How Much Income Does $500K Generate in Retirement?

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How To Invest $500,000 For Retirement Income

This article discusses how much income $500,000 will generate and illustrates one option for building a $500K retirement income portfolio.

Also, I will address the all-important question: Can you retire on $500K?

That’s the plan. Let’s get started.

How Much Income Does $500K Generate In Retirement?

A diversified investment portfolio will generate approximately $20,000 in annual income. The precise income you will earn with $500k depends on your portfolio’s mix of assets and the investment risk you are willing to take.

Let me demonstrate this point with a table representing one of the best ways to invest $500K for income.

Table 1: How Much Income Will $500K Generate: Example Portfolio

Investment & YieldRetirement Income
$125,000 CASH at 4.5%$5,625
$125,000 BONDS at 4.5%$5,625
$250,000 STOCKS at 3.5%$8,750
$500,000 TOTAL$20,000

Note: Interest rates and investment yields highlighted in the table are approximate and change over time due to market conditions.

Thus, before investing, check for the latest rates and assess your risk tolerance for investing in stocks and bonds. After all, it’s your money, and you worked hard to save it!

Next, let’s break this portfolio down into its pieces.

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Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Allocate Some Of Your $500K To Cash Or Cash Equivalents

Every $500K income investment portfolio should have some cash. If nothing else, for liquidity and the safety cash provides.

Better yet, with interest rates at historic highs, your cash earns income.

So, seek out a high-yield savings account at your local bank. Or shop online for a better deal. Money market funds are also an attractive option.

What’s the risk?

First, interest rates change based on market conditions. As of the time of publication, it’s easy to earn approximately 5% on your cash.

However, the income from your $500K retirement income portfolio will decrease if and when interest rates fall.

Second, inflation can erode your purchasing power.

Related reading: Investment required to make $1,000 monthly

Put Part Of Your $500K To Work In Bonds

Bonds are an excellent alternative when seeking income from your $500,000 nest egg.

Consider a diversified, low-cost exchange-traded fund (ETF) for this portfolio component. I recommend the Vanguard Total Bond Market ETF in this category, trading under the symbol BND.

Most of the bonds in the portfolio are issued by the U.S. government, reducing the chances of the fund’s bonds not being paid off when they come due.

You can read my entire Vanguard Total Bond Market fund review here. Full disclosure, I own BND but do not benefit in any way whether or not you choose to invest in it.

What’s the risk?

First, bond prices move in the opposite direction of interest rates. Thus, when interest rates rise, bond prices fall. Therefore, you can lose money in bonds.

Second, like cash, inflation can erode the purchasing power of your bond income.


In the short-term, cash holdings benefit from rising interest rates, while bonds do not. And vice versa.

Thus, you can balance interest rate risk by holding cash AND bonds in your $500K portfolio. See the portfolio example in Table 1.


Keep your investment costs low. Buy and sell ETFs for free with the Webull app.

Include Dividend-Paying Stocks In Your $500K Investing Portfolio

My favorite income-generating investments are dividend stocks.

Stocks that pay dividends provide three main benefits for an investor desiring to generate income off their $500K portfolio.

First, you earn income through dividend payments regardless of whether stock prices go up or down.

Second, many companies increase their dividends over time.

Finally, over the long run, share prices of stocks within a diversified dividend portfolio consistently increase. As a result, dividend stocks provide your portfolio with a growth component.

Thus, stocks with dividends hedge against inflation. They are unlike cash and bonds because of the benefits from dividend increases and capital gains.

Dividend-paying ETFs are another excellent alternative for keeping your investments simple. I recommend the Vanguard High Dividend Yield ETF for this part of your $500K portfolio, trading under the symbol VYM.

You can read my entire Vanguard High Dividend Yield fund review here. Full disclosure, I own VYM but do not benefit in any way whether or not you choose to invest in it.

What’s the risk?

Stock prices go down. Sometimes they go down by a lot and stay down for a long time.


I recommend the Simply Investing Report and Analysis Platform for anyone who prefers investing in individual dividend stocks rather than ETFs.

Okay. Now that you know how much income you can generate with $500K and how to construct a simple portfolio to produce that income. So, it’s time to switch gears.

Next, I want to address the all-important question I brought up in the article’s introduction.

Can You Retire On $500K?

Yes, retiring with $500K is possible. However, the average household will require additional retirement income sources for a balanced budget. For example, the median household income in the United States is approximately $71,000. As a result, longer life expectancies combined with historical investment returns suggest that relying solely on a $500K investment portfolio is insufficient and risky.

Let me demonstrate this point with a table representing one way to retire with $500K.

Table 2: Retiring On $500K With Other Sources Of Income

Income SourceIncome
$500K investment portfolio$20,000
Social Security family member 1$21,500
Social Security family member 2$21,500
Part-time work$8,000
Total retirement income$71,000

Use the table as a guide and adjust it to your circumstances.

For example, your income requirements may be different. Also, additional income must be generated from other sources when only one family member is eligible for social security.

Best Ways To Live Off Income From $500K Investment In Retirement

Here are other retirement planning ideas to allow for living off $500K of investments now or in the future.

Remain in the workforce longer. Doing so will limit the years you must rely on your $500,000 retirement savings.

Retiring at an older age also allows you to postpone taking social security, increasing your monthly income benefit later in life.

Work more during retirement to augment your income. Working part-time may not be your ideal retirement. But don’t dismiss the option.

Increase your allocation to higher-yielding investments. You can do better than the four percent yield indicated in today’s example portfolio in Table 1. However, understand that doing so creates a greater risk for investment losses.

Take a hard look at your budget. Reduce expenses to save money. Consider downsizing your home.

If all else fails, save more during your working years and amass a more significant investment portfolio greater than $500,000 before exiting the workforce.

Okay. That’s all I have for you today.

So, allow me to wrap up with some parting thoughts.

How Much Income Does $500,000 Generate

You can generate $20,000 of annual income from a $500,000 investment. However, that income level typically is only enough to fund a long-term retirement if you make some financial and/or lifestyle sacrifices.

I hope today’s article has given you a framework for considering your retirement readiness. And I encourage you to take the necessary steps to prepare for your financial security.

Thanks for reading, and feel free to check out more of my income-investing articles.

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Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.

How Much Income Does $500K Generate in Retirement