A. Congratulations on receiving such a large inheritance! Although condolences for your loss are also in order, of course.
The key piece of information to answer your question is the amount of your annual expenses, especially if you purchase the house for $950,000. If you start your Social Security next year at 62 (which is another issue worth investigating!), your annual income will be around $53,000 with the pension and SS. Your wife’s income will be about the same, although you don’t mention her age. Assuming she is also currently 61 and will collect her SS next year, too, your combined incomes will be around $106,000 per year. How does this match up to your expense needs, taking into account the expenses common with home ownership as well as what you’d like to contribute to your daughters graduate school?
Your remaining inheritance of $1,250,000 could generate an additional cash flow of $43,750 (3.5%) to $50,000 (4%) per year, if needed. If this amount, plus your pensions and SS income, isn’t sufficient to cover your expenses, including taxes, I’d recommend finding a less expensive housing option. Selling the co-op may be planned as well, and if so, that would reduce the amount of money needed to purchase the new home, leaving more funds available to generate additional cash flow.
Of course, it’s also important to maintain an adequate emergency fund, which hopefully you already have outside of the amount you’re inheriting.
Best of luck and feel free to contact me if you have any other questions.
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.