How Inheritance Can Shape Your Retirement


In the realm of financial planning, inheritance often remains a less spoken about yet significant element that can profoundly influence one’s retirement landscape. For many Australians, the prospect of receiving an inheritance brings a mix of emotions and questions about the best ways to utilise this windfall. Whether you’re a retiree, a young professional, or part of the working population keen on structuring your financial future, understanding how to effectively manage an inheritance is key to maximising its benefits for your retirement years.


The Power of a Lump Sum Contribution to Your Superannuation

One of the most impactful decisions you can make with an inheritance is contributing a portion of it as a lump sum to your superannuation account. Superannuation, or “super,” is Australia’s pension scheme designed to help citizens save for their retirement. Making a lump sum contribution to your super can significantly boost your retirement savings, thanks to the power of compound interest.


Why It Matters:

  • Tax Efficiency: Contributions to your super fund can be tax advantageous, reducing your overall tax liability and maximising the amount that goes into your retirement savings.
  • Compound Growth: The earlier you contribute, the more time your investment has to grow through compounding, potentially leading to a larger nest egg by the time you retire.


The Importance of Regular Investing

Inheritance doesn’t just offer an opportunity for a one-off boost to your retirement savings; it also opens the door to establishing or enhancing a regular investment strategy. Regular investing, even in small amounts, can lead to significant growth over time due to dollar-cost averaging and the compound growth.

Key Considerations:

  • Diversification: Using part of your inheritance to diversify your investment portfolio can help manage risk while exposing you to a broader range of potential growth opportunities.
  • Flexibility: Regular investing doesn’t lock up your funds as much as some other options, allowing for adjustments based on life changes or financial goals.

Debunking the Myth: Paying Off Debt vs. Investing

A common dilemma faced by those coming into an inheritance is the choice between paying off debt or investing for the future. While becoming debt-free is an attractive idea, it’s not always the most financially advantageous in the long run.

Why Investing May Prevail:

  • Interest Rates: If the interest rate on your debt is lower than the expected return on your investments, putting money towards your investments could net you a higher overall return.
  • Financial Growth: Investing can help your inheritance grow, providing you with greater financial security and the potential to pay off your debt later on, possibly even using the returns from your investments.


Navigating Your Options with Care

Receiving an inheritance is a pivotal moment that requires careful consideration and strategic planning. Here are a few steps to ensure you’re making the most of your windfall:

  1. Consult with Professionals: Seek advice from financial advisors, tax professionals, and legal experts to understand the implications of your decisions.
  2. Consider Your Entire Financial Picture: Look beyond the immediate benefits and assess how your choices align with your long-term financial objectives.
  3. Plan for the Unexpected: Ensure that part of your inheritance is earmarked for an emergency fund to safeguard against unforeseen circumstances.


Looking Ahead

Inheritance can indeed be a game-changer for your retirement, offering unique opportunities to secure your financial future in Australia. By making informed decisions, such as boosting your superannuation, engaging in regular investing, and weighing the benefits of paying off debt versus investing, you can maximise the impact of your inheritance. Remember, the key to making the most of this opportunity lies in strategic planning, informed decision-making, and sometimes, the courage to look beyond conventional wisdom.

In the end, how inheritance shapes your retirement is largely in your hands. With the right approach, you can transform a moment of inheritance into a lifetime of financial security and comfort in your golden years.

If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.


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