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?
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.
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:
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.
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.
Simple math that all (and I mean all) depends on the interest rate.
(1000 x 12)/0.01 = 1200000
(1000 x 12)/0.02 = 600000
(1000 x 12)/0.03 = 400000
(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.
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:
All of these have a huge impact. If you can tolerate a lot of risk, even 170k invested in stocks will generate about what you want. But obviously there will be months when you actually get 0, or even lose money. Meanwhile, you can get a certificate of deposit at 0.5% which is very reliable and takes no work but you will need 2.4M for the income you want. And this is all before considering taxes.
Usually the best investment for a start is buying a house/apartment, if you don't have one yet. The rent you pay every month could easily amount to $1000/month, and it will adjust itself for inflation )