Living off completely on investment interest is possible. Average investors think that the only retirement income plan is this. People are drawn to this method because of the financial perks involved. For instance, retiring with $1 million and investing the total in a fixed-income scheme at 6 percent allows one to live off of the interest. That’s to the tune of $60,000 a year, counting social security and pension. And that $1 million left in the bank is not going anywhere.
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How Much Money Is Needed To Completely Live Off Of Interest?
1. How Much Money Is
Needed To Completely
Live Off Of Interest?
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2. Living off completely on investment interest is possible. Average investors think that the
only retirement income plan is this. People are drawn to this method because of the
financial perks involved. For instance, retiring with $1 million and investing the total in a
fixed-income scheme at 6 percent allows one to live off of the interest. That’s to the
tune of $60,000 a year, counting social security and pension. And that $1 million left in
the bank is not going anywhere.
Money, Money, Money
Experts say that people aim for about 80 percent of their annual income when deciding
how much savings they need for retirement. But this is an overly simplistic approach.
Specific circumstances dictate the amount. People have different lifestyles and spending
patterns. Healthier people, for example, have the freedom to consider healthcare as
second-fiddle, whilst those who travel a lot tend to spend more than their stay-at-home
peers.
3. It all starts with the interest on the principal investment itself. Know that the principal
amount can’t be touched. For one, with a $1 million principal, things may go like this.
Multiple purchases amounting to $30,000 leaves $970,000 in the bank. The interest
rate is at 6 percent, so it means that the income is less than $60,000 a year. Even if
one doesn’t withdraw money for the rest of his life except the income from the interest,
the principal amount still gets cut every year—and by increasing amounts over time.
The ‘4 Percent Rule’
Many people believe in the so-called “4 percent rule.” What this means is that one
should take out at least 4 percent of his savings the year after retirtement. Succeeding
withdrawals of the same amount each year after that should also be taken. By doing so,
it’s theoretically possible for the savings to last through at least 30 years into
retirement.
This shouldn’t always be the fallback, though. Various times may warrant one to avoid
the 4 percent rule. People with high-risk investments must be more cautious in
withdrawing money, especially early in retirement. It’s because the likelihood of a
market downturn can bring high-risk investments down compared to others.