How Much Interest Does $2 Million Pay Monthly?

For older Americans, living off the interest and returns of their retirement account is how retirement is structured. The goal is to have enough saved up to coast indefinitely once you are retired. However, building up that kind of nest egg isn’t easy, and when thinking about how much money you will need to get there, you may be asking: Is $2 million enough? The answer can be yes, if you’re smart about it. Here’s what you need to know.

A financial advisor could help you create a financial plan for your retirement needs and goals.

How to Live Off Interest

When assessing whether $2 million is enough, the first thing to understand is how you live off interest. When we talk about living off of interest payments, we’re referring to what’s called “passive income.” This means that your various assets generate enough money on their own to provide your monthly income. You don’t have supplemental income or other work (beyond portfolio management) that adds to either your portfolio or your monthly budget.

Ideally, you also don’t draw down on the core principal. You can do so, of course. For example, someone who took $75,000 per year out of a $2 million account could coast for more than 25 years before the account ran dry. But when we talk about living on interest, we’re trying to decide if you can live indefinitely. This means you don’t touch the principal, only the interest and returns.

How Much Money Do You Need?

To figure out if you can live off the interest of an account, the first step is understanding your expenses. To put it another way, first you need to know how much money you’ll need each month. Then you can figure out what kind of savings can get you there.

When you do this math, it’s important to balance your needs and wants. First, how much money do you need per month? Do you have fixed expenses, like medical costs or other bills that can’t go away? Do you support anyone? Any debt can add a significant challenge to the task of living off interest alone.

Then, take a realistic look at your lifestyle. Obviously, the more lavish your lifestyle, the higher your bills, and the more money you’ll need before a portfolio can generate those returns. But still, it is important to enjoy your retirement. Take a whole-picture view of your finances, and be realistic about what you want and need.

When you are running the numbers, also keep in mind that Social Security provides a stable source of income for elderly Americans and is a fantastic supplement to just about any retirement plan. We will not include it in this article, though, since it skews our assessment of whether anyone can live on just $2 million in savings. But if you’re looking toward retirement, definitely don’t forget to include that income in your budget.

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Can $2 Million Get This Done?

A couple reviewing their retirement plan.

If you have $2 million saved up, what kind of budget can you live on? The answer depends entirely on how you have this money invested.

Investment options range from something as basic as a savings account to options like stocks, bonds and other assets. In general, the more money an investment returns, the greater the risk of loss, or at least volatility. If you’re looking to live off the interest of an account, you will need a balance returns with reliability and security.

The investment needs to be secure enough to minimize your risk of loss, so you’re not left without the money you need to live. Stability is also key, so that you can generally know what to expect each year or over time. At the same time, the investment also needs to grow enough to generate real income. Otherwise you won’t have any meaningful returns off of which to live.

Different Investment Options

While there are a lot of different options out there, four solid choices for stable, long-term income investing include:

High-yield savings account. A high-yield savings account is just a savings account at the bank, but one that offers a higher interest rate, sometimes up to 5%. This isn’t a great option for generating income, especially compared to investments. But it’s about as rock-solid as you can get in terms of reliability.
One-year treasury bills. Government bonds and bills offer a wide variety of options. Their interest rates change based on monetary policy decisions, but at the time of writing, a 12-month Treasury Bill offered 3.45% in interest. This an incredibly safe option for your money, although returns tend to be low and interest rates can change.
Certificates of deposit (CD). When you buy a certificate of deposit, the bank holds your money for a defined period, meaning you can’t withdraw it. But in return, they pay you an elevated interest rate, often around 4% or more. Like a savings account, this is about as good as you can get in terms of reliability. That said, even the elevated rate of a CD is fairly low, and you can’t access your principal if there is an emergency.
S&P 500 index funds. Over the past several decades, mutual funds and ETFs indexed to the S&P 500 have returned an average of between 10% and 14% per year. However, index funds come with real risk. Whereas with a bank product or Treasury debt, you get an extremely high degree of confidence in both your return and your principal, the stock market is much less predictable.

Why Many People Can Likely Live Off $2 Million

Some particularly budget-conscious households might be able to live off the return of Treasury debt at $34,000 per year. However, this is a small amount of money relative to your likely future needs. And even if you can pay your bills, it will almost certainly leave no room for error.

An index fund could offer more breathing room. 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.

That said, an index fund introduces the problem of variability. Over time, major indices like the S&P 500 return hold to their averages. In any given year, though, returns will vary. For example, between 2012 and 2022 alone, the S&P 500 posted annual returns of 29.6% (2013), -6.24% (2018), and 26.89% (2021).

What this means is that over time, the markets can be reliable enough to count on, but you still need to plan. If you want to live off an index fund, your budget has to include setting aside cash in a safer option, like a CD or Treasury debt. That safety net needs to be large enough to let you live for a year or more of weak returns, and even to replace capital that your account lost, if need be.

With $2 million in hand, the good news is that is an entirely achievable goal. You could easily set a household budget of $100,000 per year. Then, you can take the other half of your annual returns to pay taxes and build up this preventative war chest. Once that has enough in it to compensate for multiple years of lost earnings, you can reduce your contributions or begin rolling any excess returns back into your index fund.

How an Advisor Can Help You Create a Plan for Monthly Income

Guidance can be useful once the question shifts from how much you can earn to how reliably that income needs to show up. This often arises when you are nearing retirement, planning for an early retirement or trying to cover ongoing expenses without relying on a paycheck.

The decisions involved usually go beyond choosing individual investments. You may need to decide whether income should come primarily from interest, dividends or periodic withdrawals, how much volatility you can tolerate month to month and whether preserving principal is a priority. Timing also matters, since income needs today can differ from income needs later in retirement.

An advisor can help clarify how different investment types behave when used for income. This includes reviewing how predictable each source is, how income may change when markets or interest rates shift and how taxes affect what you actually receive each month. Advisors also can look at how long your money needs to last and whether income should remain level or adjust over time.

As balances grow, income decisions tend to have longer-lasting effects. Choosing higher-yield investments can increase monthly income but may also lead to larger swings in cash flow. Meanwhile, more stable options can limit how much income the portfolio produces. An advisor can help you test how different approaches would affect your ability to cover expenses during both strong and weak market periods.

Advice can also be useful for mapping income over time rather than treating each year in isolation. Monthly income needs often change as housing costs, healthcare expenses or taxes shift. An advisor can help you structure withdrawals and income sources so they remain workable as circumstances evolve, rather than relying on a single static strategy.

Bottom Line

A woman reviews her $2 million investment portfolio.

As we’ve explored, the monthly income from such an investment varies significantly based on several factors, including the investment vehicle chosen, current interest rates and your risk tolerance. Conservative options like high-yield savings accounts or CDs might provide safer but lower returns, while dividend stocks or real estate investments could potentially generate more substantial monthly income but with increased risk.

Tips to Help You Save for Retirement

According to the Federal Reserve, 60% of those with self-directed retirement accounts are not confident about their investment decisions. If you’re one of them, why not hire a financial advisor? An advisor can give you that confidence by using their expertise to help you build the portfolio you need. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Counting on Social Security benefits alone likely won’t provide full support for your current lifestyle. But benefits can help with your living expenses in retirement. SmartAsset’s Social Security calculator will help you estimate how much of a benefit you can expect.
And, if you want to figure out whether you are saving enough for retirement, SmartAsset’s free retirement calculator can help you determine how much you will need.