I received this email last week:
I found your blog thru real simple magazine. Props to you. Nice.
So here is my question, 44 years old, female, broke my whole life, no savings, wanna change. Came into 18K (my Dad died) and I don’t know what to do with it. It has been sitting getting like 2% since December 07. So if you can help or have a suggestion great, if not I understand.
First things first. If you’re broke, you probably need an emergency fund. If you don’t have access to 3 months of expenses, you need to save towards that goal first. Just make sure that you treat your emergency fund as just that: an emergency fund.
I try to refrain from giving specific advice on this blog. That said, I would DEFINITELY put this money away for the long-run by opening a Roth IRA and depositing $4,000 per year for the next 4+ years. As far as where to open your Roth IRA, I would say either a discount broker like Scottrade or a mutual fund company like Vanguard (I’m NOT necessarily recommending these companies). The easiest route to go would be a fund company like Vanguard. Vanguard offers lots of low-cost index funds as well as exchange-traded funds. The simplest route to go would be to go with a target retirement fund. Since you’re 44 years old, I would considering looking at Vanguard’s Target Retirement Fund 2030 (other mutual fund familes have target date funds that are worth looking at).
I wouldn’t stop there.
Based on some simple math, I figured that your $18,000 lump sum will be worth somewhere in the neighborhood of $65,000 at retirement (assuming a 9% rate of return minus a 3% inflation rate). That’s hardly enough for a comfortable retirement. I would make saving for retirement a big priority. If you have access for a company-sponsored retirement plan, use it. If not, you should try to save at least $4,000 per year towards your retirement. Doing so could give you nearly $184,000 at retirement (again, adjusted for inflation). It’s not a lot but it’s better than nothing.