1 Million & Interest

GameOver_2

Hey

Just a question, that i just dont know the answer to to be honest, and am interested, no i dont have a million, and will problably never get it, but.......

If i had 1 million pounds, and wanted to put it and leave it in a bank etc, can i just live off the interest for the rest of my life? Would the bank pay the interest to me monthly and i just live off that?

At 5% interest thats 5000 pounds a month right?

How does that work?

Thanks

Matt :eek:

YorkshireBoy

5% AER is around 4.89% gross pa paid monthly.

£1,000,000 x 4.89% / 12 x 0.6 = £2,445 per month (net of 40% tax).

GameOver_2

Thankyou for that, i appreciate it.

Does that interest rate change all the time?

Can you get tax free accounts with interest? And higher interest?

Thanks

Matt

MPH80

So - £2.5k ... might be livable ... it's the equivilient of about £45k income.

But as time goes on - you aren't going to get a payrise on that - and inflation will slowly wear away at your £2.5k. If you lived off it for 10 years, at 2% inflation, your £2.5k would effectively be £2k in income instead.

It gets worse as time goes on.

M.

dunstonh

You would probably look to proper investments and not bank accounts to reduce the tax liability.

GameOver_2

What about ISA's?

Or something tax free?

grumbler

I think underlying inflation (about 2.2%) should be taken into account. If you want real value of the capital and the income to remain the same, then

£1,000,000 x (4.89% x 0.6 - 2.2%)/12=£611.

However, if you don't want to leave the capital to your heirs, it is better to buy an annuity. It depends on the age, sex and other factors. Some figures (for £100K) are here: http://www.thisismoney.co.uk/annuities. I don't know whether annuities are available for young people though ...

Mortgage_&_debt_free

I have a friend who has done just this. He was given £1m by a lottery winning relative (yes, alright for some) and has absolutely no interest in investing it at all.

He stuck it in a bank account and lives off the interest of about 24-25k p.a.

His lifestyle has not changed a bit, apart from the fact he gave up work (he was 48 at the time & was going to quit at 50 anyway) and maybe goes on holiday a couple of times more a year than he would before.

Many say it's a waste & if they won they'd do this & that but, for what it's worth, my view is that it's great as it means he must have been happy beforehand if he doesn't feel the need to do anything more extravagant.

Apparantly the lottery winners who have the worst experience are those that make dramatic changes to their lifestyles, particularly those who previously were employed and decide to start their own business, which in many cases has subsequently folded, and in some cases wiping out all their winnings.

The theory of this, and one I agree with, is that if these people had the business acumen to run successful businesses they would have done so many years ago, and they are in effect playing at it without any experience but with lots of collateral.

GameOver_2

Thanks for the posts guys!

Nice story mortgage & debt free!

I would have thought if you made a million you can live off the interest tax free, at 5% would be 5000 pounds a month, which would give anyone a nice lifestyle.

Is there no way to do that?

Thanks

Matt

dunstonh

He stuck it in a bank account and lives off the interest of about 24-25k p.a.

What a waste.

Many say it's a waste & if they won they'd do this & that but, for what it's worth, my view is that it's great as it means he must have been happy beforehand if he doesn't feel the need to do anything more extravagant.

He risks inflation and capital erosion when purchases are made which in turn will reduce the income further. He is also lining the Treasury's pockets.

Whilst he is happy now, that income is going to gradually decrease in real terms.

ManAtHome

GameOver wrote:

I would have thought if you made a million you can live off the interest tax free, at 5% would be 5000 pounds a month, which would give anyone a nice lifestyle.

Is there no way to do that?

Depends how long you think you'll live, and whether you want to leave a million quid to the relatives...

You could always extract the (taxable) interest and some of the (tax free) capital - means you eventually run out of cash, but not a problem if it happens on the morning you turn your toes up.

Doubt if you'd get £5k a month for much more than 25 years at todays rates though (could always move to Andorra?).