You’ve worked hard, put money aside for retirement, and have a nest egg of $250,000 in your portfolio. Now it’s time to protect and grow your savings so you can achieve financial freedom during retirement — but how?
GOBankingRates spoke with financial experts who shared solid strategies for increasing your wealth and mapping out the best ways to have enough saved for your golden years.
So, you’ve managed to squirrel away $250,000. First off, congratulations! That’s no small achievement in today’s economy. Whether you’ve inherited this sum, sold a property, or diligently saved over the years, you’re now facing the enviable question of what to do with this substantial nest egg.
Having $250k sitting in a basic savings account is like having a sports car parked in the garage that you never drive—you’re not maximizing its potential! Let’s explore the various ways you can put this money to work for you, generating income and building wealth over time
Investment Options for Your $250k Savings
1. Dividend Stocks
One of the most popular ways to generate income from savings is through dividend stocks Companies issue these stocks and pay shareholders quarterly distributions when business is going well
There are two types to consider
- Common dividend stocks: The company decides if and how much to distribute. These can offer higher returns but come with more uncertainty.
- Preferred dividend stocks: These guarantee payments and put you first in line to receive distributions, though typically with smaller payments than common stockholders.
Blue-chip stocks (those from large, established multinational corporations) typically provide the most reliable dividends. When evaluating dividend stocks, calculate the dividend yield by dividing the company’s annual dividend by its stock price, then multiplying by 100. A yield between 2% and 6% generally indicates a good dividend stock for your portfolio.
2. Real Estate Investments
With $250k, you’ve got several pathways into the real estate market:
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Rental Properties: While you might not be able to buy multiple properties outright, you have enough for down payments on several investment properties. By putting down $10,000-$20,000 per unit (including closing costs) and securing 30-year mortgages, you can collect rents that exceed your mortgage payments, generating ongoing income while building equity.
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Real Estate Investment Trusts (REITs): These companies own and operate income-producing real estate across residential, commercial, and industrial sectors. REITs trade publicly like stocks and must distribute 90% of their taxable income to shareholders, making them excellent income generators.
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Real Estate Crowdfunding: Platforms like Fundrise allow you to pool your money with other investors to purchase properties or fund mortgages. This approach requires less capital upfront but comes with higher risk since crowdfunding isn’t as tightly regulated.
3. Bonds and Fixed-Income Securities
Bonds essentially let you loan money to governments or corporations in exchange for regular interest payments:
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Treasury Bonds: Issued by the U.S. government, these are considered extremely safe investments because the government has never defaulted on debt payments. However, they typically offer lower returns compared to other bond types.
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Municipal Bonds: Issued by state and local governments, these carry slightly more risk but often come with tax advantages and better yields than Treasury bonds.
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Corporate Bonds: These loans to businesses typically offer the highest returns among bond types but with increased risk, as companies can go bankrupt and fail to repay their debt.
Bonds provide stable, predictable income, making them popular choices for those seeking to preserve capital while generating passive income.
4. Certificates of Deposit (CDs)
CDs are time deposits offered by banks that pay interest at a fixed rate for a specific term. With $250k, you could create a CD ladder by splitting your funds across multiple CDs with different maturity dates.
The longer the term, the higher the interest rate typically is. Since CDs are FDIC-insured (up to applicable limits), they’re one of the safest places to park your money while earning some interest.
5. Money Market Funds
Money market funds invest in short-term debt from governments and corporations. They carry low risk and offer modest returns, making them a solid option for part of your $250k.
When these funds exceed a value of $1 per share (which happens quarterly if they perform well), shareholders receive the surplus as income. One major benefit of money market funds is their liquidity—you can usually access your money quickly if needed.
6. Annuities
An annuity is a contract with an insurance company where you invest a lump sum in exchange for regular payments over time. With $250k, you could purchase a substantial annuity to provide steady income. There are three main types:
- Fixed annuities: Offer a guaranteed rate of return regardless of market conditions
- Variable annuities: Returns fluctuate based on the performance of underlying investment options
- Indexed annuities: Returns are tied to the performance of a specific market index
While annuities can provide reliable income, they often come with high fees and less flexibility than other investment options, so it’s important to understand the terms before committing.
7. Peer-to-Peer Lending
P2P lending platforms allow you to loan money directly to individuals or small businesses. With $250k, you could spread your investment across numerous loans to minimize risk while potentially earning higher returns than many traditional investments offer.
Because consumer loans are inherently risky, they typically provide higher interest rates than bonds or CDs. This option works well for investors comfortable with some risk who want higher potential returns.
Creating a Balanced Approach
Rather than putting all your $250k into one investment type, most financial experts recommend diversification. Here’s a sample allocation strategy for your $250k:
- $75,000 in dividend stocks for growth potential and income
- $50,000 as a down payment on rental property for real estate exposure
- $50,000 in bonds for stability and fixed income
- $25,000 in a CD ladder for safe, guaranteed returns
- $25,000 in REITs for additional real estate exposure without direct management
- $15,000 in peer-to-peer lending for higher yield potential
- $10,000 in a high-yield savings account for emergencies and liquidity
This balanced approach gives you exposure to different asset classes and income sources while managing overall risk.
Factors to Consider When Deciding How to Use Your $250k
Before you dive into investing your $250k, take some time to consider these important factors:
1. Your Financial Goals
Your investment choices should align with your specific objectives:
- Are you looking to generate immediate income for retirement?
- Do you want to grow this money for a future goal like buying a home?
- Are you focused on wealth preservation or aggressive growth?
The answers to these questions will help guide your investment strategy.
2. Your Risk Tolerance
Be honest about how much risk you’re comfortable with. Higher returns typically come with higher risk, but that doesn’t mean you should take on more risk than you can handle emotionally.
3. Time Horizon
How soon will you need access to this money? Longer time horizons allow for more aggressive investment strategies since you have time to weather market volatility.
4. Tax Implications
Different investment vehicles have different tax treatments. Consider working with a tax professional to create a tax-efficient investment strategy.
5. Existing Debt
Sometimes, paying off high-interest debt can be more profitable than investing. If you have credit card debt or high-interest loans, using some of your $250k to eliminate these obligations could give you a guaranteed “return” equal to the interest rate you’re no longer paying.
Alternative Uses for Your $250k
While investing for income is a popular choice, there are other ways to use $250k that might align better with your personal situation:
Pay Off Your Mortgage
Using your $250k to pay off your home loan could save you thousands in interest and provide the security of owning your home free and clear.
Fund Education
If you have children or grandchildren, consider using some of your savings for education expenses or to fund 529 college savings plans.
Start a Business
Always dreamed of being your own boss? $250k provides substantial seed capital to launch many types of businesses.
Charitable Giving
Establishing a donor-advised fund or making strategic charitable contributions can create a lasting legacy while potentially providing tax benefits.
Bottom Line
Having $250,000 in savings opens up numerous possibilities for generating income and building wealth. The key is to align your investment choices with your financial goals, risk tolerance, and time horizon.
Remember that diversification is crucial—spreading your investments across different asset classes can help manage risk while still providing solid returns. And while it’s tempting to go it alone, consider consulting with a financial advisor who can help you create a personalized plan for your $250k.
I’ve personally seen friends make both brilliant and questionable choices with similar amounts of money. The ones who succeeded typically took their time, did their research, and weren’t afraid to ask for professional help when needed. Your $250k is a valuable resource—make sure you’re giving it the thoughtful consideration it deserves!
Whether you choose dividend stocks, real estate, bonds, or a mix of multiple investments, your $250k has the potential to generate significant income and grow substantially over time when managed wisely.
Use the Proper Accounts
“One of the first things people should do once their retirement savings reach $250,000 is to start thinking about the types of accounts they’re using to accumulate their wealth,” retirement income specialist Antwone Harris, CFP, MBA and chief planning strategist at Platinum Bridge Wealth Strategies, told GOBankingRates.
“Many tend to focus on retirement savings programs through their respective jobs, such as a 401(k) or 403(b),” he said. “While these are excellent vehicles, it’s imperative to build up assets outside of these areas because assets accumulated in them become what we call a ‘tax time bomb’ in retirement.”
Harris added: “If an account like this compounds at normal historical market rates, it should double roughly every 8 to 10 years. With regular contributions, that means that many people will end up with over a million dollars in their 401(k) account by the time they retire. If these accounts are allowed to continue to compound until the required minimum distribution, which is currently age 73, some people will have rather large 401(k) accounts.”
“Every dollar that comes out of this account is taxable as ordinary income,” he said.
Know Where To Allocate Funds
Harris additionally pointed out the importance of distributing funds to different accounts. “It’s important to start thinking about allocating a portion of your 401(k) contributions to a Roth 401(k) if it is available,” he said.
“This also allows us to diversify from a tax perspective. While you are forgoing some immediate tax breaks, it allows you to pull assets from the Roth accounts later in life tax-free.”
What’s the Best Way To Invest $200,000?
FAQ
Can I live off the interest of 250K?
Ideally, you can live off the interest without touching your investment principal. While many investors may not be able to live off the interest from $250,000, it could supplement other sources of retirement income to meet their needs.
How much income will 250K generate?
How to turn $250K into $1 million?
Where do millionaires keep their money if banks only insure $250K?