The savings and fixed-income landscape grows more diverse every day and individuals have many options at their fingertips. When making an investment, you will want toconsider how much money you could get in return. Here’s a breakdown of how much interest $500,000 can earn per year. A financial advisor can help you tailor your investment portfolio to specific needs and goals.
Interest on Fixed-Income Investments
Interest is the name of the game when it comes to fixed-income investments. Without it, there would be no incentive to not just keep all of your money under your mattress. When people talk about living off of interest, they are generally referring to these types of investments.Here’s an overview of the kind of interest you can expect from four common fixed-income instruments:
1. Bonds
Investors are drawn to bonds, and really any type of fixed-income investment, due to the greatly reduced risk of negative outcomes relative to more lucrative investments such as stocks. With bonds, the return on your investment is often known at the point of purchase. Although it is often a lower return than the best-case scenario of riskier investments, certainty provides a lot of value when it comes to balancing out a portfolio.
When you purchase a standard bond, you agree to receive a set percentage of the price of your bond in interest. This percentage is called the coupon rate, and its size is largely dependent on the interest rates in the market at the time you purchase the bond.
So, if you bought $500,000 in bonds that have a 3.45% coupon rate, you would receive 3.45% of your balance in interest throughout the term of your bond. Most bonds compound semi-annually, so if you put a bond with a term longer than six months, you will also have the opportunity to earn interest on your interest.
2. Treasury Bonds
Famous for being the safest investment of all, many investors are attracted to the prospect of United States treasury bonds (sometimes referred to as T–bonds), because the United States government guarantees their return. This means that the risk of a loss on your investment is effectively removed.
The process of purchasing newly issued T-bonds is a bit complex. The exact price you pay for a bond isn’t entirely predictable beforehand, as the bonds are issued by the government via an auction. So while you may go into the auction expecting to purchase a $500,000 bond, you may actually walk away having purchased it for slightly more or slightly less. Treasury bonds issue interest payments to holders once every six months throughout the term of the bond.
For example, if you entered an auction looking to purchase a 30-year bond with a face value (or par value) of $500,000 and you came away with a coupon rate of 3.5%, you would receive an annual interest amount of $17,500 in two, semi-annual installments. The interest you receive will be calculated using the face value of your bond, but if you manage to purchase that bond for *less* than the face value, you will effectively be earning at a higher interest rate.
If you were to purchase a bond with a shorter term, the mechanisms by which your interest is calculated and issued would remain unchanged, but the interest rate you’ll be able to obtain would likely be slightly lower. Current rates for two-year Treasury as of this article’s publication are between 3.0% and 3.25%, which would result in an annual interest amount of between $15,000 and $16,250.
3. Corporate Bonds
Many corporations choose to issue bonds as a fundraising strategy, and since even the sturdiest companies can’t quite match the guarantee of treasury bonds, they’ll often issue those bonds with higher interest rates. This makes them an attractive proposition for investors who don’t mind marginally more risk.
Similar to treasuries, most corporate bonds have a fixed interest rate attached to the par value of the bond, and that interest rate determines the annual amount of interest to be paid out most frequently in semi-annual installments.
According to data from the Federal Reserve Bank of St. Louis, high-grade corporate bonds are currently (at the time of this article’s publication) selling with average yields of 4.07%. So, if you purchased these corporate bonds with a par value of $500,000, you would be looking at annual interest payments of $20,350.
4. Certificates of Deposit (CDs)
A similar instrument to a bond is a certificate of deposit, or CD, in which you agree to lend a set amount of money to an institution, often a bank, change for an agreed-upon amount of interest. CDs can have a wide variety of term lengths (there are often more choices than that of bonds) ranging from seven days all the way up to 10 years or more.
One advantage that these have over bonds is a greater number of choices. Most large consumer banks offer a variety of different CD options, so it’s very likely that you won’t be able to find the right one for you. Additionally, the interest in the mini CDs compounds monthly.
This means that with equal term lengths and interest rates, you will be able to earn more in interest with the CD and with an equivalent bond. Because of these advantages, however, you’ll find that the interest rates offered for many CDs are slightly lower than the coupon rates you’ll find for similar bonds.
For example, if you were to put $500,000 into a Capital One 60-month CD with an interest rate of 3.25% and monthly compounding, you would earn $88,094.97 in interest, an annual value of $17,619.
5. Savings Accounts
If saying goodbye to your principal for a period of up to 30 years seems a bit worrisome to you, you can also earn interest on your money by placing it in a high-yield savings account. Keep in mind, of course, that the benefit of having immediate access to your funds comes at the trade-off of much lower interest rates.
If you were to place $500,000 in a high-yield savings account with a 2.15% APY and wait one year, you will have earned $10,750 in interest. This rate is likely insufficient to keep up with annual inflation, which means your money will become less valuable at a higher rate than when it’s accruing interest. You’ll also want to check the fine print of your savings account for things like maximum balance thresholds and tiered interest rates if you’re considering this approach.
6. Money Market Accounts
If for whatever reason, you feel the need to have even greater access to your funds than a savings account can provide (many savings accounts limit how many times you can make a withdrawal per year without paying a fee), then a money market account could serve as an alternative.
Keep in mind, however, that while you may be able to withdraw from the account more freely, you pay the price of even lower interest rates. Most competitive money market accounts offer APYs between 1.6% and 1.8%. A 1.8% APY would mean you earn $9,074.62 in the first year after depositing $500,000. As it’s unlikely that you’ll need that much money with that level of liquidity, this is likely not the wisest approach.
Can You Retire With $500,000?
As always, the answer to this question depends on a number of factors specific to the individual asking, including but not limited to how much money the asker needs to live in retirement. Many financial experts point to a rule of thumb known as the 4% Rule, which states that retirees are usually safe to withdraw four percent of their retirement savings on an annual basis without risking running out of money.
Four percent of $500,000 is $20,000, and the average annual benefit for someone receiving Social Security at the time of this article’s publication is also around $20,000. An annual retirement income of $40,000 may be sufficient for some people, while for others it’s not enough to cover the costs of day-to-day life as well as medical expenses
How Should You Invest $500,000?
As mentioned above, your primary goals with any retirement investment are to outpace inflation and to earn enough of a return to withdraw comfortably without dangerously depleting the principal.
The conventional wisdom among financial experts is to diversify any investment portfolio between things like stocks and mutual funds that can earn a higher return and fixed-income instruments like the ones we’ve discussed that can hedge against the risk of losses. Ultimately there’s no golden ratio of investment products that will work for every investor.
The Bottom Line
Determining interest on a $500,000 investment is a lot like asking someone what they see in a Rorschach blob: the answer will depend on the specifics of the person being asked. Factors like how much risk you’re assuming, the term length you choose, the broader economic environment at your time of purchase and the frequency at which your interest compounds will all play a role in calculating how much you earn on your principal investment.
- Before diving into options trading, consider talking with a seasoned financial advisor. 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.
- One of the most useful tools investors have is an investment calculator, which helps portfolios maintain the desired balance among asset classes.
Photo credit: ©iStock.com/aquaArts studio, ©iStock.com/Deagreez, ©iStock.com/Deagreez
FAQs
A 1.8% APY would mean you earn $9,074.62 in the first year after depositing $500,000.
What is the average return on $500000 investment? ›
However most estimates suggest that you can expect average returns up to 14%.
How much interest does $300000 earn in a year? ›
With a retirement account of $300,000, this means an average return of about $15,000 per year.
How much interest does 5 million make a year? ›
According to the FDIC, the national average rate for savings accounts as of June 21, 2022, was 0.08% (based on $2,500 product tier). So, if you made a $5 million deposit, it would generate approximately $4,000 of interest in a year.
Can you live off 10 million dollars interest? ›
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 monthly income will 500k generate? ›
If you invest $500k in an annuity when you are 60 and start earning immediately, you can expect to generate approximately $26,256 in annual income. This income is paid out monthly, so you can expect to receive approximately $2,188 a month from your annuity.
Is a 7% return on investment good? ›
A good return on investment is generally considered to be about 7% per year, based on the average historic return of the S&P 500 index, and adjusting for inflation.
Can you live off interest of 2 million dollars? ›
At $200,000 per year in average returns, this is more than enough for all but the highest spenders to live comfortably. You can collect your returns, pay your capital gains taxes and have plenty left over for a comfortable lifestyle. The bad news about an index fund is the variability.
Can I live off interest on a 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 money do I need to live off interest? ›
So as a general rule, experts recommend counting on needing 70% to 90% of your current expenses. Next, you will have to choose an interest rate. Banks have paid under 1% in recent years, while they used to pay in the high single digits in the early 1990s. If you want to be conservative, you could go with 1% to 3%.
Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.
What is the monthly interest on $5000000? ›
On a monthly basis, this means that the pre-tax interest income on $5 million would be $20,833. This works out to $4,807 of interest per week, or $685of 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 will $5 million last in retirement? ›
Based on the median costs of living in most parts of America, $5 million is more than enough for a very comfortable retirement. Based on average market returns, $5 million can support many households indefinitely.
How to live off interest of $4 million dollars? ›
Sustainable Withdrawal Rate
Professionals usually recommend a withdrawal rate between 4% and 5%. So, if you have a $4 million portfolio withdrawing 4% per year would give you about $160,000 per year to live off of. Of course, this figure doesn't account for taxes or inflation rates.
Can I retire on $500 K plus Social Security? ›
Yes, retiring at 55 with $500,000 is feasible. An annuity can offer a lifetime guaranteed income of $24,688 per year or an initial $21,000 that increases over time to offset inflation. At 62, Social Security Benefits augment this income. Both options continue payouts even if the annuity depletes.
Are you rich if you have 2 million dollars? ›
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. As a result, healthy financial habits, like spending less than you make, are critical to becoming wealthy, no matter your definition.
How many Americans make 500k a year? ›
The top 1% represents about 1.3 million households who roughly make more than $500,000 a year -- out of a total of almost 130 million. The concentration of wealth in the hands of a fraction of the population is at the core of some of the country's major political battles.
What is the average 401k balance for a 65 year old? ›
Average and median 401(k) balance by age
| Age | Average Account Balance | Median Account Balance |
|---|
| 35-44 | $97,020 | $36,117 |
| 45-54 | $179,200 | $61,530 |
| 55-64 | $256,244 | $89,716 |
| 65+ | $279,997 | $87,725 |
2 more rowsJan 20, 2023
With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last. If you're content to live modestly and don't plan on significant life changes (like travel or starting a business), you can make your $500k last much longer.
What is the safest investment with the highest return? ›
High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
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.
Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average. Some years will deliver lower returns -- perhaps even negative returns.
What percentage of retirees have a million dollars? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
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 65 with $2 million dollars? ›
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.
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.
At what age can you retire with $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 much interest can 1 million dollars draw in one 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). If left to compound monthly for 10 years, it would generate $5,011.27.
Can you live off the interest of 500000? ›
Yes, $500k Might Be Enough
The short answer is yes—$500,000 is sufficient for many retirees. The question is how that will work out for you. With an income source like Social Security, relatively low spending, and a bit of good luck, this is feasible.
Is $2000 a month enough to live on your own? ›
Yes, it is possible to live on $2000 a month. But, it depends on several factors such as the cost of living in your area, your lifestyle, and expenses. High expenses, such as supporting dependents, paying for medical bills, or living in an expensive city, can make it difficult to live on $2000 a month.
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.
Where do 90% of millionaires come from? ›
“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago. Some of the most successful entrepreneurs in the world have built their wealth through real estate.
Is it true that 90% of millionaires make over $100000 a year? ›
Choose the right career
And one crucial detail to note: Millionaire status doesn't equal a sky-high salary. “Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.”
Where is the safest place to keep cash at home? ›
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
Is $5000000 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.
How much money is enough to never work again? ›
It's called the 25 times rule, and it's very simple. You multiply your annual spending by 25, and that is the minimum amount of money you would need invested to fund your lifestyle without working.
How much does a $5000000 annuity pay per month? ›
How much does a $500,000 annuity pay per month? A $500,000 annuity would pay you approximately $2,188 each month for the rest of your life if you purchased the annuity at age 60 and began taking payments immediately.
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 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.
Can I retire at 56 with $3 million dollars? ›
The good news: As long as you plan carefully, $3 million should be a comfortable amount to retire on at 55. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now. To plan your retirement on $3 million, you'll need to face your mortality.
Bankrate's picks for the top jumbo money market rates
- First Internet Bank – 5.20% APY, $1,000,000.01 minimum balance for APY. ...
- Zions Bank – 4.45% APY, $100,000 minimum balance for APY. ...
- TIAA Bank – 4.00% APY, $100,000 minimum balance for APY. ...
- America First Credit Union – 4.00% APY, $250,000 minimum balance for APY.
Somewhere around 4,473,836 households have $4 million or more in wealth, while around 3,592,054 have at least $5 million. Respectively, that is 3.48% and 2.79% of all households in America.
Can a couple retire with 4 million dollars? ›
A nest egg worth $4 million can provide many retirees with enough money for everyday expenses, as well as general freedom to do what they want. If you're preparing to retire with $4 million, there's a number of specific tasks you'll want to complete to ensure your continued success.
How much do I need to retire if my house is paid off? ›
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
What is the average Social Security check? ›
According to the Social Security Administration (SSA), the average monthly retirement benefit for Security Security recipients is $1,781.63 as of February. Several factors can drag that average up or down, but you have the most control over the biggest variable of all — the age that you decide to cash in.
What is Max Social Security at full retirement? ›
In 2023, the average senior on Social Security collects $1,827 a month. But you may be eligible for a lot more money than that. In fact, some seniors this year are looking at a monthly benefit of $4,555, which is the maximum Social Security will pay. Here's how to score a benefit that high.
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.
Are most doctors millionaires? ›
By the time physicians reach their forties, it is very possible to achieve millionaire status, with some physicians even becoming multimillionaires. This trend continues with doctors in their fifties, with 60% of physicians' worth at least $1 million.
What net worth is considered a millionaire? ›
A 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.
Can you live off 500k investment? ›
With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last. If you're content to live modestly and don't plan on significant life changes (like travel or starting a business), you can make your $500k last much longer.
How Long Would It Take To Turn $500k into $1 million. With $2.5 million of properties appreciating 10% a year, your $500,000 investment would turn into $1,000,000 in two years, or three years, if those properties appreciated only 7% per year.
How long will $500 000 last in retirement? ›
How long will $500,000 last in retirement? Your money is projected to last approximately 16 years with monthly withdrawals totaling $828,251.
What percentage of Americans have $500000 saved for retirement? ›
Few Americans have saved more than $200,000: 4% have between $200,000 and $350,000, 4% more have $350,001 to $500,000 and a little more than 5% have more than $500,000.
Can a couple retire at 65 with 500K? ›
The short answer is yes—$500,000 is sufficient for many retirees. The question is how that will work out for you. With an income source like Social Security, relatively low spending, and a bit of good luck, this is feasible.
What net worth is considered rich? ›
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 is the average age to make a million? ›
How old is the average millionaire? The average millionaire is 57 years old. This is because it takes smart financial decisions, hard work, and wise investments to become a millionaire, most of which don't fully pay off until around the age of 50 or 60.
What percentage of American retirees have a million dollars? ›
According to the Schroders 2023 U.S. Retirement Survey, working Americans age 45 and older expect they will need about $1.1 million in savings in order to retire, but only 21% of people in that age group expect to have even $1 million. That's down slightly from the 24% in 2022 who said they expected to save that much.
Can 2 people retire with 500000? ›
Yes, you can! The average monthly Social Security Income in 2021 is $1,543 per person. In the tables below, we'll use an annuity with a lifetime income rider coupled with SSI to give you a better idea of the income you could receive from $500,000 in savings.
Do millionaires keep their money in the bank? ›
High net worth investors typically keep millions of dollars or even tens of millions in cash in their bank accounts to cover bills and unexpected expenses. Their balances are often way above the $250,000 FDIC insured limit.
How much money do I need in the bank to live off interest? ›
So as a general rule, experts recommend counting on needing 70% to 90% of your current expenses. Next, you will have to choose an interest rate. Banks have paid under 1% in recent years, while they used to pay in the high single digits in the early 1990s. If you want to be conservative, you could go with 1% to 3%.
