What is the best way to invest $200,000 at 75 years old to get back income of $1,500 per month?
I am a 75-year-old male senior citizen with $200,000 in savings. What is the best way to invest this money to get back income of $1,500 per month?
Great question, the answer is two fold. Firstly 1500/mo =18000 annually which would imply an interest rate of 9%, which I will flat out tell you is impossible without exposing yourself to substantial risk. The good news is you may not actually need a 9% return, you just need 1500 a month for the rest of your life. We can assume about a 3% interest rate using high quality short term investments, under a 3% assumption you would be able to draw 1500 per month for 13.5yrs. 5% would last you 16.5 yrs and 7% would last you 22yrs. Hopefully that helps in your analysis as most retirees will spend down principal to meet their needs. Take a look at this annuity calculator if you would like to play with the variables, and this is not an indorsement of annuities just the components of principal and interest that make up a stream of income. https://www.bankrate.com/calculators/investing/annuity-calculator.aspx
$1500 per month income on a balance of $200,000 equates to a 9% return. While the stock market averages about 9% over the long-term, being 75 years old, you may not be able to withstand an extended market downturn without withdrawing substantial amounts of principal.
General rule of thumb for distributions is a 4% rate which would equate to only around $667/month, leaving serious shortfall for you. You may have to resolve to withdraw from principal.
In addition, you really need to gauge how much risk you're willing to take. As I said above, the market has delivered your desired return over the long-term, but we've also been in a bull market now for ten years. No one can predict how long that will last, but I'd be willing to bet that we will see an extended correction sooner rather than later. Typically a more balanced approach involving both stocks and bonds will moderate market volatility, but probably won't produce the 9% required, again, requiring you to touch principal.
I'd consider withdrawing less if at all possible to minimize the impact on your long-term principal investment.
That question can best be answered by a qualified registered investment adviser who knows your situation.
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If you desire $1,500 per month after taxes, you likely will need to draw down some of your principal each month regardless of how you choose to invest. If you have an average risk tolerance (use this tool to help figure it out), we'd recommend investing no more than approximately 60% of your money in equities. We'd advise putting the balance in fixed-income securities with a very short average maturity (3 years or less). We'd expect such a portfolio to last 12 years, on average, before being completely drawn down.
$1,500 per month is an annual rate of return of 9% on your $200,000 account. That kind of return is not available without taking risk. it's not impossible -- a basket of REITs, perhaps -- but they could decline in value and dividends are never 100% guaranteed. Please consult an advisor.
On the other hand, you could invest the money at about 6% and withdraw $1,500 per month knowing you were slowly depleting your principal. You could consider this if you had other savings. Just keep in mind that you really don't want to run out of money, to outlive your savings. I always tell investors to plan on living to be 100, even if you don't think you will.