Can I retire with a $200,000 inheritance?

Getting a big chunk of change from an inheritance is a nice way to boost your retirement savings. But whether or not it is enough to live on retirement is a very personal matter. If you’ve received around $200,000 and are wondering if your windfall will put you in the “I’m OK” category for retirement, you may need to check your accounts first. There are a number of strategies you can use to get there too. These include investing, working with a financial advisor, maximizing your other retirement plans, and more. If you have questions about retirement planning, consider working with a financial advisor.

What to do with your $200,000 inheritance

If you’re lucky enough to have received an inheritance from a loved one, there are many things you could do with it. If you’re hoping to stretch it long enough, you’ll want to avoid spending it. You could instead:

These options are not mutually exclusive, and there’s a good chance you could pursue a combination of these strategies. Below are some notable examples of what you can do with your money if you’re looking to retire.

Investing in the stock market

If you want to see serious long-term returns on your legacy and don’t mind a little short-term risk, you should invest in the stock market. If you’re going to take a do-it-yourself approach to investing, you could do it through an online broker. This allows you to manually choose the stocks you want to invest in.

So what kind of return can you expect? The average rate of return on stock market investments is 10%. But since the market swings up and down much more than savings account APYs, you could experience both extreme growth and massive loss. We try to be conservative with our estimates.

Let’s say you’re 45 and planning to retire in 20 years. If you took all of your $200,000 and put it into an online broker, here’s what you’d get in return with no extra contributions and a 4% rate of return:

  • 1 years: $8,000

  • 10 years: $96,049

  • 20 years: $238,224

As you can see, investing in the stock market more than doubled your initial investment. When it comes time to cash out, you’ll have a total of $438,224.

Keep in mind that this method is on the lower end of the average. If you somehow achieved an average annual return of 10% after 20 years of investing, you could walk away with $1,345,500. That’s more than six times your original $200,000 investment.

Please note that these figures are from revenue only and do not take into account commissions or other contributions you make to your account.

Work with a financial advisor

Not sure about your ability to manage your investments? Find a financial advisor in your area and let them take the wheel. Typically an advisor will only charge about 1% of your account value per year to manage your investments. And while it’s hard to pin down exactly how much additional value an advisor can bring, research suggests you could see additional annual investment returns ranging from 1.5% to 4%. Many advisors also offer financial planning services.

If you don’t want to work with a financial advisor, you could invest with a robo-advisor instead. They tend to be a little cheaper, but you won’t get a hands-on deal, and your money will likely be invested in a model portfolio based on your risk tolerance.

Maximize your retirement plans

Whether you have a 401(k) through work plan or an IRA you opened with a broker, both may be worth contributing to, especially since you have the extra cash to maximize both. For 2021, the contribution limits of the pension plan are:

  • 401(k) contribution limit (traditional and Roth): $19,500

  • 401(k) Recovery Fee Limit (over 50): $6,500

  • IRA Contribution Limit (Traditional & Roth): $6,000

  • IRA Recovery Contribution Limit (Over 50): $1,000

If you’re 50 or older, you could contribute up to $33,000 a year to both your work-sponsored retirement plan and your IRA. It would take six years to maximize your contributions with your $200,000 before you ran out of money to contribute.

The growth of your retirement accounts can vary based on your age, when you expect to retire, and the type of investor you are. But you can expect an average rate of return of 5% to 8%, depending on market conditions. This is on par with your regular investment accounts.

Open a high-yield savings account

Maybe you don’t have the stomach to put all your money in the stock market. And even if you do, some of your cash should still be in cash. Although savings rates are currently low due to the COVID-19 pandemic, the best high-yield savings accounts in years offer an annual percentage return (APY) of around 2%. If you go this route, here’s what you could earn in interest only with no other contributions:

  • First year: $4,000

  • 10 years: $43,798

  • 20 years: $97,189

So if you’re 45 and plan to retire in 20 years, you’ll have earned nearly $100,000 more on your inheritance through a high-yield account. But keep in mind that APYs can go up or down, and the lender you choose for your account may have different minimum amounts and fees. And also consider that inflation will reduce some of the value of your savings interest.

Bottom line

If you’ve recently inherited a $200,000 inheritance, there’s a chance you could retire with just that money. It depends on how you invest it, what type of investor you are, and when you plan to retire. The more aggressive you are, the more likely you are to get a higher return, but that also means a higher level of risk in your portfolio. Also remember that the longer you postpone retirement, the longer your money will remain in the market with growth potential.

Retirement planning tips

  • Getting a sizable inheritance is nice, but if you’re not sure what to do with it, it would be a good idea to get the insights of a financial advisor. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors in your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.

  • Planning for retirement can be difficult to do on your own. Use the SmartAsset retirement calculator to get an idea of ​​your prospects for achieving your goals.

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