How Much Money Can You Make from a $500,000 Portfolio?

by adidasw1 · Published July 17, 2022 · Updated September 4, 2022

Everyone has to stop working at some point in their life. When that time comes, they will have to dig into their retirement savings. Some have enough and can live comfortably; but others are not so lucky.

People now live a little longer and, depending on how long you live, you may need income for 30 or more years. So, how much should a retiree save?

Will $500,000 Be Enough?

To be honest, this would not be enough for many people today. But you can get sufficient income with a good investment portfolio.

Suppose in your first year of retirement you want to earn about $50,000. The average Social Security payment is $17,000. So now you have to earn $33,000 from your $500,000 portfolio.

Another assumption here is that income will increase with inflation and the investment portfolio will, therefore, have to increase. The portfolio should protect your savings and, at the same time, grow at a higher rate than your yearly withdrawals. So be sure to find the proper balance between fixed-income investments and stocks.

Many financial advisors typically recommend the 4% rule to their clients when it comes to withdrawals. According to this guideline, you should never withdraw over 4% of your income in a year.

If you have saved $500,000, you will either have to live on very little or go against the 4% rule.

Here are some possible $500,000 investment portfolios and their potential income.

20/80

20% equities, 80% fixed income

10% US Equities

10% International Equities
10% US Treasuries
15% Global Bonds

15% Corporate Bonds
5% TIPS (Treasury Inflation-Protected Securities)
10% Mortgage-backed Securities

20% Cash and CDs
5% Other Bonds

With this example, you will place your portfolio into 80% fixed income and 20% equities.

When you inject that much money into fixed income securities, your portfolio will be protected in the event of a stock market crash. But still, this portfolio may not generate the amount of income you will need as a retiree.

50/50

50% equities, 50% fixed income

25% U.S Equities
25% International Equities
20% U.S Treasuries

10% Global Bonds
10% Corporate Bonds
15% Cash and CDs

Half of the funds in fixed income and half in equities would make a better portfolio. This kind of portfolio is likely to generate an average of 8.4% in annual returns over time. That is $42,000 annual income. However, more equity means a higher risk.

40/60

40% equities, 60% fixed income