I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job?

I recently lost both my parents and inherited $240,000. Due to life choices (divorce) and living paycheck to paycheck until recently, I do not have a lot saved for retirement. I am 58 years old and make a decent living of $130,000 per year. I have about $100,000 saved for retirement excluding my parents’ money. I owe $258,000 on my mortgage on a house worth $825,000.

I am not looking to retire before 65, but am hoping to downsize and maybe take a less stressful job for half the money if I can find one. I’m really confused about what I should do with my parents’ money to set myself up for a solid retirement. I don’t know if I should invest it, pay off my mortgage, save aggressively, or downsize to a smaller home and invest the proceeds.

I’ve never had money in the bank until the last couple of years and I don’t know how to be smart with it. I am paralyzed by the choices and have a low risk tolerance. I am aware of how hard it is to come by and don’t want to do any risky gambles. I currently have most in a CD at 4% and the rest in a high-yield savings account. Finance makes me break out in hives.

What is the smartest move?

Cautious & Nervous

Related: I’ve been a stay-at-home mom for 10 years. Do I take a part-time job to spend more time with my kids or get a job for six figures?

Stress is an inside job. It won’t necessarily go away in a part-time job that pays you less.

Your anxiety may be provoked by the seemingly overwhelming amount of choices you are giving yourself, rather than your inability to manage your finances. You’ve also lost your parents and you may not even realize how traumatizing and life-altering that is for you. We should avoid making life-altering decisions when we are grieving. We want to start anew, but sometimes maintaining the quiet status quo is the best way forward, for now, and the most difficult.

The smartest move is to make lots of small, considered moves over time, ideally with the advice of a financial adviser — a fiduciary who must put your interests before your own, and not a person who wants to earn a commission and sell you a rake of products that you don’t understand. It starts with your home, and whether to downsize (yes, if you feel comfortable) and paying off some of your mortgage (yes again, if that’s important to you). It will shorten the term, remember, not reduce the monthly payment.

The $240,000 won’t disappear. It recently landed in your bank account, and there’s no bad fairy that says you have to invest or spend it within the next 30 days. Take your time; it’s not burning a hole in the walls of the bank. You can make one decision at a time. You have already set aside $100,000 for retirement, so your aversion to dealing with monetary matters is not matched by your aversion to saving.

There’s no “right” answer to your questions. The decision to pay off your mortgage early would also depend on your timeline to freedom from debt by the time you reach retirement age, and your current interest rate. If you’re paying a 6.5% 30-year fixed mortgage rate, it makes sense to pay off some early, given the savings in interest. If you have a 2.5% interest rate, you may be more comfortable paying off at least $100,000 of that loan.

Nora Yousif, an RBC Wealth Management financial adviser based in Boston, commends your achievements thus far. “Your instincts are spot on,” she said. “Saving, downsizing and investing are the name of the game here. Start maxing out your 401(k) to help you rebuild your nest egg since you are in the last inning, so-to-speak, of your career, which means you can sock away as much as $31,000 per year. Between the ages of 60-63, you could up the ante even more and save up to $34,750 per year.”

Don’t miss: What on Earth is going on with the American consumer?

That still leaves you with your $240,000 inheritance, and whatever you have if you sell your house and move to a smaller property. You could take at least half of that money and invest it in stocks. If you feel confident about the long-term future of U.S. equities, you could also invest a portion of your inheritance in an exchange-traded fund that tracks the total market, the S&P 500 SPX or another diversified index (perhaps the Vanguard Total Stock Market ETF VTI).

As I told this reader who wondered whether they should accept a $61,000 lump sum or $355 monthly payment for life, take the $61,000 because if the stock market averages 10% returns per year (as it has done for the last three decades, if you even out the bumpy with the smooth), you are earning money on your principal investment and also on the annual returns on your investment. Plus, you need an income during retirement, which could last 30 years.

I have a cure to excessively low risk tolerance and financial anxiety, and that is some easy math. If you invested $100,000 in the S&P 500 with a 10% annual return, you would end up with around $672,750 after 20 years due to the magic of compounding. If, on the other hand, you put $100,000 in a CD with a 4% interest rate, you would have around $219,112. Balance your life goals with your investment goals. Historically, the market is a win-win over the long term.

It’s smart to have an emergency fund of six to 12 months’ worth of expenses, and to make an effort to make money while you sleep. Five years after the pandemic, as the Federal Reserve weighs up whether it’s time to cut interest rates and wonders whether global socio-economic unrest and President Donald Trump’s trade war will push the U.S. into an economic slowdown or recession, a cash cushion will give you more peace of mind.

Don’t miss: Recession indicators are out of control. When will this madness end?

For safer havens, look at shorter-duration bonds with a maturity of less than five years; Treasury inflation-protected securities (TIPS), which are inflation-protected bonds issued by the U.S. Treasury; and mutual funds and exchange-traded funds. Morgan Stanley MS cites possible upside in “value-oriented and defensive sectors.” So-called defensive sectors include nondiscretionary consumer goods, utilities and healthcare stocks.

As you enter your 60s, Charles Schwab SCHW, the financial-services company, says a portfolio with a “moderate” risk would comprise 60% stocks, 35% bonds and 5% cash or cash investments. When you reach 70 to 79, it recommends moving to a “moderately conservative” portfolio of 40% stocks, 50% bonds and 10% cash or cash investments, while for 80 and above, a “conservative” mix of 20% stocks, 50% bonds and 30% cash or cash investments would work best.

This will hopefully go without saying, but please don’t buy individual stocks. Some fixed-income index funds or ETFs pay monthly dividends, while dividend-growth or high-yield ETFs allow you stock exposure with an emphasis on dividend income. Certificates of deposit (CDs) and high-yield online savings accounts, which are offering yields of up to 4.5% and 4.4%, respectively, are a low-risk option.

There are important differences between high-yield savings accounts and CDs. With the high-yield savings account, funds are more liquid, although withdrawals are limited to half a dozen per month. With CDs, you are committing to a set period of time. Interest rates can also change with high-yield savings accounts — even after you deposit your money — based on the Fed’s benchmark rate. When you buy a CD, the rate does not change.

With less risk comes less reward. “While CDs are safe, they may not generate the kind of returns you’re looking for,” Yousif adds. With interest rates at 20-year highs, there are many exciting fixed income opportunities out there. Given your risk profile, bonds may offer an attractive alternative as you consider branching out from CDs.” However, she likes your plan to downsize and buy something for half the amount. “You’ll knock off your monthly mortgage payment freeing up your cashflow to be able to.”

Choices come with a lot of responsibility, but they are a newfound luxury you can afford.

Related: ‘He was very paranoid of banks’: My mother found $35,000 in cash after my father died. What should she do with it?

My friend asked me to chip in $1,600 for her son’s prom-night limo. Has the world gone mad?

I’m a stay-at-home. Do I take a part-time job to spend more time with my kids — or get a job for six figures?

My wife and I have $7,000 in pensions, $140,000 cash, plus $3,500 in Social Security. Can we afford to retire?

META