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(1) Take the proceeds from the sale of my home, lets say it was $1,000,000 and take 50% of it and take an aggressive investment approach of investing 75% in stocks and 25% in bonds/short-term assets. This would be my retirement account. I am 33 and plan to retire at 55. I'd probably also throw 10% of it in an Index Fund like the S&P 500.

(2) Take the other 50% and keep it liquid by putting it in a high-yield short-term asset account like a Money Market.

You probably need more asset types than just stocks, bonds and money markets.

Your asset allocation, as outlined, is 37.5% stocks and 62.5% bonds/cash. At the age of 33, that seems like a very heavy bonds/cash weighting. With this type of allocation, you are running a significant risk of losing purchasing power to inflation.

(3) Live off my income and pretend the money isn't there

Would the investments currently provide enough income to replace the income you are going to 'live off'? If not, especially with the asset allocation you have outlined, it is unlikely that the investments will provide you enough income to maintain your lifestyle in retirement, so you may still need to save some of your current income for retirement, if you stick to you current plan.

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