You Need This Much Money To Live A 'Risk-Free' Life Of Leisure

Cash is surging into bond ETFs — as investors look for money-for-nothing without the risk of the S&P 500. But it turns out you’ll need many millions to live like a millionaire on bonds.


The numbers are daunting. Want enough income to land in the top 5% of household income by owning low-risk 10-year Treasuries? You needed $14,069,932 in 2019, says an analysis by Jack Ablin, market strategist at advisory firm Cresset Capital. And now you need even more: north of $20 million.

Think you need less due to your modest lifestyle? It’s not as easy as it sounds. To pull down $100,000 annually from 10-year Treasuries, you’ll need to invest more than $7.6 million.

“Generating income in today’s market can seem as futile as trick-or-treating the morning after Halloween,” Ablin said. “Gone are the days when you can simply buy a 10% bond and retire.”

Shock For Bond ETF Investors

Why do you need so much cash for Treasury bonds to offer you a life of leisure? After all, a mere $801,291 in 1985, plunked down into Treasuries, would have generated enough income to put you in the top 5%, Ablin found.

Freefalling 10-year Treasury rates are to blame. They’re making the days of “risk-free” lives of leisure a thing of the past. The yield on the 10-year Treasury inched up Tuesday to 1.3%. But it’s down from 1.9% in 2019. And it’s a shadow of its former yield of 9% in 1985, Ablin says.

And to get that 1.3% on Treasuries, you’re taking on inflation risk over 10 years, too. If you reduce that time risk with shorter-term Treasury ETFs, like the popular $17.6 billion in assets J.P. Morgan Ultra-Short Income ETF (JPST), you get even less still: 0.83% annually.

Investors keep piling into bond ETFs despite the shrinking income. Bond ETFs pulled in $17 billion in July, their 32nd month of inflows in the past 33 months, says Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors.

Just this year, investors plowed $124.2 billion into bond ETFs. That’s 30% of the $391.4 billion going into stock ETFs. So much money is flowing into bond ETFs, they’re taking market share from stock ETFs, Bartolini found.

Prepare For Income Disappointment

You think you can do better? You’re right, you can, and most people are.

Most money is pouring into broad bond ETFs, like the Vanguard Total Bond Market ETF (BND). And it’s paying better than 10-year Treasuries, yielding 2.2%.

But that ETF yields more because it owns all types of bonds, not just super-safe Treasuries. But don’t go celebrating just yet. Even at 2.2%, you’d need to own $12.3 million of Vanguard Total Bond Market to get in the top 5% of annual income. And for just $100,000 of annual income, you’ll need to own nearly $4.5 million.

Keep in mind, too, the yield on Vanguard Total Bond Market is tumbling, too. Just a year ago, the ETF yielded 2.4%. And don’t forget the steady erosion of inflation, too.

“Over the last 40 years, household incomes have been rising with inflation while yields have been falling, making it increasingly difficult for savers to maintain a predictable retirement income stream,” Ablin said.

Why S&P 500 Stocks Still Rule

Given how tough it is to get income from bonds, you can see why the S&P 500 is still so compelling despite hitting highs daily (including Tuesday).

The S&P 500 is up more than 18% this year. Even so, it’s still yielding nearly 1.4%, which tops the yield on the 10-year Treasury. It benefits from holding all 11 sectors. Some like S&P 500 consumer discretionary yield just 0.6%. But others like energy yield more than 8%.

And check this out: Had you plunked $10,000 in the SPDR S&P 500 ETF Trust five years ago, it would be worth $20,000 now. That’s double what the same amount put in Vanguard Total Bond would be worth.

It’s not money for nothing — added risk is involved. But it sure beats nothing.

It Takes (Lots Of Money) To Make Money With Bonds

Year Median household income for top 5% 10-year Treasury yield Bonds needed to generate top 5% median income Required for $100,000 annually (in today’s dollars)
1985 $72,004 9.0% $801,291 $1,111,111
1990 94,748 8.1% $1,174,513 $1,234,568
1995 113,000 5.6% $2,027,995 $1,785,714
2000 145,220 5.1% $2,840,767 $1,960,784
2005 166,000 4.4% $3,778,739 $2,272,727
2010 180,485 3.3% $5,477,542 $3,030,303
2015 214,462 2.3% $9,447,665 $4,347,826
2019 270,002 1.9% $14,069,932 $5,263,158
2021 270,002 1.3% $20,769,385 $7,692,308
Sources: Cresset Capital, IBD, S&P Global Market Intelligence, 10-year Treasury and Census Bureau data
Follow Matt Krantz on Twitter @mattkrantz


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