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I'm in my early 40s and haven't done anything for retirement yet. I do own some property which I plan to sell later this year, and I'm planning to use the proceeds to plan for retirement. The proceeds will be a few $100K. I'm self employed and run my own business together with my partner. I'm in a low income scale at the moment. I don't have a 401k, IRA or Roth IRA at the moment and have little knowledge about each of these.

How can I best re-invest the money so I can retire from it in about 20 years? I will need around $5K per month during my retirement to maintain a normal standard of living.

  • How much is your share of the business worth? Does your partnership outline any particular requirements if/when one of you wants out? – D Stanley Aug 12 at 21:11
  • Have you been collecting rental income from the property you'll be selling? Do you own a home/have a mortgage? – Hart CO Aug 12 at 21:19
  • Have you been collecting rental income from the property you'll be selling, and is it just land or land with a house? Do you own another house that is your primary residence and if so does it have a mortgage/how many years left on your mortgage? – Hart CO Aug 12 at 21:31
  • Did you factor inflation? $5000 in today's dollars will be equivalent to $8200 in 20 years (assuming inflation of 2.5%/year). Healthcare inflation is likely to be higher so this may get even worse. – Hilmar Aug 13 at 18:02
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You can use a good retirement calculator to reverse engineer a simplistic semblance of a ball park answer. Some of the inputs will be:

  • current age
  • retirement age
  • other sources of income
  • value of assets
  • debt

Plug all of the info in and it will tell you how long your money will last. Incrementally increase the assets input until you get to an acceptable lifespan of your assets at a withdrawal rate of $5k per month. Once you know that number, you can determine how much you have to save and invest until retirement. That's the opening salvo.

What to invest in requires much more information and for that reason, I would suggest that you meet with a financial adviser. Though I've never done it, I think that you need someone with better tools and who is more experienced than anonymous strangers on the internet :->)

  • Bob Baerker's comments and answer are good. Just be careful. If you are meeting with a financial advisor, make sure you meet with one you pay money to, who has a fiduciary duty to you. That means they operate on your best interests. Most advisors are actually just salespeople. – ChrisInEdmonton Aug 13 at 1:05
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You want approximately $5k/month, meaning approximately $60k/year. It's generally considered safe to withdraw around 4% of your retirement savings each year, though increasingly people are thinking that's a bit aggressive, and 3% is safer. Let's go with 4%, though. That means you need about $2,000,000 saved, assuming that is your only income. You need $1,500,000 if you withdraw 3% per year.

So, your proceeds are going to be a few $100K. Let's assume for the sake of argument that it's $500K. You need to triple that. The stock market returns roughly 7% per year. That's actually enough to get you there. In fact, you get there on year 17. You get to two million on year 21.

Lots of assumptions there. In particular, you have to be aggressive in your investments. Normally at your age, people would suggest a 60-40 split, 60% stocks, 40% bonds. That's not going to do it for you, you need to be between 80-20 and 100-0. You'd want to invest in very low cost passive ETFs targeting the general US stock market.

If you are starting with less, it'll take longer, possibly much longer. And I've done a lot of hand-waving here. No talk of inflation, no discussion of ETFs vs mutual funds. I haven't even mentioned stock market crashes. Past performance doesn't guarantee future returns. But maybe this is enough to get you started in your research.

  • I see I also didn't address 401k, IRA, or Roth IRA. I think it's less relevant, but hopefully someone more knowledgable than I am, can post a good answer covering that. – ChrisInEdmonton Aug 12 at 21:02
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    Many advisers are now suggesting that due to increased life expectancy as well as the past decade of low rates, the 100 minus your age rule of thumb is outdated. In order to avoid running out of assets in one's lifetime, some are now suggesting 110 or even 120 minus your age. This is just a starting point for calculations. Other factors need to be considered (portfolio size, debt current/future expenses, pension, Social Security, other sources of income, gender [women live longer], risk tolerance, etc.). – Bob Baerker Aug 12 at 21:53
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    Did you reverse the withdrawal numbers? Need $2 million if withdrawing 4% and $1.5 if withdrawing 3%? BTW, when they talk about withdrawing 4% per year, is that 4% of remaining equity? That wouldn't make sense to me since without portfolio growth, the principal is decreasing and that would mean that you would have to live on less and less each year (by year 10 the $60k per year would be down to $45k). And then there's the increased cost of living due to inflation which eventually makes dog food a staple in your diet :->) – Bob Baerker Aug 12 at 22:02
  • This is nice, but shouldn't you factor in social security? – StrongBad Aug 12 at 22:42
  • StrongBad, I'm assuming OP is factoring in social security, indicating they need an additional 5K/month. – ChrisInEdmonton Aug 13 at 1:03

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