How much interest income can I expect on $12 million? Can I live well off that income? (from Quora)

Good question. I’m assuming that you’re asking this question because you are, for whatever reason, expecting to be the recipient of $12 million. This could be from an inheritance, the sales of a business, winning the lottery, or something else. Whatever the source of the funds, congratulations!

I’ll also assume that after taxes, you’ll be left with $12 million, however, that may not be the case. Consider that depending on the source of the income, the location in which you live, and other factors, you may have to pay a significant amount of tax on the amount of money you receive. Consultant a qualified accountant or tax professional for help with calculating your tax liability.

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Now to the exciting part… how much income can you expect to earn off of $12 million in cash?

The answer largely depends on your risk tolerance. You used the word “interest,” but I’m assuming that you’re open to investment vehicles other than those that pay interest. Bonds typically pay a “coupon” (similar to interest) and some stocks/equities pay dividends.

Investment approaches vary wildly — and yours will likely be based upon your philosophy on money, risk tolerance, and your age and future plans. You could put all of your funds in a high-risk, high-reward stock and significantly increase your assets (or lose it all). I wouldn’t recommend that approach, though.

The polar opposite would be to put the money into bank accounts, money markets, and CDs — which typically pay anywhere from 0% annual interest to 1.75% in today’s market. Some would argue that this approach would not keep pace with inflation, and while that would lead to a whole separate discussion, they are in many ways, correct.

A reasonable strategy would be to combine approaches. Don’t expect to “beat the market,” but understand that the market has ups and downs.

Here are examples of return on a few different approaches.

  1. Put it all into municipal bonds (but be sure to diversify, and consult a professional for help with this since there are complexities — don’t invest too much in one municipality or bond issuer, and ensure that bonds are rated well or insured by a reputable insurance company). Typically these pay 2–3.5% and income is generally tax-free if you live in the US and in a state where there is no income tax or you purchase your own state’s bond.Assuming all $12 million is invested in municipal bonds, assuming a reasonable rate of 2.5% (you can do better or worse), expect $300,000 in tax-free income annually. Depending on your tax bracket, the tax-equivalent yield is probably $400,000 – $500,000 annually. This means that if you had a taxable investment, you’d have to make $400k – $500k to do as well as $300k tax-free.
  2. Put it all into S&P 500 stocks, or better yet, an S&P 500 ETF. According to this article, the S&P has averaged 10% ROI since 1928. This assumes that you have a long-term time horizon, because in any given year, you may gain or lose a significant amount of value. Over the long term, we expect the S&P to live up to its historical averages, but there is no telling what the future holds.Assuming all $12 million is invested in the S&P 500 with an average rate of return of 10%, expect $1,200,000 of annual return (not necessarily “income”). Depending on your tax bracket and how long you hold the stock you buy, your keep will a bit lower — probably in the ballpark of $960k, +/-, though it greatly depends on your tax bracket and overall tax strategy. I’m assuming a long-term buy and hold strategy, which has you paying long term capital gains on your income rather than ordinary income tax. Keep in mind, though, that you cannot expect to receive a “coupon” or monthly/quarterly/annual distribution of profit. If you invest in dividend stocks, you may receive a dividend, which you may or may not choose to re-invest. Beware that during the Great Recession of 2008–2009, the S&P 500 index fell 57% from October 2007 through March of 2009. There’s no guarantee that you will make money each year. This is a longer-term strategy and you should not rely on this for any regular level of income.
  3. Put it into Bitcoin and hope that the current value of $8,200 as of this writing increases by 15% per year or more. While this approach carries significant risk and I would not recommend it (at least not for your entire $12 million), I include it here as an example.Assuming all $12 million is invested into Bitcoin, you can expect $1,800,000 in annual return. Your income, once again, depends on whether you sell Bitcoin or otherwise use it’s value to purchase goods/services, or if you hold it as an investment. Your “keep” depends on the IRS’ tax treatment of bitcoin.

There are a myriad of other approaches you can take, ranging from lower-risk to higher-risk.

The proper strategy for most folks generally involves a combination of approaches to ensure that regardless of market conditions, you can rest assured that you will not lose a significant amount of value and that you’ll continue to see ongoing income.

Your strategy may involve holding a certain amount of cash in low-risk, low-interest bank accounts or money market accounts in case of a market crash or recession, so that you can take advantage of the buying opportunity.

Warren Buffet’s Rule #1 is “Never Lose Money.” His Rule #2 is “Never Forget Rule #1.” This is important — and there are portfolio strategies that can limit your losses. Diversification is very important in this respect as well.

Mansions and Ferraris, or Safety & Security — You Choose!


My take? In your shoes, I’d take a fairly conservative approach. Unless you have dreams of living in a mansion with a fleet of Ferraris and Lamborghinis (or you have an extremely large family or other unusual expenses), $12 million puts you easily into “set for life” territory — as in, you never need to work again — or you can focus on a career that you love, regardless of what it pays. With very little risk, you can easily earn $200,000 – $300,000 in income, after taxes. While I’m not recommending that you take the lowest-risk approach, I’d recommend being cautious. A higher-risk approach can have greater rewards, but unless your desired lifestyle demands greater rewards, you may be able to sleep better at night if you play it safe.

Dog sleeping in a bed.

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