financial future: decent-sized inheritence with a modest income?

Question

i come from a upper-middle class family and have thus always lived quite comfortably. I find myself going into an artistic profession that generally has modest pay, even after decades in the discipline (i.e. $30-40k / year). i am pretty sure though that I will be getting about $2 million in an inheritance from various family members over the next 20 years. my question is: if i use this money properly, will the inheritance allow me to maintain the lifestyle I'm used to, despite my modest income? Or do I need to adjust my idea of what a reasonable life is (or change my profession)??

Answer 1

You have to consider that the cost of living increases every year. On average, what you can buy with 40k today is going to cost you 80k in 20 years. Of course this is an average and if inflation heats up your cost of living goes up with it.
On a conservative side, taking a 5% withdrawal from $2 million, will net you $100,000 a year without ever touching the principal. You do not want to touch the principal for as long as possible.
Let's say you have terrible timing and you invest all your money in December 1999 (Dow 11,500) and you decide to take 10% each year. 3 years later (Dow 8500) you have lost $600,000 of the $2 million and taken another $600,000 ($200,000 each year) in income. Now your nest egg is below $1 million and you have to change your lifestyle quickly.
Take it easy on the withdrawal rate in the beginning and your inheritance should last a lifetime and then some.
Good luck.

Answer 2

Well $1 million in a CD drawing 5% annually is $50,000. If you think you'll be getting $2M then that's $100k/yr in interest. And that is considering a very conservative return, you'd probably, not the 10% you can expect from investing in the stock market. But my advice to you is to scale down your living, anyway. For one thing, you don't sound absolutely positive you'll be getting that inheritance - it may be more, it may be less. And it doesn't sound like you'll be getting that money right off the bat either - you are going to have to make it on your artist's salary first.

Believe me, you'll appreciate it more if you know you can make it without that inheritance. It's sorta like insurance, no matter what, you can make it on your own, it instills confidence in yourself.

I, too, expect quite a substantial inheritance from my in-laws. But my husband and I are making our own way first because there is no guarantee his parents will leave us anything - he does have two brothers. We know there is a will, but we've never seen it so we aren't banking on anything.

You can make it on a more modest income - Honda's do come with leather seats and they aren't so bad.

Answer 3

A good mutual fund returns around 12% annually. Allowing for inflation, you can draw about 8% each year. How much do you need?