Good evening venturous, money wise pack. Today, let’s look at how much interest one million pounds can earn you, how much income it can earn you one million in today’s UK market, can you retire with one million pounds and what to do with one million pounds. Well at least what I would do with it if I would inherited or win it.
The purpose of this article is to make you think through and to fantasy even (and maybe motivate you) what you can do with one million pounds and if you can actually just bank it and live on the interest only.
Table of Contents
How Much Interest On One Million Pounds?
The amount of interest you can make on one million pounds depends on a few things, like where you put your money, what the current interest rates are, and what you hope to achieve with your investment.
For example, if you were to stick one million pounds into a 5-year fixed savings account with an interest rate of 4.0%, which is one of the best rates available in 2023, you’d earn about £40,000 in interest each year.
This approach gives you a guaranteed interest income but might not offer the highest potential returns. If you decide to invest in things like stocks and shares, you could potentially make 7% or even more, but there’s a bit more to it.
Here are three options for making money from one million pounds:
- Savings Accounts: These are pretty safe and offer interest with minimal risk. As of 2023, some fixed savings accounts can get you up to 4.0% interest for a five-year period. Interest rates vary, so it’s good to shop around. On average, you might get 2-4% yield.
- Bonds: Bonds are like loans you give to governments or companies, and they pay you back with interest. Some fixed-rate bonds in 2023 can give you up to 4.75% interest for three years. Rates change based on market conditions. On average, you might get a 2.5-6% yield.
- Stocks & Shares: Investing in stocks and shares can potentially bring in higher returns over the long term. Historically, they’ve outperformed many other investments over 10-30 years. However, they come with more risk, especially during market downturns. On average, you might get a 7-10% yield.
How Much Income Would One Million Generate For You In UK?
The income generated from one million pounds can vary based on the type of investment and how well your assets perform in the market. Here’s a breakdown of the annual and monthly income at different interest rates:
- At a 4% interest rate, you’d earn £40,000 annually or £3,333 per month.
- With a 4.5% interest rate, your annual income would be £45,000, equivalent to £3,750 per month.
- At a 5% interest rate, your annual income would amount to £50,000, or £4,167 each month.
- If the interest rate is 5.5%, you’d earn £55,000 annually or £4,583 monthly.
- A 6% interest rate would result in an annual income of £60,000, or £5,000 per month.
- With a 6.5% interest rate, your annual income would be £65,000, which is £5,417 each month.
- At a 7% interest rate, you could earn £70,000 annually, equivalent to £5,833 per month.
If you’re looking to generate regular income from your one million pounds, you have three main options:
- Dividend Stocks & Shares: These are shares in companies that pay regular dividends to their shareholders. Investing in stocks with a history of dividend payments can provide you with a steady monthly income. On average, you might get a 2-5% yield.
- Rental Properties: The UK rental market is significant, with over 4.6 million renters. Owning and renting out properties can provide a reliable income stream, and real estate often appreciates over time. On average, you might get a 5-8% yield.
- Real Estate Investment Trusts (REITs): If you prefer not to buy properties directly, REITs offer an alternative. These trusts manage real estate investments, and you typically receive dividends in return. On average, you might get a 3-7% yield.
Of course, the main question still stands as what is your financial goal and if having one million is enough to fulfil your goal. For myself, if was tomorrow to inherit or to win one million pounds I will definitely look at investing most of it; after paying any outstanding debt, “living” a bit and helping my loved ones.
Probably, everyone is thinking on same terms and again, even if you don’t is fine. That’s why we are different and is no right or wrong answer as your circumstances couldn’t be exactly the same as mine and vice versa.
However, the advice would be to stop for a moment, take a step back and think exactly what your goal is and how you can use your million pounds to bring you closer to your ultimate goal.
What I Would Do With One Million Pounds Here In UK?
As I’ve mentioned earlier, let me outline what I’d do with one million pounds considering my current situation if would be to fantasy a little bit. My current objective revolves around constructing a sustainable lifestyle which means, in my mind, to create a portfolio of assets which will generate enough cashflow to support my financial and growth goals.
So, with one million pounds at hand, my strategy would entail building a diversified portfolio that spreads risk, while also striking a balance between active and passive investments to optimize resource utilization. Of course, this would be after getting any outstanding debt out of the window and helping my loved ones.
Here’s how I would allocate the funds across different investment categories:
Savings or Bonds
I’d allocate £150,000 to savings or bonds. The purpose here is to establish a stable growth mechanism, capitalizing on the relatively high interest rates available in the current market. The choice between savings and bonds would depend on the prevailing interest rates.
As of now, a 4.5% high-interest savings account seems suitable. To ensure full FSCS protection, I’d split the savings across two providers, staying within the £85,000 compensation limit. Average Yield: 5%
Global Index Funds
I’d invest £250,000 in global index funds and major markets like the S&P 500, FTSE 100, and emerging markets. Average Yield: 8%
Property and Angel Investments
The remaining £200,000 would be earmarked for property and angel investments. My primary focus would be on around properties and businesses with activity in short-stay serviced accommodation, such as Airbnb rentals either at home or abroad. Average Yield: 15%
This strategy aligns with my aim to diversify investments and optimize returns, given the specific circumstances and goals I have at this time. I understand is a high risk market and I could lose the money, is something which I have interest in for some while now.
Can You Retire With One Million Pounds?
Indeed, retiring with one million pounds is possible, but it depends greatly on your chosen lifestyle and fixed expenses. Also, it depends on your age for obvious reasons.
In theory, you could retire at any age with one million pounds if you manage to live on an amount that’s less than the returns generated by your investments. For instance, if you achieved a 5% return in 2023, you could comfortably spend £50,000 in a year while still maintaining your total savings above the one-million-pound mark. This implies the potential for an indefinite retirement.
However, this approach doesn’t account for fluctuations in investment returns, and the gradual erosion of your purchasing power due to inflation and of course how you handle your income taxes.
While I was reading multiple articles around investment and retirement, I’ve discovered the so called “4% Retirement Rule” which is a widely used guideline in the financial world to assist retirees in managing their retirement savings.
It suggests withdrawing 4% of your retirement funds annually, adjusting for inflation each subsequent year. For instance, if you possess one million pounds in retirement savings, you could withdraw £40,000 in the first year of retirement. If inflation is at 2% the following year, your withdrawal would increase to £40,800 to preserve the real value of your retirement income.
It’s important to note that the 4% rule is based on historical data and assumes a 30-year retirement period. It serves as a general rule of thumb and should be seen as a starting point.
A more balanced or “Hybrid Approach” might be the optimal strategy for effectively managing your one million pounds. Striking a balance between spending 4% or less while earning returns of 4% or more on your investments can be the sweet spot.
This approach safeguards your one million pounds as a lump sum while still providing sufficient funds for a fulfilling lifestyle in the short term. Numerous investment funds have outperformed this benchmark consistently over the past decade. This is definitely a topic which I will come back to in near future to learn more about it. So, keep an eye on this space.
In conclusion, today’s journey through the realm of finances and million-pound possibilities has been enlightening. We’ve explored how one million pounds can generate interest, create income, and potentially pave the way to retirement. I’ve also shared my own perspective on what I would do with such a substantial sum.
The core purpose of this exploration has been to spark your imagination and encourage you to ponder the myriad possibilities that come with a million pounds. Can you simply live off the interest? It’s a question worth considering. Your financial goals and aspirations are unique, and there’s no one-size-fits-all answer.
If I were to inherit or win a million pounds, I’d embark on a journey to build a portfolio of assets that support my financial and personal growth objectives. This strategy involves diversification, finding a balance between active and passive investments, and addressing any outstanding debt while assisting loved ones. Each of us has our own path, and it’s essential to take a moment, step back, and define your financial goals to harness the potential of your million pounds.