‘Do not invest in your brother's restaurant': Kevin O'Leary explains how you can live off $500K and ‘do nothing else to make money' — but is it realistic?

Here’s a closer look at his thesis and whether it’s actually realistic for most people.

O’Leary’s thesis

Half a million dollars doesn’t seem like a lot of money these days. In fact, it’s less than half the amount Americans say they need to retire. A Northwestern Mutual study found that U.S. adults were on average targeting $1.3 million to retire comfortably. So, O’Leary’s number already sounds paltry.

Nevertheless, he believes the right investment can deliver a reasonable retirement. A typical saver, he says, can generate 5% returns in fixed income securities with “very little risk” or between 8.5% and 9% “if you put some of it in equities and are willing to ride the volatility.”

Those numbers certainly look realistic. The yield on a 10-year U.S. Treasury bond is 4.5%, while the S&P has delivered average annual returns of around 11% over the last 40 years, assuming you reinvested all your dividends.

But living off 4.5% yield on half a million wouldn’t be easy. That translates to just $22,500 in annual income, about a quarter of which would go towards medical expenses alone as you got older, according to a study by RBC Wealth Management.

Even the upper-end of O’Leary’s assumptions falls short. Assuming a person deploys $500,000 in a portfolio made up of stocks and bonds for 9% annual returns, they would earn less than $50,000 a year. That’s not enough to retire in most U.S. states, according to recent analysis by GOBankingRates.

In 2023, the cheapest state to retire is Mississippi, where a retiree needs $55,074 annually to live comfortably. Hawaii is the most expensive state to retire, where the bar is set at an eye-watering $121,228 per year.