Inherited $20,000 at 71: MarketWatch says a CD is only one option

A retired reader who inherited $20,000 at 71 has a tidy problem: no debt, steady income from Social Security and a pension, and a fresh bequest that could become savings, investments or a long-delayed treat.

The Pennsylvania resident wrote to MarketWatch’s Moneyist column, handled by Quentin Fottrell, saying they live comfortably in a senior high-rise and already have an IRA, a high-yield savings account, four certificates of deposit, and bank checking and savings accounts.

The reader said they expect Pennsylvania inheritance tax to cut the bequest by 15%, leaving about $17,000 to save or invest. Their first instinct was to open another CD, partly because their current CDs are earning close to 4%.

What should a 71-year-old do with a $20,000 inheritance?

Fottrell wrote that, given the reader’s debt-free status, stable retirement income and existing savings, another CD would be a reasonable choice. He also said the answer depends on what the money is meant to do: cover healthcare costs, support heirs, fund charitable giving, pay for education, bankroll travel or provide peace of mind.

If the money will not be needed for several years, Fottrell said the reader could consider a diversified bond fund, a balanced stock-and-bond fund or putting part of the money in the stock market. He framed those as options to weigh, rather than a one-size-fits-all answer.

A CD, or certificate of deposit, is a bank product that generally pays a fixed interest rate for a set period. It can suit retirees who value stability and do not need immediate access to the cash, though early withdrawals can carry penalties depending on the account terms.

How Pennsylvania inheritance tax changes the math

Fottrell said the reader was right to think about Pennsylvania’s inheritance tax, but he noted the rate depends on the beneficiary’s relationship to the person who died.

• Surviving spouses, and in certain cases children under 21, owe no Pennsylvania inheritance tax, according to Fottrell.
• Parents, children, grandchildren and other direct descendants generally pay 4.5%.
• Siblings pay 12%.
• More distant relatives and unrelated beneficiaries pay 15%, which Fottrell said appears to fit the reader’s situation.

That 15% rate would reduce a $20,000 bequest to roughly $17,000 before the reader decides what to do next.

Fottrell’s bigger message: review the whole retirement setup

Fottrell said the inheritance is also a chance to look again at the reader’s investments and household budget. He suggested keeping enough cash at the start of each year to cover any gap between expected expenses and dependable income such as Social Security, pensions, rental income or other regular payments.

For liquid, lower-risk choices, he pointed to short-term bonds, CDs, high-yield savings accounts, Treasury bills, Treasury notes and Treasury money-market funds. He also said an emergency fund matters, and that the $20,000 could serve that purpose if the reader does not already have one.

Fottrell wrote that a moderately conservative mix for someone in their early 70s often means about 40% in stocks, 50% in bonds and 10% in cash or cash-equivalent investments. By age 80 and beyond, he said a more conservative allocation is often recommended, with 20% in stocks, 50% in bonds and 30% in cash or cash equivalents.

He also noted that diversified stock portfolios have historically taken an average of about 3.5 years to recover from bear-market lows to their prior peaks, which is why he described two to four years of living expenses in low-risk, liquid investments as prudent.

Fottrell’s livelier suggestion was that the money could be used as “mad money” if the reader is already secure: a Mediterranean cruise, a bathroom renovation, a golf-club membership or another personal treat. His final point was blunt enough for any saver staring at a windfall: a 4% return barely keeps up with inflation, and the best part is that the money was unexpected.

This story draws on original reporting from MarketWatch.