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Can I Retire with Interest Income from $2 Million?

The potential income generated by a $2 million portfolio hinges on the array of investments you opt for. However, making money from a $2 million fund is possible if you pick a mix of different investments wisely. Here, we list six typical ways to invest your money, along with how much you could expect to make each year from each option. 

Savings and Money Market Accounts

Savings

Savings accounts serve as one of the most liquid avenues for funds, much like checking accounts. Money market accounts, offered by banks or investment firms, share similarities with savings accounts but may offer different terms. While these accounts boast excellent liquidity, they typically yield lower interest rates compared to other investment avenues.

Interest rates on such accounts range from 0.05% to 0.7%, contingent on balances and where you hold your account. With a $2 million portfolio, annual income can fall between $1,000 and $16,000.

Bank Certificate of Deposit (CD)

Bank CDs let you earn more money if you promise to keep your money in the bank for a set time. This time can be as short as 30 days or as long as five years. If you take your money out early, you’ll have to pay a fee. For short time periods, the fee is usually the same as three months of the interest you would earn. For time periods longer than a year, the fee is usually the same as six months of interest.

Interest rates for bank CDs depend on the bank and duration, with balances usually not affecting the rate. Present-day CDs yield up to 5.5% leading to an annual income.

Annuity

Annuities, and insurance products, offer elevated interest rates and tax-deferred growth. Taxes on your account’s growth only apply upon withdrawal. Note that withdrawing before age 59 1/2 might incur penalties, and fees could be charged for early withdrawals.

Annuities offer withdrawals as needed, recurring withdrawals, or annuitization, converting your balance into lifelong payments. This amount hinges on factors such as age, location, and gender.

Let’s say you and your spouse are 65 and looking for a joint-life annuity to begin paying immediately. You invest a lump sum of $2 million, and your beneficiaries won’t receive any kind of death benefit if you both pass away within 10 or 20 years of obtaining the policy. This policy will pay $125,000 annually.

Stock Dividend Mutual Funds & ETFs

Stock Investing

Owning some types of stocks can give you extra money through dividends. This is like getting a small share of the company’s profits. You can also find mutual funds and ETFs that focus on giving you this type of income.

If you expect your portfolio to give you a 2% to 5% return through dividends, having $2 million invested could mean you get $40,000 to $100,000 every year. This way, you can make money each year and also have the chance for your investment to grow over time.

Bonds

Bonds serve as loans between investors and issuers. Interest rates vary based on issuer rating and bond maturity. Federal bonds like T-Bills are deemed the safest and hence offer lower interest rates.

Expectations on bond interest rates vary, but an investor can count on 2% to 5% annually. This translates to an income of $40,000 to $100,000 yearly for a $2 million portfolio.

Mortgage Investment Corporation (MIC)

Mortgage Investment Corporation

Mortgage Investment Corporation (MIC) offers income and appreciation without property management intricacies. They function like mutual funds, offering professional management, diversification, and access to otherwise unaffordable investments.

On average, MICs yield returns from 6% to 8% annually, resulting in $120,000 to $180,000 yearly income for a $2 million portfolio.

Determinants of Your Retirement Income

Apart from the composition of your investment portfolio, several other factors exert influence over the extent of your income during retirement. Here are some prominent ones:

Tax Considerations: Opting for tax-efficient investments Registered Plan accounts can alleviate the tax burden on your investments. A skilled financial advisor can leverage strategies involving long-term capital gains, tax credits, and more to curtail your tax liability.

Diversification: Investment values are prone to fluctuation. A diversified portfolio can mitigate volatility, minimizing the need to liquidate investments during downturns.

Interest Rate Dynamics: Interest rates attached to deposit accounts and investments usually come with stipulated timeframes. By employing strategies such as laddering CD and bond maturity dates, you can mitigate the impact of shifting interest rates.

Dividend Strategy: Opting for stocks with a proven history of consistent dividends can yield a steady income stream. Steering clear of companies that slash dividends during economic downturns can enhance your stability.

Final Takeaway

To conclude, making enough money to live off of a $2 million investment depends on how you choose to invest that money. However, different ways of investing will give you different amounts of money back as interest. Following the 4% Rule, a safe withdrawal rate of $80,000 annually can be achieved, provided your portfolio generates at least that sum, thus avoiding depletion of the principal amount. Collaborating with a financial advisor is vital to strike the right balance between risk mitigation and fulfilling your income requirements.

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