# How much money should I save in order to generate \$1000/month for the rest of my life?

How much money do I need to make in order to generate 1k/month for the rest of my life?

Is that even possible? If yes, in what way?

Edit: I am 30 years old.

• Let's assume for the moment that you could live on \$1000/month next year. Did you consider that \$1000/month in 2050 won't have the same purchasing power as \$1000/month in 2020? Any constant dollar amount per month might not be the right kind of goal. – Chris W. Rea Sep 28 '19 at 18:20
• How can this question possibly be answered without knowing the age of the person? – Zulan Sep 30 '19 at 11:56
• @Zulan: Stackexchange sites don't really encourage short numerical answers, or questions where the expected answer is a number. So for example "as a rough order of magnitude it's low-ish 6 figures, but here's how to find out..." is an answer. Then for a fuller answer mention that there's a difference between just plain \$1000 and 1000 inflation-adjusted dollars. Extreme case where the answerer is more confident than they probably should be: a formula or actuarial table with age as an input variable would answer the question without knowing the questioner's age. – Steve Jessop Sep 30 '19 at 14:47
• ... all of which said, if the questioner's user picture is at all representative, I don't think their exact age is needed, since their time left to live can be approximated at infinity without making a huge difference to the answer ;-) Basically, an indefinite endowment isn't really all that much more expensive than a 70-year annuity, or a lifetime annuity for someone in their 20s or 30s today. For practical pensions purposes you need to answer a whole load of questions: age is just the start. – Steve Jessop Sep 30 '19 at 14:50
• @Zulan: For most ages, the infinite solution is really close to the real answer. – Joshua Oct 1 '19 at 16:20

Endowment manager here. An endowment is a large lump of money that is invested to create "forever income". They are held by universities and the like, and there are countless billions of dollars in them. They are also very tightly regulated, including how they are invested.

To the astonishment of most novices, not only are they allowed to be heavily in the stock market, that is mandatory. A skittish endowment manager who hides in municipal bonds would be sued by the state's attorney general.

They are invested mainly in ordinary stocks, mutual funds, ETFs, bonds etc. - which you can buy also.

Endowments are intended to be forever funds, and are designed to weather the ups and downs of the stock market. A prudent amount of money may be drawn down every year, regardless of how the market is doing. The prudent amount is deemed by law to be 4-7%, with a careful eye on growth and inflation.

Keep in mind this assumes less than 1% for the fund's overhead expenses. Keeping overhead to a bare minimum helps massively. My personal investments are at about 0.20%, my personal "endowment" (DAF) is 0.76%. If you walk into EdwardJones and say "do this for me", they could take 2.5% or more, which in this example means you need twice as much money to do the same thing.

Let us say 5% or 1/20. That means the corpus must be 20 times that.

To withdraw your \$1000/month or \$12,000/year, you need 20x that, or \$240,000 of initial investment in the fund.

This will "automatically" adjust for inflation if properly managed.

These numbers are low enough that taxes won't be a big issue. Heck, \$12,000 is your standard deduction these days. But even if taxes were an issue, a little strategy can cause them to be long-term capital gains, which are taxed gently many places.

• This answer is only applicable to U.S markets though? What about Europe for example? – Cloud Oct 1 '19 at 9:41
• @Cloud Harper picks 5% as a more or less reasonable number. Depending on the market you might need to select a different draw value as a prudent value. If you are actually managing the endowment then juridistiction matter, but for a beneficiary it's basically a purchased product. – Taemyr Oct 1 '19 at 18:14
• Exactly Taemyr. By the way I love the accidental "Cloud Harper" lol... @Cloud I don't know the Europe stock markets well enough to know how they perform. At first blush I would expect them to be comparable to US. But you can always invest in the US market, just currency exchange rates then become a factor. Of course USD is the world's reserve currency, so it's pretty safe... – Harper - Reinstate Monica Oct 1 '19 at 19:26
• @Cloud the reasonability of "\$1000/month" depends very much on what country --- a fortune in say Lesotho but poverty in Singapore. So you must simply factor in taxes... E.g., EU neighbours Belgium and Holland differ, the second taxing wealth itself the first the capital gains; and many countries have different outlooks on this (some say savings are what remains after being taxed, so taxing again would be wrong; and the capital gains are differently taxed from 'labour'). – user3445853 Oct 1 '19 at 19:32

What you are describing is a lifetime annuity. You pay a lump sum now and then get a fixed amount until you die.

Included in this calculation are estimates of (1) how long you will live (2) how much your money will earn when invested. Both of those are difficult to estimate, so in order to be confident you don't run out of money before dying, you must do one of the following:

1. Massively overestimate how much you need to invest today. Lots of money will be left over, probably, when you die.
2. Purchase an annuity from a financial intermediary. That's what they are for. That will offload the risk that you will live a long time to the annuity provider. Some people who buy the annuity will die early and others will die late, so you don't have to overestimate. The company bears the risks.

My suggestion is to call up your favorite financial services provider, tell them your age, and ask how much a lifetime annuity will cost (tell them when it will start paying as well). They will give you a better quote than random people on the internet will.

• +1 but worth noting there are lots of annuity types. The opening paragraph describes "single premium immediate annuity" which has the feature of being the most commoditized and thus cheapest due to competition. – user662852 Sep 29 '19 at 1:00
• Purchasing an annuity does not eliminate risk, because you have no way of knowing what your actual living expenses will be in future, and if you develop a medical condition, they might significantly increase. In that situation, having "no savings, and only a guaranteed income that is too small" is not a good financial situation to be in. – alephzero Sep 29 '19 at 14:21
• @alephzero The OP said nothing about living expenses. They asked only about getting \$1000 a month for the rest of their life. What you have said is true, but not part of the question. – farnsy Sep 29 '19 at 17:48
• best quote: `the risk that you will live a long time` – Aequitas Sep 30 '19 at 0:01
• @Aequitas being alive definitely costs a lot more money than being dead. Being barely alive is even worse. I remember a morbid joke that if you are to shoot a burglar, you shoot to kill. – Nelson Sep 30 '19 at 1:44

There’s a general “rule of 4%” for investing. It means that a given sum invested in a total market Index fund can usually generate 4% a year indefinitely. Using that rule, \$300,000 would generate \$1000/mo.

• @RonJohn That seems applicable here... – Michael Sep 29 '19 at 0:38
• @Michael not true, since Rocky's answer is all about interest income, whereas the Rule of 4% means to withdraw 4% of \$300,000 leaving you with \$288,000 which grows to \$299,520. Withdraw another 12,000, let the remainder grow 4% and you've got \$299,021 at the end of the second year. Rinse, wash and repeat. You can do that for a long time, but not forever. More importantly, you'll be withdrawing that \$12,000 even during down swings like the dot com bust and 2007/2008. – RonJohn Sep 29 '19 at 1:10
• @RonJohn: That's why it's based on somewhat less than the average return (adjusted for inflation)... so that in the good years it will grow enough to make up for the effective increase in withdrawal during the bad years. – Ben Voigt Sep 29 '19 at 4:35
• @RonJohn If you let it generate the 4% before you withdraw it you can do it forever. Of course, you won't get an even 4% every year – JollyJoker Sep 29 '19 at 12:40
• The 4% rule comes from the Trinity study. It was expected the money will last 30 years across all the market conditions known at the time. With a good market, the money can last much longer. – NL - Apologize to Monica Sep 29 '19 at 21:35

Simple math that all (and I mean all) depends on the interest rate.

• At 1%: `(1000 x 12)/0.01 = 1200000`
• At 2%: `(1000 x 12)/0.02 = 600000`
• At 3%: `(1000 x 12)/0.03 = 400000`
• At 4%: `(1000 x 12)/0.04 = 300000`

Of course, interest rates change, so you'd have to be conservative with your forecasting, and 1000/month isn't very much at all.

The elephant in the room is inflation. 20 years from now, 1000 units of currency (said because the actual currency isn't relevant) won't buy as much as it does now.

• This assumes the OP will live forever. The right calculation should use up all the principal by the end of his/her life. – farnsy Sep 28 '19 at 21:28
• Knowing exactly how long you are going to live is a little tricky though, most people will admit. I wouldn't like to be 80 and completely out of money because I assumed I'd have died by then. – Eric Nolan Sep 28 '19 at 21:57
• @farnsy so do all the answers, because as Eric Nolan mentioned, we don't know how long we're going to live. – RonJohn Sep 28 '19 at 23:01
• It's much easier to estimate how long you will live than, for example, what the return on your investments will be over the rest of your life. You can build in some padding in case you are the exception. By mentioning this I didn't mean to imply your answer is worse than the others (in fact, it's better, in my view). – farnsy Sep 28 '19 at 23:11
• if you're going to live more then 30-40 years, it's almost irrelevant if you burn down the pricipal or not – Christian Sep 29 '19 at 9:51

Given the other answers here, if you actually have \$300,000 to \$1,200,000 in cash sitting around, you might consider purchasing a house. I own a rental property near Fort Hood, TX originally purchased for about \$110,000 and now valued at \$150,000 and it earns me about \$1,100 a month. You have to subtract some upkeep from that (typically about \$600 to \$1,500 a year in the nine years I've owned it), but it still seems a lot cheaper than purchasing a lifetime annuity. The nice thing about rent is it already goes up with inflation, typically faster than your maintenance expenses.

Of course, you don't need to save up the full purchase amount, either. You do need a sizable down payment for a pure rental purchase as opposed to a house you intend to live in, but I'm not sure it's possible to borrow money to purchase a lifetime annuity at all.

First, there's the issue of how much money you have to earn versus how much money you have for your endeavor after taxes. And then there's the issue of taxation on the yield. You can adjust the numbers per your current and anticipated futures tax brackets.

From a U.S. perspective:

Money market are variable. At the current rate of about 2%, you'd need \$600k to generate \$1k per month.

You could get about 6% from selective investment grade preferred stocks. Since they are tied to interest rates, that yield would vary modestly as rates change and issues are called. You'd need \$200k for that. With some active swapping of issues (reallocation), in most years you could bump that yield to 10% and sometimes even better if there's an interest rate cycle (pre 2008). Preferred stock ETFs have provided about 5.5% return over the past 10 years.

There are a variety of annuities that provide lifetime income. A fixed annuity would be the obvious choice. You'd have to check to see what current rates are.

A variable annuity would be another possibility. The money would be placed in sub-accounts (similar to a mutual fund). I don't know what the current offerings are but historically the guaranteed deferred income component has been 5-6%. You'd get the higher of the two values (market investment versus the deferred guarantee). I had one with a 10% guaranteed deferred side growth. It's a lot more complex than a description here can provide but essentially you're paying higher fees and therefore under performing the market in return for guaranteed income for life.

This question is unanswerable as there are many important variables:

• How many years you expect to live
• What you expect to happen if you live less or more than that
• Whether you want exactly \$1000 or can tolerate some variation
• How much work you expect to do to keep the money flowing
• How much security you want against unexpected catastrophes such as the economy collapsing