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How to Retire on a $200,000 Inheritance

Getting a hefty chunk of change from an inheritance is a nice way to boost your retirement savings. But whether or not it’s enough to live off of in retirement is a very personal question. If you’ve received about $200,000 and you’re wondering if your windfall makes you ready to retire today, you should consider fully assessing the math behind what you’ll need in retirement. There are also a number of strategies you can use to make your inheritance grow. These include investing, working with a financial advisor, maxing out your other retirement plans and more. If you have retirement planning questions, consider working with a financial advisor who can fully assess your personal situation.

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 as you plan for retirement. If you’re hoping to stretch it far enough, you’ll want to avoid directly spending it for as long as you’re able to. Instead, you could:

These options aren’t mutually exclusive, and there’s a good chance you can pursue a combination of these strategies. Below are a few important examples of what you can do with your money if you’re looking to retire with your inheritance in mind.

Stock Market Investing

How to Retire on a $200,000 Inheritance

If you want to see serious, long-term returns on your inheritance, and you don’t mind a little short-term risk, you should be investing in the stock market. If you plan to take a do-it-yourself approach to investing, you could do so through an online brokerage. This lets you hand-pick the securities you want to invest in.

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

Say you’re 45 with plans to retire in 20 years. If you took your entire $200,000 and put it into an online brokerage, here’s what you’d get in return after no extra contributions and a 4% rate of return:

  • 1 year: $8,000
  • 10 years: $96,049
  • 20 years: $238,224

As you can see, investing in the stock market more than doubled your original 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 did somehow average 10% annual returns after 20 years of investing, you could cash out with $1,345,500. That’s your original $200,000 investment more than six-fold.

Note that these figures come from earnings alone and don’t account for fees or any other contributions you make to your account.

Work With a Financial Advisor

Not confident in your ability to manage your own investments? Find a financial advisor in your area and let them take the wheel. Typically an advisor will only charge around 1% of your account value annually to manage your investments. And while it’s hard to nail down exactly how much additional value an advisor can bring to the table, 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 instead invest with a robo-advisor. They tend to be a little cheaper, but you won’t get hands-on treatment, and your money will likely be invested in a model portfolio according to your risk tolerance.

Max Out Your Retirement Plans

Whether you have a 401(k) plan through work or an IRA you opened at a brokerage, it might be worth contributing to both, especially since you have the extra cash to max them both out. For 2021, retirement plan contribution limits are:

  • 401(k) contribution limit (traditional and Roth): $19,500
  • 401(k) catch-up contribution limit (over 50): $6,500
  • IRA contribution limit (traditional and Roth): $6,000
  • IRA catch-up contribution limit (over 50): $1,000

If you’re 50 years of age and older, you could contribute upwards of $33,000 a year to both your work-sponsored retirement plan and your IRA. It would take you six years of maxing out 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 plan to retire and the type of investor you are. But you can expect an average return rate of 5% to 8%, depending on market conditions. This is on par with your regular investment accounts.

Open a High-Yield Savings Account

How to Retire on a $200,000 Inheritance

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

  • First year: $4,000
  • 10 years: $43,798
  • 20 years: $97,189

So if you’re 45 and planning to retire in 20 years, you will have earned almost $100,000 extra 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 might have different account minimums and fees. And also consider that inflation will cut into some of the value of your savings interest.

Is it Possible to Retire With $200,000?

If you’ve recently gotten a $200,000 inheritance, there’s a chance you could retire on that cash alone. It depends on how you invest it, what type of investor you are and when you plan on retiring. 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.

Remember, too, that the longer you put off retirement, the longer your money stays in the market with the potential to grow. So while it’s possible to retire with just $200,000, it would likely be a very modest retirement if you need it to live on immediately. That amount could be used in addition to

Bottom Line

The best way to retire on your $200,000 inheritance is to make it grow. You can do this in a number of ways, from putting it into the right savings account to finding the right risk balance in an investment portfolio. The right plan for you is going to be unique and you may want to first consult with a financial advisor to determine how to make your inheritance stretch as far as possible.

Retirement Planning Tips

  • Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Planning for retirement can be tough to do on your own. Use SmartAsset’s retirement calculator to get an idea of your prospects of reaching your goals.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/katleho Seisa, ©iStock.com/jacoblund

Dori Zinn Dori Zinn has been covering personal finance for nearly a decade. Her writing has appeared in Wirecutter, Quartz, Bankrate, Credit Karma, Huffington Post and other publications. She previously worked as a staff writer at Student Loan Hero. Zinn is a past president of the Florida chapter of the Society of Professional Journalists and won the national organization's "Chapter of the Year" award two years in a row while she was head of the chapter. She graduated with a bachelor's degree from Florida Atlantic University and currently lives in South Florida.
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