Receiving an inheritance at different ages

Receiving an inheritance

According to a report in Your Mortgage, 11.6 million people in the UK have received an inheritance in the last 10 years.

Whether it’s expected or not, receiving an inheritance at different ages is always going to be a strange experience with mixed emotions. Depending on your relationship with the deceased, you might feel sad about their loss but grateful for the inherited money.

Remember, your loved ones will have wanted you to make use of your inheritance. So when you find yourself with a lump sum, there are some practical ways you can use your inheritance at different ages throughout your life.

Receiving an inheritance in your 20’s? Open a pension

If you haven’t already got a private or personal pension, think about using your inheritance to open one. There are many benefits to starting a pension sooner in life. The longer you save, the larger your pension pot will be. And if you save enough income when you reach 55, you could retire earlier than the state pension age. The general recommendation is to start putting at least 10% of your annual income into a pension in your twenties.

What you save now, you can spend later in life and possibly without the burden of going to work to earn an income. Savings is the key word here. Asides from placing money in a pension, there are several ways to save, so you can start building a nest egg for other purposes. For example, you could invest in an ISA or lock money away in a long-term fixed-rate account. Some easy-access savings accounts are currently offering higher interest rates.

Receiving an inheritance in your 30’s? Save for a deposit

If you haven’t already bought your own home, you could put your inheritance towards a house deposit. As a guide, if you want to buy a £200,000 house, you’ll usually need a deposit of £20,000. Some lenders might ask for a higher deposit. Obviously, the higher the deposit, the less mortgage you will pay, but this might not always be the right strategy. Monthly mortgage repayments could allow you to save or invest the rest of your money.

If you already own your own home, consider topping up your pension. In your thirties, it’s recommended that your pension contributions are a minimum of 15% of your annual income. Try to save some of your money so you have a rainy day or emergency fund to hand, especially in this increasingly volatile economic climate. If you have a young family, you could open ISAs for yourself and your partner and Junior ISAs for your children.

Receiving an inheritance in your 40’s or 50’s? Top up your ISA and diversify

As well as adding to your pension, topping up your ISA with some of your inheritance is another useful strategy. The current savings allowance for 2022-23 is £20,000. This means you can put this amount into your ISA until 5th April 2023. Focusing on your savings in your forties will help you reap greater returns on your money in your fifties and beyond. Depending on your situation, your inheritance could enable you to take early retirement.

You might already have a pot of savings and a few investments. But, if you have been dabbling in the stock market, why not use your inheritance to invest more wisely with a solid strategy in place? A healthy investment portfolio is diverse and covers several different funds. A financial planning review will help you refine your savings and investment strategy and make sure you can look forward to a financially secure future.

Early 60’s? Build a legacy

If your inheritance and savings allow, you could focus on building a legacy for your loved ones. Think about how and what you want your beneficiaries to inherit from you when you pass away. Then, consider how your inheritance will affect your overall estate value. It’s common for inherited money to take people over the inheritance tax threshold. So, get your estate revalued and have a review with our team. And remember to spend a little on yourself too!

Along with supporting your retirement, you might decide to use your inheritance to buy a holiday home or a second home. And if you have more nomadic tendencies, you could use your newly acquired money to travel. Whether it’s a luxury cruise or an Amazon jungle trek, make sure you enjoy your money because that’s what your loved one would’ve wanted.

For more information, please download our Receiving an Inheritance guide.

Have you received an inheritance but are unsure what to do next? Get in touch to speak to our financial planning team.