How much money do I need to live off the interest?

Question

I will probably have a million dollars within the next 6-7 years. I want to be able to live off the interest generated by it. What do I do with it (or what type of financial vehicle do I put it in) to be able to do this?

Answer 1

Really depends on your standard of living....Good Luck!

Answer 2

If you put the money into a CD ladder, so you have an approximately equal amount maturing each month, at current interest rates, that would work out to an income of about $55,000 per year. For that kind of money, I would recommend a maximum maturity of two years.

You might like to make more than that some day, and you also need to be aware that interest rates can go down, lowering your income.

In light of those considerations, I would recommend that you keep your living expenses below $30,000 per year, and put $1,000 per month into a brokerage account, to be invested in stocks. This is called Dollar Cost Averaging. You end up buying more stock when prices are low, and less when prices are high, without having to forecast the market.

If you sell a stock, do not immediately reinvest that money in another stock. That would cause you to over trade at a market top. Instead, take the proceeds from any stock sale, as well as dividend payments, and put it back into your CD ladder.

You will need to re evaluate your situation once a year, to determine current income, and how much to allocate to stocks each month.

One sure fire investment you should make right away is a subscription to Money Magazine, because education is always a good investment. When you're ready to start buying stocks, use the Value Line Investment Survey for your research.

You can make it a lot more complicated than that, but the best approach is to develop a simple plan, and just stick to it.

Some people might recommend putting the bulk of your money into a mutual fund, in the hopes of chasing after much higher returns. That will work, as long as you know that those higher returns are going to continue. You don't. The approach I am recommending would work great, even in the event of a stock market crash, assuming you don't have a problem collecting on your CD's. How's that for safety?

Answer 3

Really depends on how much you need to live on to maintain your standard of living.

You have two options:

Invest in a conservative income fund. If it returns 6%, it would give you 60,000 a year. Could you live off that? You also need to factor in you might get less or more in any given year depending on the market.

If you wanted guaranteed money, you could always use your money to fund an immediate annuity. Then you would be guaranteed X amount of dollars per year. But with this option, the insurance company keeps all your money no matter how long you live. This is ok if you don't plan on leaving your money to any beneficiaries.

If you want to pass on your wealth, you'll want to live off the interest. Get yourself a really good fee only financial planner, and he'll help you figure it all out.

Answer 4

$100 Million Dollars

Answer 5

It would depend on your lifestyle. I know people who could spend thousands a week, and others who could live on $500 a month. If you are debt free, and live very frugally, then you would need a lot less than the person with a mortgage who is always trying to keep up with the Joneses.

If I was young, I would diversify, but definitely have some of it in high-risk mutual funds for the best return.

Answer 6

First of all, a million dollars is not really that much money by today's standards. But if that is all you think you need, then that's cool for you. But if you have what it takes to earn a million dollars, how is it possible that you don't have the brain power to know what to do with it once you have it? Somehow, I fear you are in for a very rude awakening...

Answer 7

Calculate your annual expenses. Divide that amount by the (100 - tax rate) and multiply by 20. That is the money you need.

e.g Annual expenses $ 36000. Tax rate = 20%

So you need 36000/(100-20)*100 = 36000/0.8 = 45000
If you need $ 45000 income then you multiply it by 20

45000* 20 = 900,0000

If you have a million dollars then you have to limit your expenses to $3000 per month. Invest your million in a 5% interest paying bank deposit or a higher interest earning fund.

Does that make sense???

Answer 8

you can find a mutual with a return of 15% or more. Since you seem to be lacking the knowledge needed to become a skilled investor I suggest just splitting it up into a few low risk programs. Consulting with your cpa would be a great start.

Answer 9

If can live on 50k a yes no prob. 5% easy to get in Reits+other investments. I would worry about inflation so TIP or some direct US Treasury Inflation Indexed bonds would be important. IAU - gold etf - also. EFA; EWA; & some other index etfs & you would be set. [e-mail] if further qs

Answer 10

Bank Interest 1.2%?

1,000 dollars a month, Correct me if I am wrong.