How to make the most of an inheritance without squandering it
As originally appeared in The Jerusalem Post on February 7, 2025.
“Fear of death increases in exact proportion to increase in wealth.” -Ernest Hemingway
A few days ago I had a meeting with a couple who received a modest inheritance. It was approximately $400,000. Nothing to sneeze at on the one hand but nothing that will enable them to retire in their early 50s. We discussed their goals and what they plan to do about the money as well as their general financial situation. After adding up the apartment they planned on buying, the new car, a family trip to Central America, and going abroad for all of Passover on a high-end program, I got to a cost of over $2m! They have little in other savings, don’t make particularly high salaries, and are currently renting.
What would you do if you came into a bunch of money? Travel? Buy a new car? Maybe give a little charity? For many it’s all about short-term improvement in standard of living.
The Super Bowl is just hours away, and I am reminded of one of my favorite football players and his financial advice to other players. A few years ago, I wrote, “After losing a playoff football game last weekend, Seattle Seahawks running back Marshawn Lynch gave some insightful financial advice. Lynch came out of retirement, at the end of the season, to help out the injury-ravaged Seahawks (not that I am making any excuses for why my favorite team lost!). He did a great job of investing his money over his playing career, and set himself up financially for life. His advice was given to younger players. “I done been on the other side of retirement, and it’s good when you get over there and you can do what the “bleep” you want to,” he said. “Start taking care of y’all mentals, y’all bodies and y’all chicken. So when you’re ready to walk away, you walk away and you be able to do what you want to do.”
For those of us who have been living in Israel for a long time and think that chicken is something we eat, the loose translation of what he said is, “Protect your mind, your body, and your money, so when it’s time to retire, you can do whatever you feel like doing.”
Athletes are notorious for squandering away their large salaries in quick fashion. Sports Illustrated reported, “that 78% of NFL players also go bankrupt or are under financial stress within two years of retirement and 60% of National Basketball Association players are broke within five years of leaving the sport.”
Lynch’s advice struck a chord with me, as I firmly believe that it equally applies to those who come into a sudden windfall, often from inheriting a large sum of money. The story I mentioned above is something that over the years I have heard numerous times in relation to inheritances. When I start asking about plans for the money, saving and investing for the long-term is nowhere close to being the first answer given.
Alessandro Martinello, of Lund University, studied the habits of those that received a sudden inheritance. He wrote, “First, we show that heirs respond to a sudden, salient, and sizable increase in available financial resources by decreasing their saving efforts in the ten years after inheriting, and that the net worth of the heirs converges back towards the path established before parental death. Overall, only about a third of the initial increase in net worth remains nine years after parental death.”
The research indicates that most people who don’t make investing a priority and instead focus on buying things blow through the money in short order. Those who buy property( that they can afford) or other financial assets like stocks and bonds keep and grow their money over time.
First steps
You can spend some money, just don’t get carried away. Unless you inherit millions, what seems like a lot of money to you probably can’t be stretched for as many things as you think. Here are some tips on how to deal with receiving a lot of ‘chicken’.
As I have written many times, I often recommend to those who suddenly come into a large amount of money, to wait 2-3 months before making any decisions. This helps focus the client and helps eliminate impulsive behavior.
Then make a game plan. Figure out what it is that you want to do both long and short-term with the money. Make sure your goals are realistic based on the amount of money that is received. Also, think about the future and analyze how much pension money et al. you will have coming in on a monthly basis.
Invest
After defining your goals and needs, it’s time to implement an investment strategy that will help you achieve whatever it is that you want to accomplish. Keep it simple. Too often I see people get involved in all kinds of investment schemes which they have no business investing in. Deposits in Ukrainian banks, gold mines in Africa, and oil pipelines are just a sampling of what I have heard. Again, unless you inherited tens of millions, stick to stocks, bonds and real estate. Paying off your mortgage is also a possibility.
Be ‘mental’ with your ‘chicken’. Why sacrifice long-term financial security for instant gratification? Heed the sage advice of Marshawn, and you can have a comfortable financial future.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
