Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.However, there are more conservative approaches that could benefit your financial goals for the long term, and we discuss some of the best in this article. If you’re not sure what investments are best for you, consider speaking with a financial advisor to build out a long-term financial plan.
Why Invest In Interest-Bearing Assets?
With $1 million, you can plan pretty well for potential returns. However, as with all investments, we first need to consider your goals. What, ultimately, are you saving for and how do you feel most comfortable about getting there? In this case, we should look particularly at the issue of certainty.
Investors tend to seek interest-bearing investments not just because they tend to be more secure than other investments, but because they tend to be more knowable. With a stock or options contract, the best you can really have is a sense of average performance over time. The S&P 500 tends to return 10% annually. A given stock can have a historic rate of return per year. This is good information, but past performance is no guarantee of future results.
Interest-bearing investments, on the other hand, come packaged with a promise. With any given asset you have a relationship with another party, and they have promised to make specific, detailed payments on a set schedule. A company might promise to pay you 5% per year on any bonds you hold, for example, delivered in quarterly installments. Or a bank might promise to pay you 2% on its certificate of deposit.
There is still some degree of uncertainty here since borrowers can still default on their debt, but otherwise, your returns are known and knowable. This is ultimately one of the biggest reasons to invest in interest. Not only do you control your risk, but you can make a much more detailed financial plan in advance.
Interest vs. Returns
The flip side of investing for interest is that you simply don’t make as much money. For example, just in the context of comparative yields, interest-bearing assets tend to average a 2-3% rate of payment per year. At the same time, stock dividends tend to average between 2 and 5% per year. We can literally be talking about making half as much by investing in bonds.
Or take capital gains and current performance. At the time of writing, as noted below, bonds are running hot with a 4.66% average interest rate. Your $1 million investment, then, will kick back $46,600 in returns. On the other hand, in 2021 the returned 26.61%. One year’s worth of returns on that investment would have netted you $266,100.
That’s a lot of money to pay for the feeling of security. On the other hand, if you have $1 million to invest, there’s a good chance that you’re approaching your financial goals. That’s often a strong argument for accepting lower returns in exchange for a more stable portfolio.
This is how we recommend considering the issue. What’s your plan for this $1 million portfolio, and how close are you to getting there? (For most readers holding a portfolio that size, the odds are good that it’s a retirement account.)
The closer you are to reach your target, the more money you might want to shift toward interest-bearing accounts. You can put that $46,600 away each year, comfortably knowing that you don’t need to take any risks. The farther you are from your target, the more risk you might have to accept in exchange for getting where you want to go.
How Much Interest You Can Earn On $1 Million
The amount of money you can earn off of just the interest on $1 million is going to depend on the types of interest-bearing accounts you choose to invest in. You can potentially earn upwards of $50,000 per year or more. The safer accounts that you invest into will return substantially less than that but savvy investors can find ways to live entirely off of the interest from that money.
Now, let’s take a look at some of the best interest-bearing investments that you can consider for your portfolio. Each carries a different level of risk and opportunity, so keep that in mind and align the right investments with your financial goals.
1. Bonds
- Average Interest At Time Of Writing: 4.66%
- Value of $1 Million In Five Years: $1,255,751
Bonds are assets that companies and other institutions issue to borrow money. Each bond comes with two main features: its maturity and its coupon rate. The maturity is how long until the institution repays your money. The coupon rate is the interest that the bond will pay on that debt in the meantime. So, say you purchase the following bond:
- Value:$1,000
- Maturity: 10 Years
- Coupon Rate: 5%
You will receive $50 per year (5% of the bond’s value) while the bond remains active, typically paid in four or six month installments. Once 10 years have passed from when the bond was issued, the company will repay your original $1,000.
Bonds tend to offer the highest rate of return on any interest investment. They also tend to offer the most risk. While it is very rare that a company defaults on its debts, this happens more often than a bank or an insurance company doing so.
2. Certificates of Deposit (CDs)
- Average Interest Rate At Time Of Writing: 0.03% – 0.39%
- Value of $1 Million In Five Years: $1,019,653
Certificates of deposit are offered by banks to their customers. With a CD, you put a given amount of money on deposit with the bank for a fixed period of time. You cannot withdraw this money during the period of the CD. In exchange, the bank pays you a higher interest rate than normal.
The amount you can receive through a CD depends on the duration of your deposit. At the shortest, the average interest rate on a 30 day certificate of deposit is currently 0.03%, roughly that of a checking account. At the longest, five year CDs offer an average interest rate of 0.39%. These are standard CDs, however. Some institutions can offer certificates of deposit with interest rates of 2% or higher depending on the circ*mstances and investor. (In this case your investment value after five years would be $1,104,081.)
A certificate of deposit offers security in exchange for liquidity. You receive a low rate of return and can’t access your money, but you also know that it is not only on deposit with a bank but it is also FDIC insured just in case of disaster.
3. High-Yield Accounts
- Average Interest Rate: 1%
- Value of $1 Million in Five Years: $1,051,010
Checking and savings accounts trade liquidity for value. Checking accounts, which have the most liquidity, pay an average 0.03% interest rate at the time of writing. Savings accounts, which have a few more rules around making withdrawals, pay an average of 0.07%. Some alternative banks and other financial institutions have begun to compete with traditional banks on these products by offering better terms.
A high-yield savings account is a savings account that offers better than average interest rates. These tend to be ordinary accounts, meaning that you have the usual liquidity balanced with some rules around making withdrawals. They also tend to be managed by nontraditional institutions, meaning that they are not FDIC insured in case something goes wrong.
A high-yield account can be a good idea for someplace to store your money on a daily basis. While the rate of payment here isn’t good enough to consider it an investment asset, it’s worth noting that they currently outperform most CDs by a fair amount.
4. Annuities
- Average Interest Rate: 3%
- Value of $1 Million in Five Years: $1,075,380
Annuities are contracts sold by insurance companies and financial institutions.To buy an annuity, you give the institution an amount of money upfront. At a set date, the company begins repaying you both the principal that you invested and the interest.
Like any loan, the interest on your annuity compounds even while the company pays you back. This means that each year the company will pay you compounded interest on the principal in your account, then each month they’ll make payments until they have paid back the full value of the contract.
Most annuities tend to be longer contracts, paying you back over 10, 20 or 30 years. This reduces your monthly returns, but it can significantly increase the value of your investment. You can also maximize the value of an annuity by purchasing in advance of repayment. Since interest begins to accrue in your account from the day of your investment, the longer you wait to begin repayment the more money you will collect back.
The Bottom Line
If you have $1 million and are interested in growing it on interest, there are many ways you can consider investing your money. Interest-bearing assets can be a very smart way to invest $1 million while also keeping it safe. Bonds are generally your best choice for maximizing returns, but assets like a certificate of deposit or an annuity can be useful if you want to minimize risk.
Tips for Investing
- Like every strategy, balancing an aggressive approach against conservative investments is a judgment call. You can use the help of a financial advisor to figure out the right balance for your portfolio.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While we wrote this article, the S&P 500 was in the middle of a significant dip. That’s not always a problem for investors. In fact, it can be a very significant opportunity. Read our article on buying the dip to learn more.
Photo credit: ©iStock.com/ArLawKa AungTun, ©iStock.com/Drazen_, ©iStock/skynesher.
Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
FAQs
The amount of money you can earn off of just the interest on $1 million is going to depend on the types of interest-bearing accounts you choose to invest in. You can potentially earn upwards of $50,000 per year or more.
How much interest does $1 million dollars earn per year? ›
Bank Savings Accounts
As noted above, the average rate on savings accounts as of February 3rd 2021, is 0.05% APY. A million-dollar deposit with that APY would generate $500 of interest after one year ($1,000,000 X 0.0005 = $500).
Can you live off interest of $1 million dollars? ›
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
How much income will $1 million generate? ›
How much does a $1,000,000 annuity pay per month? The guaranteed monthly payments you will receive for the rest of your life are roughly $5,083 if you purchase a $1 million annuity at age 60. You will receive approximately $5,608 monthly at age 65 and approximately $6,125 each month at age 70 for the rest of your life.
How much monthly interest on $1 million dollars? ›
On a monthly basis, this means that the interest income on $1 million would be $4,167. This works out to $962 of interest per week, or $137 of interest per day. Interestingly enough, because the yield curve is currently inverted, you can get a high interest rate even on shorter-term CDs.
How long can you live off the interest of 1 million dollars? ›
Assuming you will need $40,000 per year to cover your basic living expenses, your $1 million would last for 25 years if there was no inflation. However, if inflation averaged 3% per year, your $1 million would only last for 20 years.
How much interest does 1 million draw? ›
How much interest does $1 million make per year? Forbes reports that, on average, investors can expect about a 10% annual return on the S&P 500 — that's $100,000 per year, provided you reinvest at least some of the dividends. However, your return depends on several different factors.
Can I retire at 60 with $1 million dollars? ›
So, can you retire at 60 with $1 million, and what would that look like? It's certainly possible to retire comfortably in this scenario. But it's wise to review your spending needs, taxes, health care, and other factors as you prepare for your retirement years.
How much will $1 m be worth in 10 years? ›
In order to hit your goal of $1 million in 10 years, SmartAsset's savings calculator estimates that you would need to save around $7,900 per month. This is if you're just putting your money into a high-yield savings account with an average annual percentage yield (APY) of 1.10%.
What is the average 401k balance for a 65 year old? ›
To help you maximize your retirement dollars, the 401(k) is an employer-sponsored plan that allows you to save for retirement in a tax-sheltered way. You can contribute up to $22,500 in 2023.
...
The average 401(k) balance by age.
| Age | Average 401(k) balance | Median 401(k) balance |
|---|
| 55-60 | $199,743 | $55,464 |
| 60-65 | $198,194 | $53,300 |
| 65-70 | $185,858 | $43,152 |
6 more rowsA net-worth millionaire is someone who has a net worth of at least $1,000,000. Net worth is a fancy way to say 'what you own minus what you owe. ' If that amount ends up being $1,000,000+, you're a net-worth millionaire."
What percentage of Americans make over 1 million dollars? ›
8.8 % of U.S. adults are millionaires. 33% of U.S. millionaires are women. 76% of millionaires in the U.S. are white, and white people account for 60% of the total U.S. population. There are about 62.5 million millionaires globally, a 11.4% increase from 2020.
What a $1 million retirement really looks like? ›
Once a symbol of extravagant wealth, $1 million is now the retirement-savings goal for millions of Americans. For retirees able to accumulate $1 million in savings, the funds translate into inflation-adjusted income of $40,000 in the first year of a three-decade retirement using the 4% spending rule.
What is 3% interest on $1 million? ›
For example, if you invest your million dollars at an interest rate of 3% for ten years, you will earn $300,000 in interest.
How much money do you need to live off interest? ›
For an interest-only retirement, you'll need to have a large nest egg. How big a nest egg depends on your target income and the interest rate. For example, an annual income of $48,000 would require a nest egg of $1.6 million, assuming a 3% interest rate. And that's not even accounting for inflation.
How to live off the interest of a million dollars? ›
Another strategy to make $1 million last through retirement is to place the money in a diversified portfolio and withdraw a set percentage per year, indexing that amount to inflation. Many retirees who use this strategy follow the 4% rule. They withdraw 4% the first year, or $40,000, and they live on this amount.
Can I retire at 45 with $1 million dollars? ›
Achieving retirement before 50 may seem unreachable, but it's entirely doable if you can save $1 million over your career. The keys to making this happen within a little more than two decades are a rigorous budget and a comprehensive retirement plan.
Can $1 million last 20 years? ›
Assuming things get back to normal sometime soon, $1 million today will have the same purchasing power as $1.8 million two decades from now. That means if you plan to retire in 20 years, you might need an extra $800,000 in your nest egg to live the kind of lifestyle $1 million would buy you in retirement now.
Can a couple retire on $1 million dollars? ›
A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
How to invest $1 million dollars for income? ›
Ways To Invest 1 Million Dollars.
- Stock Market. Stocks are a good investment choice as they usually generate returns through dividends and growth in share prices. ...
- Bonds. ...
- Rental Properties. ...
- ETFs (Exchange-Traded Funds) ...
- Start or buy into a business. ...
- Peer-to-Peer Lending. ...
- CDs and Money Market Accounts. ...
- Fixed Rate Annuities.
Can you live off of $2 million in assets? The answer is yes, if you manage your investment portfolio smartly. One common option is to invest $2 million in an index fund. But you will still need to make absolutely sure that you have a rainy day fund since the market can be reliable over decades but fickle over years.
How much interest does $100000 earn in a year? ›
How much interest can $100,000 earn in a year? If you put $100,000 in CDs, high-yield savings or a money market account for a year, you could earn anywhere from $3,000 to $5,000 based on current interest rates.
Do most people retire with a million? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you're looking to be in the minority but aren't sure how to get started on that savings goal, consider working with a financial advisor.
What is a good monthly retirement income? ›
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
How many people have $3,000,000 in savings? ›
1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.
Could $5 million dollars last a lifetime? ›
Is It Enough to Live Comfortably? The answer to this question is a resounding yes! You can retire on five million dollars. You could retire quite comfortably on that amount of money.
Is it possible to save 1 million dollars in 5 years? ›
The number might seem impossible, but you can accomplish it. To save $1 million in five years, you will have to calculate how much you will need to save and which investments can help you reach that goal. Use the tips below to start your journey toward $1 million.
How long will money last using 4% rule? ›
How Long Will My Money Last Using The 4% Rule? The 4% rule is designed to make your money last for at least 30 years in retirement. By withdrawing 4% of your initial retirement portfolio annually, adjusted for inflation, you can maintain a steady income without depleting your savings too quickly.
What is the average Social Security check? ›
Average Social Security retirement benefits in 2023
Average payments for all retirees enrolled in the Social Security program increased to approximately $1,827, according to the Social Security Administration (SSA).
How much money does the average American retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.
What net worth is wealthy? ›
You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth. That's how financial advisors typically view wealth.
What net worth is considered upper class? ›
How much money do you need to be considered rich? According to Schwab's 2022 Modern Wealth Survey (opens in new tab), Americans believe it takes an average net worth of $2.2 million to qualify a person as being wealthy. (Net worth is the sum of your assets minus your liabilities.)
What salary is considered wealthy? ›
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.
What is the top 1% of Americans net worth? ›
Key Takeaways
- As of 2019, the top 1% of household net worth in the U.S. starts at $11,099,166. ...
- An individual would need to earn an average of $401,622 per year in order to join the top 1%, and a household would need an income of $570,00. ...
- The median household income was $70,784 in 2021, and $45,470 for individuals.
No matter how much their annual salary may be, most millionaires put their money where it will grow, usually in stocks, bonds, and other types of stable investments. Millionaires put their money into places where it will grow such as mutual funds, stocks and retirement accounts.
What age group has the most millionaires? ›
Most millionaires in the US are 60-79 years old.
More data published by Statista suggests two-thirds of US millionaires are 60-79 years old. Another 23% of Americans with a net worth of $1 million or more are 50-59, with a small percentage of millionaires being 40 or younger.
How many people have 2 million in savings? ›
We estimate there are 8,046,080 US households with $2 million or more in net worth. That is roughly 6.25% of all US Households.
Can I retire at 45 with $3 million dollars? ›
You can probably retire in financial comfort at age 45 if you have $3 million in savings. Although it's much younger than most people retire, that much money can likely generate adequate income for as long as you live.
Is $1.5 million enough to retire at 65? ›
You can certainly retire comfortably at age 65 on a $1.5 million, but your ability to do so relies on how you want to live in retirement, how much you plan to spend, when you plan to claim Social Security and how your portfolio is structured.
It's entirely possible to live off the interest earned by a $10 million portfolio, depending on how much you need and what your investment choices are. You'll want to make sure that your lifestyle goals are in line with the income produced if you're going to make it through retirement without running out of funds.
How much does 2 million dollars make in interest? ›
Generally, a diversified investment portfolio that includes a mix of stocks, bonds, and other income-generating assets can yield an average annual return of around 4% to 6%. Based on this, a 2 million dollar investment portfolio could potentially generate an annual income of $80,000 to $120,000.
Where can I earn 10 percent on my money? ›
How Do I Earn a 10% Rate of Return on Investment?
- Invest in Stocks for the Long-Term. ...
- Invest in Stocks for the Short-Term. ...
- Real Estate. ...
- Investing in Fine Art. ...
- Starting Your Own Business (Or Investing in Small Ones) ...
- Investing in Wine. ...
- Peer-to-Peer Lending. ...
- Invest in REITs.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
How much interest will I earn per month on 1 million dollars? ›
Bank Savings Accounts
As noted above, the average rate on savings accounts as of February 3rd 2021, is 0.05% APY. A million-dollar deposit with that APY would generate $500 of interest after one year ($1,000,000 X 0.0005 = $500). If left to compound monthly for 10 years, it would generate $5,011.27.
How much does the average 70 year old have in savings? ›
How Much Does the Average 70-Year-Old Have in Savings? According to data from the Federal Reserve's most recent Survey of Consumer Finances, the average 65 to 74-year-old has a little over $426,000 saved. That's money that's specifically set aside in retirement accounts, including 401(k) plans and IRAs.
Can I retire with $1 million dollars at 55? ›
Can I retire at 55 with $1 million? Yes, you can retire at 55 with one million dollars. You will receive a guaranteed annual income of $56,250 immediately and for the rest of your life.
How much interest does $1 million earn per year? ›
The historical S&P average annualized returns have been 9.2%. So investing $1,000,000 in the stock market will get you the equivalent of $96,352 in interest in a year. This is enough to live on for most people.
Can I retire on $2 million at 65? ›
Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face. As of 2023, it seems the number of obstacles to a successful retirement continues to grow.
Can you retire $1.5 million comfortably? ›
The 4% rule suggests that a $1.5 million portfolio will provide for at least 30 years approximately $60,000 a year before taxes for you to live on in retirement. If you take more than this from your nest egg, it may run short; if you take less or your investments earn more, it may provide somewhat more income.
Yes, you can retire at 55 with 2 million dollars. At age 55, an annuity will provide a guaranteed income of $130,000 annually, starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.
Can I retire at 60 with $3 million dollars? ›
Yes, you can retire at 60 with three million dollars. At age 60, an annuity will provide a guaranteed income of $183,000 annually, starting immediately for the rest of the insured's lifetime.
Can I retire at 50 with $3 million dollars? ›
The Bottom Line
Retiring at 50 is a great goal to have. If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
Are you rich if your net worth is $2 million? ›
SmartAsset: How Do You Know If You Are Rich? Being rich currently means having a net worth of about $2.2 million. However, this number fluctuates over time, and you can measure wealth according to your financial priorities.
How much money do I need to invest to make $3000 a month? ›
According to FIRE, your portfolio should cover 25 times your annual expenses. Then, if you withdraw 4% of your portfolio every year, your portfolio will continue to grow and won't be compromised. We can apply this formula to the goal of making $3,000 a month like this: $3,000 x 12 months x 25 years = $900,000.
Which bank gives 6% interest in savings account? ›
Mango Money
Mango Money pays up to 6% APY on the Mango Savings account. To start, you must open a Mango Card, a prepaid debit card. You don't need a credit check, and there's no activation fee; plus, all cardholders can open a savings account with a $25 deposit. You can earn up to 6% APY on balances of $25 to $2,500.
What is 2% interest on $100000? ›
Interest on $100,000
Investing this amount in a low-risk investment like a savings account with a rate between 2% to 2.50% of interest each year would return $2,000 to $2,500. Investing in stocks, which may earn up to 8% per year, would generate $8,000 in interest.
