How to Retire on a $200,000 Inheritance

An inheritance may help 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, maximizing your retirement accounts, among other approaches.

If you have retirement planning questions, consider working with a financial advisor who can assess your personal needs and goals.

What to Do With Your $200,000 Inheritance

If you 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:

Find a financial advisor to manage your investments
Invest in the stock market yourself through an online brokerage
Put it in a high-yield savings account
Max out your retirement accounts

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.

1. Invest it in the Stock Market

If you’re seeking long-term growth 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 doubles 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.

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2. 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.

3. 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 2026, retirement plan contribution limits are:

401(k) contribution limit (traditional and Roth): $24,500
401(k) catch-up contribution limit (over 50): $8,000
IRA contribution limit (traditional and Roth): $7,500
IRA catch-up contribution limit (over 50): $1,100

If you’re 50 years of age and older, you could contribute up to $32,500 a year to your employer-sponsored retirement plan, plus another $8,600 to your IRA. It would take nearly five 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.

4. Open a High-Yield Savings Account

If you’re not comfortable investing the entire $200,000 in the stock market, keeping a portion in cash may make sense. A high-yield savings account can provide liquidity, principal stability and interest earnings, making it a useful option for emergency funds or short-term goals.

High-yield savings account rates fluctuate with broader interest rate conditions. In recent years, top accounts have at times offered annual percentage yields (APYs) above 4%, although rates can move up or down depending on Federal Reserve policy and market conditions. Because of that variability, it’s important not to assume today’s rate will remain in place long term.

For example, if a $200,000 balance earned an average 4% APY and interest were compounded annually, it could generate approximately:

First year: $8,000 in interest
10 years: About $96,000 in cumulative interest
20 years: About $238,000 in cumulative interest

Actual results will depend on how rates change over time and whether interest is compounded more frequently than annually.

Keep in mind that savings accounts are designed for stability, not long-term growth. Interest rates can decline, and inflation can reduce the purchasing power of your cash over time. Be sure to review account minimums, fees and FDIC insurance limits when selecting a bank.

5. Consider Investing in Bonds

Bond investments involve lending money to a government, municipality or corporation in exchange for periodic interest payments and the eventual return of the principal amount (the face value of the bond) at a specified maturity date. Bonds are considered fixed-income securities because they provide regular, predictable income over time, making them popular among investors seeking stability and income, especially in contrast to the volatility of stocks.

The interest rate, or coupon, paid on a bond is determined at issuance and can vary based on the bond’s issuer, the bond’s term, and the current interest rate environment. Bonds are generally less risky than stocks, particularly government bonds, which are backed by the issuing government’s creditworthiness. However, corporate bonds and high-yield (or “junk”) bonds come with higher risk, as they may be issued by companies with lower credit ratings.

Bonds are also sensitive to changes in interest rates: when interest rates rise, bond prices typically fall and vice versa. This relationship allows for some strategic flexibility, as investors can choose bonds with different durations or credit qualities to align with their risk tolerance and investment goals. Additionally, bonds can provide diversification within a portfolio, helping to offset potential losses in equities during market downturns, and offer tax advantages, especially if they’re municipal bonds, which may be exempt from federal or state taxes.

Can I Retire on $200,000?

For most people, $200,000 by itself is unlikely to fully fund a decades-long retirement. How far that amount can go depends on factors such as your age, other savings, expected Social Security benefits, lifestyle costs and withdrawal strategy.

Using a commonly referenced guideline, a portfolio might support annual withdrawals in the range of 4% to 4.7%, depending on market conditions and portfolio construction. On $200,000, that would translate to roughly $8,000 to $9,400 per year before taxes. For many households, that amount would supplement other income sources rather than replace employment income entirely.

If you have additional retirement accounts, a pension or strong Social Security benefits, a $200,000 windfall could strengthen your overall plan and potentially allow you to retire sooner or with greater flexibility. However, relying solely on that amount would generally require very modest living expenses or a short retirement horizon.

Investment approach also matters. A portfolio heavily weighted toward stocks may offer higher long-term growth potential but comes with greater volatility. More conservative allocations may provide stability but limit growth.

Frequently Asked Questions (FAQ)

Do you have to pay taxes on inherited money?

In most cases, cash inheritances are not treated as taxable income at the federal level. Some inherited accounts, including traditional IRAs and 401(k) plans, are generally taxable when you take distributions from them. Additionally, a small number of states impose inheritance taxes, which may apply depending on your relationship to the deceased and where they lived.

What should you do first after receiving an inheritance?

Before making major financial decisions, consider pausing to evaluate your full financial picture. Reviewing outstanding debts, emergency savings, retirement goals and tax implications can help determine how the inheritance fits into your broader plan. Some beneficiaries choose to keep inherited funds in a low-risk account temporarily while they decide how to allocate them.

How are inherited retirement accounts taxed?

Tax treatment depends on the type of account and your relationship to the original owner. Inherited traditional IRAs and 401(k)s are generally taxable when distributions are taken. Under current federal rules, many non-spouse beneficiaries must withdraw the full account balance within 10 years. Inherited Roth accounts may offer tax-free withdrawals if certain conditions are met.

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 financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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