This article is part of our guide on how to invest 1 million dollars for income, available here.
$1 million is a significant amount of money to begin investing with. And, when you invest it correctly, you can generate a fair amount of interest.
However, how much interest can you generate exactly? If you have saved $1 million to date or have a forecast that you will have this amount at some point, and you think you can keep investing to make a living off these interests, you’re in the right place.
In this article, we’ll walk through everything you need to know about whether you can live off the interest of a million dollars.
How Much Interest does 1 Million Dollars Earn Per Year?
The amount of interest a million dollars generates will vary depending on where and how you invest your cash. While an average interest rate for those who invest $1 million is around 7%, the interest rates vary depending on the investment you choose.
For instance, if you save in a high-yield account or a government bond, your earnings would be as low as 1%, or $10,000. This is one of the lowest returns but is also one of the least risky ways to invest your retirement savings.
On the other hand, average savings accounts can provide interest rates of 0.06% or lower, leaving you with interest earnings of just $600. This isn’t the most advisable investment strategy, especially when factoring in an increasingly high inflationary world.
A Few Options
- Stock Market: Another option is to invest your capital in the stock market. The stock market, though much riskier, has much higher yields. As a result, you can earn an average of around $96,352 in interest. Remember, since stocks are volatile, these earnings could significantly fluctuate up or down.
- Mutual Funds: Mutual funds are another healthy option for investors who want to generate interest income on 1 million dollars. Investing in a mutual fund can get you an average yield of around 4.67%, providing you with an income of around $47,804.
- Private Real Estate: Choosing to make a real estate investment can be another high-yield way to bolster your annual income during retirement and among the best ways to invest a million dollars. This type of investment tends to provide an income of around 7%. This pays about $70,000 annually in interest income, raising capital to $1,070,000, including your principal investment of 1 million dollars.
In ten years, this same capital, which is generating 7% interest, will have risen to $1,967,151. So in 20 years, your wealth has increased to $3,869,684, creating a sizable wealth to live off.
Remember, having a diversified portfolio is the key to lowering investment risk. As a result, you may want to consider investing in several of these methods to ensure you have enough money for the rest of your life.
With this breakdown of the interest generated by one million dollars, let’s look at whether that income is enough for you to live off of and how much income you should plan on having.
Can you Live off the Interest of 1 Million Dollars?
You can live off the interest of 1 million dollars. However, the amount of interest income you generate and, thus, the lifestyle you can lead will significantly vary depending on how you choose to invest your capital. This might differ from some of the better ways of investing $200,000, so defining your investment amount changes how you deploy that capital and what kind of yield is attainable for it.
To figure out how viable it is to live off the interest of one million dollars, let’s consider the empirical rule known as “the 4% withdrawal rule”. This rule states that you should aim to withdraw 4% of the portfolio each year (adjusted annually for inflation).
This rate is considered safe because it manages to cover crises and recessions in the market and is conservative enough that it your money may allow for more than 30 years of retirement.
Now, if your lifestyle tends toward extreme comforts or eccentric spending, one million dollars may not provide enough interest income for you to live off. That’s why it’s crucial to have solid financial strategies and tactics that involve intelligent investments and withdrawals.
With these interest projections and earnings in mind, let’s look at the monthly profit of an investment of one million dollars so you can adequately budget for retirement.
$1MM Simple Interest Calculator
Below is a simple interest calculator. Simply input the desired numbers and click “Calculate” to see if you could live off the interest of $1,000,0000.
How much Monthly Income will 1 Million Generate?
Let’s continue with the example of the percentage of profit on the investment of 7%. In terms of monthly income, this would work out to be a little under $6,000.
Let’s break down how we arrived at that number. If you get $1,070,000 after a year of investing one million dollars at a 7% rate, we can just divide this value by the 12 months of the year.
In that case, you could have approximately $5,850 a month to live on. For many people, this is enough to cover housing and food costs and allow for a small amount of money to be put toward an emergency fund.
With these figures in mind, let’s talk about whether you’d be able to live on investment interest income if you doubled your capital to $2 million as opposed to $1 million.
Can you Live off the Interest of 2 Million Dollars?
We have already proven that a person can live comfortably with interest earned by investing one million dollars. Still, for many, this may not be enough. In that case, 2 million dollars may be a more appropriate amount of money to retire with.
Those with an average or slightly above average standard of living should have no issue living off the interest of 2 million dollars.
However, once again, your lifestyle and investment choices will affect how much interest you generate and how far you can stretch your nest egg. Additionally, investing involves risk, which could lead to losing money or not earning the money you had planned.
Next, let’s look at the age you can retire when you have a few million dollars in your pocket.
What age can you Retire With $3 Million?
The age at which you can retire with a $3 million lump sum varies depending on your lifestyle, financial goals, and spending and saving habits. You’ll also need to consider how many people will live off a particular retirement income.
For the average couple, living expenses of about $90,000 are required to support two people for a year. Considering that inflation can cause the cost of living to rise about 3% each year, a couple with this money could retire at age 62.
However, once they’ve retired, that’s not to say that they should immediately spend all that money. Instead, they should use a portion towards investments that continue generating income and use the remaining cash to pay for daily living expenses.
Again, the age of retirement depends on the lifestyle and spending habits of the couple, inflation, and other economic factors. As a result, achieving financial freedom and having enough money for the rest of your life at that age isn’t guaranteed.
If you still have some questions about how to live off the interest of a set amount of money, check out the frequently asked questions section below.
Frequently Asked Questions About How Much Monthly Income will 1 Million Generate?
Knowing how much an immediate annuity of one million dollars pays depends on several elements such as the investment method, percentage of interest or profit, and type of investment made. However, if we talk about the lowest fee, which is 0.25%, it could be said that this annuity pays $1,002,500. Just remember that this value can increase according to the investment.
Yes, you can live on the interest generated from one million dollars. However, the increase in this capital may initially depend on the investor’s wealth and each person’s lifestyle. Therefore, you’ll need to analyze your risk, spending habits carefully, and other factors to properly budget to live off the interest of this size capital.
Can I live off the Interest of 1 Million Dollars - Conclusion
You can use 1 million dollars to invest, generating a passive income to sustain your retirement for the rest of the days.
This strategy has a minimum risk that can be mitigated as long as the correct investment decisions are made, such as where to invest, an analysis of the level of profit, and, of course, a consideration of the investor’s profile.
Whether you’re interested in learning more about how you can live off the interest of your investments or want access to new risk-adjusted private investments into multifamily real estate, join the Willowdale Equity investor club today.
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