Ask Paul: My husband is ill, how can I make his inheritance last?

Dear Paul,

How can I generate income from a $100,000 inheritance?

I am 62 and work a five-day fortnight in the health sector. My husband, Rick, 60, has a life-limiting medical condition and is on a disability pension plus NDIS support for essential care. 

We are expecting an inheritance following the sad passing of his mother last year. 

I would like to retire in May, possibly sooner if his health deteriorates, and hope to qualify for a carer's pension. 

I am concerned about our future financial position and possible healthcare costs, or what happens if he passes away before I reach retirement age. 

At present we own our unit, purchased in April 2022. I have $560,000 and he has $180,000 in super plus about $15,000 in savings. I salary sacrifice into super. Our current living expenses are $50,000 a year, including $18,000 savings. 

I have budgeted $37,000 as a minimum to cover living expenses, including $5000 savings. We have up-to-date wills and enduring power of attorney in place. 

It has been a hard few years and your advice would be appreciated. - Jennifer

It certainly has been a hard few years for you and Rick, but in terms of your personal finances, I am pleased to see that you are in a good position.

Home ownership is such a great thing to achieve during anyone's working life, and you have got that under control. Then, as a couple, you have $740,000 in super, which you are topping up through salary sacrifice, $15,000 in savings and $100,000 to come as an inheritance

Where I think you are being too conservative is saying your expenses include your savings.

I really think we should look at the $37,000, less the $5000 savings, and plan for your assets, plus any benefits, funding the $32,000 a year you actually need to spend when you retire.

A lot of thought needs to go into this, in particular any benefits you are entitled to, such as a carer's pension. This you need to establish with Centrelink well in advance of retiring.

So, let's be super-conservative and say you receive no benefits. Without even considering the build-up of savings over the coming weeks and months, you already have some $850,000. The return required on this to generate $32,000 is about 4%. I would argue that, with a big majority of your investments in a low-tax environment, namely super, this is very achievable.

This actually makes you financially independent, with the potential of additional government benefits on top of this.

In terms of what to do with your $100,000, it seems to me that you have quite a few changes ahead of you. While topping up your super with an after-tax contribution is worth looking at, you'd need to discuss this with your fund or a professional adviser.

Personally, in times of change, in your shoes, I'd probably pop it into a safe and secure term deposit at a nice rate of around 4%.

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