# Live off of bonds as passive income?

Let's assume a person needs 3 thousand dollars for expenses (rent/food/etc) in one month and wants to invest in bonds to make passive income. How much money would he have to invest in bonds to make this happen? How much money does an average bond make?

note: complete newb I know nothing about bonds

• At current annual interest rates of about 2% (about 0.1667% per month), \$3k per month is equal to a principal investment of 3,000/0.001667 = \$1,800,000 invested. If you're young, you should focus on earning more, spending less, and saving money every month to invest. For most people, living off your investments is typically the end goal of retirement, not the starting point. Sep 27, 2017 at 19:27
• I've some times thought it would be neat to have a coffee fund. Someday....
– quid
Sep 27, 2017 at 19:36

I'm assuming you are buying bond mutual funds or bond etfs here, not the actual bonds directly.

There are a significant variety of different types of bond funds, reflecting the sort of bonds they invest in. For example, you can invest in risky, non-commercial grade bonds, also known as junk bonds. Or you can invest in short-term bonds, which are much safer but return much less. There's no such thing as the 'average bond'.

So, let's go for somewhere in the middle. Let's go for 3% return, after fees.

Now, it's fairly simple math. You want \$3,000 a month, or \$36,000 a year. To generate that sort of return, you'd need to invest \$1,200,000. If we are more optimistic, we could go for a 4% return, after fees. That reduces your investment to \$900,000.

Note that it would almost certainly not make sense to invest all that money in bonds. Instead, you'd want to invest in a mix of stocks and bonds. This could likely reduce your risk while increasing your expected return.

• Does this take (Federal and State) taxes into account? Sep 27, 2017 at 20:26
• No; it assumes you need \$3000/month. If you need more than that (if you don't count taxes as one of those expenses), you'll need to change the math. Sep 27, 2017 at 21:16
• Depending on Jurisdiction there may also be bonds and bond funds that invest in tax free bonds. In the US that includes municipal bonds. Though to compensate they offer lower rates. Sep 28, 2017 at 10:40