Consider a hypothetical scenario with an 18 year old living in the state of Maryland in the United States, in his freshman year of college studying for a four-year degree in an engineering field. He solely depends on his father (mother is not in the picture anymore), who makes a respectably above-average salary for the area. Consider said father has just passed away, leaving the teen with >$500,000 from his retirement fund alone, along with a car (leaving the teen with having two vehicles now) and other inheritances that do not include any land. They were originally renting a 2-bedroom apartment and the teen commuting to college, but now the teen needs to figure out how to live on his own without a large income. The apartment is too expensive for him to justify continuing to live in alone. He has the skills to make ~$30k-$35k per year in full-time work as-is, but only currently makes ~$8k per year in part time work.

The way I see it, he has two major options:

Minimize cost of living and finish college:
If he moves all the things he doesn't need into storage and lives on-campus or in a cheap studio apartment close to the campus he can minimize the amount of money he spends until he graduates, and use the inheritance to finish debt-free and can get a job that pays over $60k-$80k per year to start. He can use the money that's left to purchase a house later.

Enter the workforce immediately:
If he gets a reasonable job and uses the inheritance to purchase a home close to his place of work, he should be able to stabilize himself enough that he can resume studies to finish his degree over a longer period of time (debt-free).

Are there better options for a young adult surviving the loss of all his providers, or is there something I'm not considering?

Answers should be purely in terms of economic viability in any general scenario similar to the one above (though specific examples are not discouraged as they can be useful in illustrating your point), and the teen continuing life without wasting what he has to work with and staying above the poverty line.

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    From an economic standpoint, the teen's situation has only improved. Whatever portion of the father's above-average income he was receiving, it's almost certainly less than the half million inheritance he just got. He can just keep doing whatever he was doing before - the teen hasn't lost financial support, he has gained it. – Nuclear Wang Nov 15 at 15:59
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    The linked question is quite similar to this one: with $x windfall, what should you do? The answer: If you're young, keep working, and avoid touching that windfall until you need to, so it can continue to grow further. – Grade 'Eh' Bacon Nov 15 at 19:40
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    Father didn't have life insurance? – Barmar Nov 15 at 22:34
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    Plenty of 18-year-olds go to college without having a half million dollars and two cars available, so I'm not quite sure why this is phrased as the "viability" of "surviving." Millions of US students go to college every year with far, far fewer resources. – Zach Lipton Nov 16 at 6:30

Consider the difference between this situation and that of a student financing their education through loans. The size of this inheritance is more than sufficient for a student to graduate from a 4-year university debt free, as opposed to with debt of $30k or more (depends on the school, obviously).

I would strongly recommend the student finish their education before joining the workforce full-time. Many people find it difficult to motivate themselves to finish their education while making money, even when the amount they could be making with a degree like engineering is multiple times more. If the plan before the death of the father was to attend college, the plan should remain to attend college.

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    This is a grotesque situation described but removing the emotions, it is a financial boom. The university and her departments won't be hesitant to offer scholarships and bursaries. Professors won't even blink to grant extensions of incredible lengths. – Lan Nov 16 at 14:57
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    For that matter, the student could use the nest egg to finance modest cost-of-living as a student in a European nation that provides free education (and healthcare) to US students - you finish without either high tuition or high student loans, with really cool cosmopolitan experience for the resume. – Harper Nov 16 at 19:39

First, the young man needs advice from a certified financial planner. This includes determining how much of the inheritance will actually be his after any taxes or penalties, what withdrawal restrictions may apply because it is from a retirement account, how the young man could use it to jump-start his own retirement fund, etc.

While the personal loss is tragic, it appears that the young man has been provided for financially as much as, or more than, most parents can provide when alive. Therefore he has the flexibility to pursue long-term plans for education and career. Many young people cannot expect financial support past 18 even if their parents are still around, and they still go forward.

Typically, if college will be a benefit to one's career, it is best to graduate as soon as possible, debt-free, and then enjoy the increased earning potential. So option 1 (minimize cost of living and finish college) is good. Large assets in the student's name may affect financial aid, but generally not if they are in retirement accounts, and may be counterbalanced if income is low.

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    I'd add that given his presumed financial inexperience the young man should use a planner that enters in a fiduciary relationship (legally obligated to recommend what's best for the client) with his/her clients and charges by the hour, and not a free planner who is working on commission and is incentivized to recommend products that make the planner the most money instead of recommending what's best for the client. – Dan Neely Nov 15 at 20:29
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    He needs a financial planner who only operates on a fee basis. Most "financial planners", particularly those with named firms such as Edward Jones, are in fact annuity salesmen, and will consider him a sheep to be sheared. He will lose much of the nest egg. – Harper Nov 16 at 19:41
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    @DanNeely In my unpleasant experience, fee-based is not a guarantee of good advice. We paid a significant amount of money to have our actual situation ignored and to receive a hard sell for insurance that we neither needed nor could afford. – David Thornley Nov 16 at 21:06

In the case cited above one has to realize that the 500K in retirement will be taxed, and worth about 65% of that value (a very rough estimate), so the person should plan on 325K rather than the 500K. Other assets were mentioned but no details were given.

One of the cars may be sold if there is equity, but often cars have a lien greater than their worth because of rapid depreciation. The car should be sold or returned to the dealer (which is possible for the dad's car).

After all is said and done, I would recommend completing school. A salary of 60K is about the current average household income and thereby a good investment. The key would be to limit expenses and attempt to graduate with as much of the estate in tact as possible.

What does school cost? Even at 50K/year that is enough for 6 years of schooling and expenses.

Conversely, unless the other assets not listed are significant, there is no chance that they will spin off 30K per year (the difference between taking a job now and the college salary). Plus the student would likely enjoy life more with a degree.

Another thing makes the case for the child staying in school. What would dad want? How would he want to be honored with this significant estate? The brief post suggests he would want his child to stay in school, otherwise why would he be paying now?

Had dad purchased a term life insurance policy things would be very different. The proceeds from the term policy would past tax free to this heir who could then use them to finish school and probably have some money left over. Then he would have a awesome start to a retirement fund, leaving the retirement accounts in tact, but now in her name. Term life insurance policies are cheap. If someone depends upon your income, please buy life insurance.

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    Retirement funds are not necessarily taxed on withdrawal (I have a Roth 401(k)), and this amount of money won't see any inheritance tax. The question is unclear as to whether the retirement fund was $500K+ or what the teen received. – David Thornley Nov 15 at 18:47
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    The retirement account (s) may or may not be tax qualified. If the beneficiary withdraws funds at reasonable rates, or the funds are held in Roth IRAs for example, there may be very little tax. – Glen Pierce Nov 16 at 4:49
  • @GlenPierce - Fully agree - the tax bracket of a student with $8k of other income is going to be pretty darn low. – Jon Custer Nov 16 at 17:17
  • Either the retirement fund is pre-tax or post-tax. If post tax, then tax has already been paid on it. Yay! If pre tax, then if properly managed it will be taxed as it is drawn from, which will be nowhere near 65% if the money is used to cover expenses roughly as they occur. – David Schwartz Nov 18 at 18:13

The biggest threat to the nest-egg is how most people tend to react to windfalls. (I've also sat on boards where old men ask the old treasurer "what is our financial status?" And he says "we have a lot of money" so they say "expense approved".) This "lotta money" viewpoint will plunge one into debt and disaster very fast.

The target of this windfall needs to learn that lesson. I recommend it by reading books on people who have come into windfalls and what has happened to them.


The second threat will be from others looking to "help" this young person with his money. Every one can be presumed to be seeking to profit, and should be disregarded. If the young man seeks out his own financial advisor, he runs the risk of dealing with a commission-based "advisor", who is motivated by sales commissions on financial products that you don't ned and will cost you a lot of money - that sales commission doesn't come fron nowhere! In fact these products are made unnecessarily complex so they can hide commissions and fees. Money is simpler than all that.

Once I walked into a large "financial advisor" firm, and said "I am looking for a fee based advisor". He said, "Oh-kay, give me $2000!" He did... he literally did. And then he recommended the same financial products he normally gets commission on, but gave me back the commission! These were lousy financial products I didn't need with high expense ratio and under-market performance. I walked away. Got my $2000 back, too!

Even true friends may recommend bad brokers; they have bet their savings on them and want to believe they made the best call. Ain't necessarily so.

Emotion about money is very, very strong. Emotion will win unless knowledge is stronger, and emotion leads you to believe you are smart and know everything. Bust that belief. Always learn.


When we manage endowments (e.g. The pile of money that the university has, which funds a professor's chair, the pile of money is to last forever), we operate under a law called UPMIFA (P is for Prudent). It requires us to invest the endowment in the stock market, and draw around 4-5% of the endowment per year. The invested endowment will hold value (on average over the long term) at that drawdown rate. Over 7% is presumed to be imprudent.

If we take the $500k and treat it the same way, 4% is $20,000/year, 5% is $25k, and 7% is $35k/year. That's not half bad, and invested like an endowment, it can do that forever.

The typical endowment looks roughly like 60% stocks, 10% bonds, 10% foreign stocks, 10% real estate and 10% cashlikes.

You will also have some more cash from selling the second of the two cars (I recommend the newer one, so you wipe out the financing debt and make more money).

Housing: downsize to a student's requirement. Don't let a nest egg of money dissuade you from considering housemate shares. They are great for students!

The exemption for Federal estate tax is $5.6 million. State of Maryland exempts children, spouses, siblings and parents from estate tax. Ergo, the kid gets to keep all of his dad's money.

What to do, then?

  1. Downsize living arrangements, ditch the extra car, learn to cook.
  2. Keep the part time job.
  3. Invest the $500K for income, I'd say 100% in ETFs selected for maximum income.
  4. Use the ETF dividend income augmented with cash from tax loss harvesting to help pay for school and living expenses.
  5. Graduate with an engineering degree and a six figure bankroll.
  6. Figure out what to do from there.

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