How to retire on $200,000 inheritance?

One of the things that we can repeatedly think about (although not very often) is our retirement. Although we are young and many years away from it, we tend to think about how we would like it to be. After working for our entire lives, we would like a quiet retirement with financial stability. But what happens if we receive a large inheritance? Could it serve for our retirement?

Receiving an inheritance that was not in our budget can undoubtedly be a relief for us since having the extra money will always be welcomed. However, receiving a large amount of money also comes with great responsibility. We may think: what should I do with this money? Should I invest it?

These and more questions will be answered in this article to enlighten and give you options of what to do with your retirement inheritance.

First, what can I do if I receive over $200,000 on inheritance?


Receiving inheritance

Although it is not something that commonly happens, receiving approximately $200,000 on inheritance could be very beneficial for your retirement if you are diligent enough and think about your future. Many times we get carried away by the impression of receiving a large amount of money and spend it on things that, if we had thought better, we would not have done.

There are several options in which you can use the money from your inheritance and that could be very useful for your retirement since it would give you the financial stability that we all aspire to have at that age.

  • The first option that we recommend you study is hiring the services of a financial advisor who guides you in where and how you could invest your money, and after some time, receive more income. One of the best options is to invest in the stock market.
  • You could also invest in yourself and put that money in a savings account, which earns interest (although sometimes a little low). And as a few months or years pass, you will have more money than invested.
  • Another quite viable option that many people use is investing in an online brokerage agency. For this you do not need advisers, you can do it yourself with your internet connection.
  • And finally, you could maximize your retirement accounts with that money from your inheritance that was not in your budget.

Hiring a Financial Advisor

If you do not have much experience in the stock market and how things in the world of investments work, the best option for you is to hire a financial advisor.

These people are trained to manage their clients’ investments since they have studied the area and are up-to-date on investment strategies to make their clients earn money. Generally, they charge approximately 1% of the value of your annual account.

It is a bit difficult to estimate exactly what the economic value that a financial advisor can contribute is, but economic studies in recent years indicate that people who hire this type of service can receive returns that vary from 1.5% to 4% of their original investment.

This means that, if you decide to invest those $200,000, and suppose that the rate of return is 4%, within 10 years you could receive approximately $80,000 additional. Following the example, if you are 50 years old when you receive your inheritance, when your retirement is closer and 10 years have passed after investing, you will have already generated almost half of the money you originally had.

Invest in Stock Market

stock market

This is a good option for people planning their retirement and deciding to invest their inheritance in the long term. It is known that the stock market includes both risks and gains, this is because the ups and downs of the market are unpredictable. But if you want to take short-term risks, this option is for you.

Commonly, the rate of return on investments in the stock market is 10%. However, as we already mentioned above, changes in the market are unpredictable, and just as you can make a huge profit, it is also possible to suffer a huge loss.

If even knowing this, you decide to invest in the stock market, being optimistic, you can receive up to 5 times the amount you invested. It all depends on the time of your investment and the market performance.

Let’s make a hypothetical case, suppose you are 50 years old and receive $200,000 on inheritance and decide to invest this money for your retirement. The market rate of return is at 4%, in the first year you can receive approximately $ 8,000, after 10 years over $ 95,000, and by the time you are 70 years old, you can receive around $235,000 additional.

You may notice that 20 years after your original investment, the $200,000 amount doubled in value so that when you withdraw the full money from your investment, you will receive almost $435,000.

Now, if the return is much higher and your rate is 10%, after 20 years you can withdraw almost a million dollars. This can happen regardless of whether you use an online brokerage or not.

This is undoubtedly a good option to plan your retirement based on your inheritance. Always thinking about the future and how you could positively influence it, is one of the things that experts in stock exchanges recommend.

It is important for you to know that these examples are based solely on your income and the results are not calculated taking into account the fees or any other contribution you make to your account.

READ MORE: How Much Retirement Savings Do I Need to Retire Comfortably?

Plan your retirement by placing your Inheritance in a Saving Account

If taking risks is not your thing, much less when it comes to money, a high-yield savings account is the option for you. Although the rates are not usually as high as they are on the stock markets, some savings accounts offer up to a 2% annual percentage yield (APY).

Following the example above, you are 50 years old and plan to retire in 10 to 20 years. You deposit the money in a high-yield savings account and after 10 years you can receive approximately $40,000 and if you wait 20 years, you can withdraw around $95,000.

Indeed, it does not generate as much money as investing in the stock market, but it is certainly a good option if you receive an inheritance and decide to use that money to plan your retirement.

Before deciding on how to invest your money, remember that APYs can go up or down drastically and the lender you choose can set different fees and a minimum on the bills.

Likewise, inflation will also influence the money you receive when doing your investment. A financial advisor can help you with this.

Use this calculator to estimate the money you will have in your retirement.