in a savings account at 2 percent interest, it only generates $20,000 per year. However, if you increase the return to 5 percent a year through a varied portfolio of mutual funds, stocks, savings and money market funds, the $1 million generates $50,000 per year. Make that principal from your inheritance work hard for you by earning more and it will last longer.

Inheritances are considered individual property even if you're married and live in a community property state such as Wisconsin, Idaho, Nevada, Louisiana, Washington, New Mexico, California, Texas and Arizona. However, if the inheritance is deposited into a joint account or is used to purchase assets that benefit the marital state, such as a house, those assets become community property.