I have inherited $400000. I want to stay home with baby and still have retirement. Is this possible?

Question

I need to know about taxes, investing, etc. I want to get a monthly "paycheck" but I don't want to pay out the nose in taxes. I need to make approx $2000 a month. I also don't want to lose all the money I put in.

Answer 1

You need to talk to a financial planner--one who is FEE BASED and does not make their money on commissions by selling you "financial products."

You do not have enough money to live off of for any lengthy period of time. You need to continue earning at least some income and let this money grow for you in a well balanced, diversified mix of low cost investments.

If you put the $400,000 in a high yield money market fund earning 5% right now, you can earn $1666 per month without ever eroding the principal (the $400,000). But you'll have to pay taxes on that interest incom, so it'll really be less than that each month. And interest rates may drop, allowing you to only earn 1-4% on your money each year ($333-$1333 per month).

Plus, $2,000/mo might be enough right now, but that will not be worth as much 30, 20, or even 10 years from now. Inflation will erode your purchasing power (inflation is when the cost of everything goes up--food, gas, transportation, etc. Think of how much less a Coke, a tank of gas, and a trip to the movie theater cost 50 years ago).

You need to map out each of your financial goals and figure out a plan to reach them. You can afford to live off this money for a few years and stay home with your baby if that is really important to you, but understand that it would be a sacrifice, not necessarily a wise financial decision (a good alternative might be to at least work part time if you can make more money than it costs to put your baby in daycare for a few hours a day).

Answer 2

Very hard. At 6%, you'll make $24,000 a yr, which is $2,000 a month. However, this is before taxes. You might be able to find an on-line bank to give this rate. The money would be reasonably safe. I say this because the bank could go out of business. It's possible, but highly improbable. The government protects you only up to $100,000. I guess you could place it into 4 FDIC insured banks which pays 6%. Again, this is before taxes. However, if your income is low enough; the tax problem is no big issue. Besides, they don't take the money straight out like w/ a paycheck. You might also get 6% w/ T-Bills but you'll need to ladder them. I'm not sure if you have enough to get the cycle started. I haven't crunched the numbers. Good luck.

Answer 3

Set up Certificates of Deposit for $2000 each to create your monthly paydays for the next two years. Put the rest of your money into SAFE stocks like General Electric, Microsoft, and McDonalds or Wendys. Reserve $2000 to play with in the stock market if you are inclined to do that, but be prepared to lose it.

You might also look at rental property. If you can find a four plex and keep all the units rented, you'll find you have your $2000 a month from that and won't have to touch your principal.

It is better to pay up front for everything except your home mortgage. That is tax deductible. Credit card interest and car loans are not.

Answer 4

If income is your number one priority, I first would need to know about your situation. $400K can be alot or a little depending your lifestyle. First of all how old are you? Do you own or rent. Major and Potential expenses in the next 3-5 years. What you currently make yearly. Then of course we can get into the tax situtation.


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Also note that protection of principal can be maintained even with non FDIC insured products. If you put your money in a CD (certificate of deposit) with the intention of generating income then chances are you are going to be eating away at your principal at a rate that is faster than what any CD can earn especially if you factor in taxes.

You will not be able to sustain your lifestyle unless you decide to become more modest. CD rates are slowing down and furthermore the interest is treated as taxable income which assuming you are the majority of you money in there will not help you. FDIC means if the Bank goes out of business you're money is insured.

You want your money to work for you then you need to set your self up with a conservative style of portfolio with a good mix of stocks, bonds and real estate.

Answer 5

Do yourself a favor and avoid anything that isnt GUARANTEED.
The world is awash with scams and risky investments. This includes but is not limited to stocks, insurance pools, corporate bonds ect.
Keep it simple, you can afford to. The people trying to sell you crap are in it for the commision, they dont give a rats a** what happens to you after their check clears.
For me .... FDIC insurance at 100,000 per account or any US federal bonds.
You wont be able to retire but you will do well and not have a sad tale to tell later on.
May also want to consider currency insurance (diversify into other "stable" currencies) but even this involves some risk ... Is the Euro stable or will ir be the next confederate dollar?
Trust nothing but the terms of the insurance on your investment ... when the terms start out with words like "no guarentee of success" or "past performance not an indication of" then choose to JUST SAY NO.

Answer 6

If you invested the money into programs with at least 5% return per year...you would earn 20k without touching the principle. There are probably bonds out there that pay that type of return. I'm not sure what they're called but thats probably your best bet. Maybe you could consult with a few financial companies over the phone and they could give you some ideas. Good Luck!

Answer 7

The best thing you can do is talk to a financial advisor. A good one that you trust. $400,000 sounds like a lot of money, but it's won't last long if you start taking out of the principal. On the other hand if you're able to leave the principal and only use earnings, it will continue to grow.

A good advisor will plan for how old you are and when you want to retire.

Answer 8

Yes it is possible for a little while...

Just do yourself a favor, Budget and invest in the necessities from the beginning... It is tempting to go out and buy whatever you like when you have it...

Trust me, it goes quick...Faster than you like to believe.