How do returns work?

[The Kizzy]

Let's say I came into a big chunk of money. For arguments sake, lets say $1,000,000. I want to invest this money, and live off of the interest.

Would you want a 1 yr CD? And if those rates are about 4%, then you would expect a yearly return of $40,000? And they just pay that once a year?

Someone enlighten me please

[Phlegm]

Let's say I came into a big chunk of money. For arguments sake, lets say $1,000,000. I want to invest this money, and live off of the interest.

Would you want a 1 yr CD? And if those rates are about 4%, then you would expect a yearly return of $40,000? And they just pay that once a year?

Someone enlighten me please

It depends on the bank that issues the CD. Some add the interest at the end of each month while others add it when the CD is due. You have to shop around to see.

[leah]

where did you get a million bux and why haven't you told any of us about it?

[The Kizzy]

Its a hypothetical

[The Kizzy]

Oh, and I wouldn't tell everyone, just a few people that I would give gifts too, if I came into that kind of money, that is.

[Harrison]

I want gifts woman.

[The Kizzy]

I'll buy you a hooker even if I dont have a million

[Minrott]

No it's not that easy.

Sure, 4% of a million bucks sounds great, $40k a year. Except that's income, and you're going to pay income tax on it. So now you're down to $28k a year. Let's say everything you own is paid for, your cost of living is low, and $28k a year is enough for you to live comfortably. But guess what, next year, that $28k is only worth $27.3k. Why? Inflation. In 30 years, you're little stipend of yearly interest is going to be impossible to live on.

Let me use the example of the group of people who won the $300 million power ball. When it was all said and done, after taxes, they each came away with $15 million.

The younger ones, if they wanted to invest in a CD which is safe as safe can be, and get an anual return of 4-5%, could do it. 4% a year is $600k. Ater taxes, say 350,000. They would have to reinvest 150,000 of that every year to keep up with inflation.

That is, if they felt 200,000 a year would be enough for them to live comfortably for the rest of their lives, they would have to put 150,000 a year of that earned interest in the CD every year so that the interest they earned in 40 years would be worth what the 200,000 is they're making today.

Unless you're already close to retirement, there's no way you can live comfortably on the interest of $1 million unless you're aggressive with how you invest it. Munies, mutual funds, that sort of thing. And if you don't know how to do it, then you have to pay someone to do it for you. Bottom line, you could still lose it all in one big crash.

Keep working. Retire early, but not at 30 something.

[The Kizzy]

I don't think there is any intention of retiring at all, just living with that as a supplemental income, and if you never take the base investment out of the account, you are always going to have extra money every year.

[Harrison]

I'll buy you a hooker even if I dont have a million

I'm holding you to that.

[Markarado]

The interest from Municipal bonds is tax exempt. Also, most losses from investments are tax dedecutible. Just learned that in my class ;p

[Gypsiyee]

in malaysia?

[Markarado]

In the USA.

[Phlegm]

The interest from Municipal bonds is tax exempt. Also, most losses from investments are tax dedecutible. Just learned that in my class ;p

Not all muni bonds are tax exempt. Some are exempt for federal and not for state and vice versa. Losses in the equities(stocks, bonds, mutual funds, commodities) deduction is limited to 3000 a year. If its over 3000, then you can carry it to the following years.

[Markarado]

Yah, I remember reading that yesterday.... I didn't know that muni bond can be tax exempt on the state level though ~

[Minrott]

I want to invest this money, and live off of the interest.

I don't think there is any intention of retiring at all, just living with that as a supplemental income,

Make up your mind then. This is why no one takes you seriously when you ask questions like this.

If all you want is a supplemental income, you still have taxes and inflation to deal with. Without doing all the math, I can tell you that if you get a 4% gain, and reinvest everything for even just 15 years, your tax savings alone will make it possible to 'live off the interest' after that.

But if you pull out the interest accrued every year as a "supplemental" income, you'll never make a dime and squander the whole pot. Even if you spend carefully and wisely, you're still squandering it by not reinvesting.

[Jay]

Easiest way to invest it and get a nice return is to invest it into a property. You of all people should know that Janet.

That or stick it in an IRA account and get a job part time at McDonalds and claim low income so that you can reap the sick benefits of the IRA with no penalty for withdrawing before age 62. That's a scam and a half but hey.

[Phlegm]

That or stick it in an IRA account and get a job part time at McDonalds and claim low income so that you can reap the sick benefits of the IRA with no penalty for withdrawing before age 62. That's a scam and a half but hey.

Special Penalty-Free Withdrawal Situations:

- First-time home purchase: Up to $10,000.

- Qualified education expenses: For you, your spouse, your kids or even your grandkids. Approved expenses include post-secondary education, tuition, books, supplies and, if the student is enrolled at least half-time, room and board.

- Disability: To qualify for a disability exemption, you must prove that you are incapable of working.

- Unreimbursed medical expenses: Expenses must exceed 7.5% of your adjusted gross income.

- Health insurance for the unemployed: Only after 12 consecutive weeks of collecting unemployment benefits.

[The Kizzy]

I didn't copme into any money, a friend of mine did when her parents died in an accident recently. A LOT of money, and she wants to blow it, so I am trying to get her to THINK about what she is doing before she blows everything in the first 3 months.

She wants to retire and live off of the dividends, then when I tell her what the reality of that is, then she will work part time. So I basically go and tell her what you say here because I have no clue. SO sue me because she changed her mind, Minrott. And the figure is closer to $25,000,000 after insurances and the lawsuit is over with. (Killed by an off duty police officer who was driving a company vehicle home from the bar)

[Phlegm]

I didn't copme into any money, a friend of mine did when her parents died in an accident recently. A LOT of money, and she wants to blow it, so I am trying to get her to THINK about what she is doing before she blows everything in the first 3 months.

Invest in stable blue chip companies with high yield.

[Menlaan]

I didn't copme into any money, a friend of mine did when her parents died in an accident recently. A LOT of money, and she wants to blow it, so I am trying to get her to THINK about what she is doing before she blows everything in the first 3 months.

She wants to retire and live off of the dividends, then when I tell her what the reality of that is, then she will work part time. So I basically go and tell her what you say here because I have no clue. SO sue me because she changed her mind, Minrott. And the figure is closer to $25,000,000 after insurances and the lawsuit is over with. (Killed by an off duty police officer who was driving a company vehicle home from the bar)

Put me in touch with her I'll help her np np

[Dylan]

Put it in her butt.

[Narrock]

I just heard on a talk show that technology stocks are hot right now. Personally, I wouldn't dabble too much in the stock exchange.

[Dylan]

Isn't interest on $25 million different from just $1 though? Like 4% of $25 million must be enought to live off of and just put some of it back into the CD right?

[Harrison]

I still want my hooker.