How to Turn $1 Million Into Passive Retirement Income

Building a nest egg of $1 million often takes decades of planning and saving. If you’ve reached this milestone and want to live off your savings in retirement, you’ll have some decisions to make. You can invest funds in different ways, each with its own interest rate or return.

You’ll also want to evaluate inflation to protect yourself from it. If you choose an investment with a return of 5% and inflation hits 6% or more, your purchasing power will decline. Diversifying your investments can help to reduce risk. That way, if one investment performs poorly, others could fare better.

When turning $1 million into passive retirement income, consider these strategies:

— Purchasing an annuity

— Choosing dividend stocks

— Buying fixed-income securities

— Starting a business

— Investing in real estate

— Building a portfolio

Purchasing an Annuity

Buying an annuity provides you with a guaranteed source of income in retirement. You’ll sign a contract outlining what you can expect to receive for a determined time period. There are different types of annuities, and some begin sending payments immediately while others are deferred. The rates for these can vary.

While an annuity provides a steady income stream, you may get a lower return than you would with other investments. Also, it may not be the best choice for someone who values flexibility. If you invest $1 million in an immediate annuity that pays for a lifetime, it could be hard to change or access funds to move to a different investment.

[READ: 8 Ways to Make Extra Income in Retirement]

Choosing Dividend Stocks

Some companies have stocks that pay dividends to shareholders, which gives you income. The stock’s value could also increase if it performs well in the market. Due to the commitment and stability needed to provide dividends, companies with a long track record of strong financial performance often offer this option. Talk to a financial advisor or broker to learn about your options. You can also research well-established publicly traded firms.

Investing in stocks comes with risks, and a company’s future performance can’t be guaranteed. Disruptions occur in industries. “These stocks are attractive for their dual potential of income and capital appreciation, but it’s important to remember that dividends are not guaranteed and can fluctuate with market conditions,” said Khwan Hathai, a certified financial planner and financial therapist at Epiphany Financial Therapy in Denver, in an email. “The psychological aspect here involves balancing the excitement of potential gains with the reality of market risks.”

[READ: How to Build a Balanced Retirement Portfolio]

Buying Fixed-Income Securities

You might consider Treasury bonds, which are fixed-interest U.S. government securities with a maturity of over a decade. They make interest payments at set times. Bonds tend to have a lower risk than stocks, so including a mix of both in your portfolio may reduce risk. Treasuries are also tax-advantaged, as you don’t pay local taxes on them.

Consider allocating some of your funds to Treasury bills, which are short-term U.S. government debt obligations backed by the Treasury Department. They have a maturity of one year or less.

“For an investor looking for passive income on $1 million, we currently recommend Treasury bills as a virtually risk-free and lucrative investment,” said Stephanie Lo, quantitative researcher and investment officer at MFS Investment Management in Boston, in an email. You’ll want to watch Treasury bill rates, as they can fluctuate. For a longer-term solution, consider other investments, Lo added.

Starting a Business

If you’ve always had an entrepreneurial desire, try investing some of the $1 million into a business venture in retirement.

This may generate additional revenue over time; however, it may be best suited for those who retire early or want to do something different. During the first few years, you could be tied to the business and work considerable hours every week. If you’d prefer a slower pace in retirement, choose a different strategy to live off your $1 million.

[READ: 12 Great Side Hustles for Retirees]

Investing in Real Estate

Using all or part of your $1 million, buy properties and rent them to tenants. Choose properties in growing areas where the value will likely increase. Before making a move, however, research and check local trends to see if it would be a good fit.

There are also real estate investment trusts, which are publicly traded companies that own or finance real estate. You can purchase REIT shares through a broker or financial advisor. “REITs are more liquid but can be sensitive to interest rate changes,” Hathai said.

Building a Portfolio

To weather the years ahead, build a portfolio that provides enough cash to support your monthly living expenses. “Diversification across different types of investments can help manage risk and return,” Hathai said. “Regularly reviewing the investment strategy, while avoiding the temptation to constantly adjust based on short-term market movements, is essential for long-term success in generating passive income.”

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How to Turn $1 Million Into Passive Retirement Income originally appeared on usnews.com

Update 01/28/25: This story was published at an earlier date and has been updated with new information.

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