Is $5 Million Enough for Your Golden Years?
Welcome, fellow retirees! Today we’ll answer the big money question that’s probably been on your mind: how far does $5 million go in retirement? If you’ve saved this much money (or plan to), you may be wondering if you’ll be set for life or if you’ll still need to watch your pennies.
You don’t have to look into the data. I did it for you, and what I found might surprise you. There are 103 crazy years for that $5,000 to last, or 46 much more reasonable years, depending on where you plant your retirement flag. Yes, where you live DOES matter A LOT when it comes to getting the most out of your retirement funds!
The 0.1% Club: How Rare is a $5 Million Retirement?
Let’s start with a reality check retiring with $5 million puts you in VERY exclusive company According to data from the Employee Benefit Research Institute based on the Federal Reserve’s Survey of Consumer Finances, only 0.1% of retirees have managed to accumulate over $5 million in their retirement accounts.
To put this in perspective:
- Only 0.1% of retirees have $5+ million saved
- Just 3.2% have over $1 million saved
- The median retirement savings account balance is a modest $87,000
If you want to make $5 million, you’re going for the big bucks. Even if you only save $1 million for retirement, you’ll be ahead of about 2097% of retirees. The typical American is retiring with far less.
State by State: Where $5 Million Lasts the Longest
The really interesting part is how long that $5 million will actually last. GOBankingRates did an interesting study that looked at how many years $5 million would last in each state based on how much retirees usually spend each year.
Top 5 States Where $5 Million Lasts the Longest
| Rank | State | Years $5M Will Last | Annual Expenditure |
|---|---|---|---|
| 1 | West Virginia | 103.20 years | $48,451.48 |
| 2 | Oklahoma | 100.09 years | $49,954.75 |
| 3 | Kansas | 99.06 years | $50,475.11 |
| 4 | Alabama | 98.16 years | $50,937.66 |
| 5 | Mississippi | 97.94 years | $51,053.29 |
Bottom 5 States Where $5 Million Runs Out Fastest
| Rank | State | Years $5M Will Last | Annual Expenditure |
|---|---|---|---|
| 50 | Hawaii | 46.44 years | $107,657.12 |
| 49 | California | 59.64 years | $83,836.10 |
| 48 | Massachusetts | 59.93 years | $83,431.37 |
| 47 | Alaska | 69.13 years | $72,330.32 |
| 46 | New York | 70.25 years | $71,173.96 |
The contrast is startling! If you choose to retire in West Virginia, your $5 million could theoretically last for over 103 years (over twice as long as Hawaii) The difference comes down to cost of living – particularly housing, healthcare, and transportation costs
Breaking Down Retirement Expenses
When planning your retirement budget with $5 million, it’s helpful to understand where your money will actually go. The typical major expense categories include:
- Housing: Often the biggest expense, with dramatic variation by state
- Healthcare: Tends to increase as you age, averaging $7,000-$9,000 annually
- Transportation: Includes car expenses, maintenance, and fuel
- Utilities: Heating, cooling, electricity, water, etc.
- Groceries: Basic food expenses, which vary by region
- Discretionary spending: Travel, hobbies, dining out, etc.
Let’s look at the extremes to see how these costs can vary:
West Virginia (where $5M lasts longest):
- Annual housing: $6,711.21
- Annual healthcare: $7,638.02
- Annual transportation: $4,587.10
- Annual utilities: $4,003.02
- Annual groceries: $4,777.81
Hawaii (where $5M runs out fastest):
- Annual housing: $36,619.34 (over 5x more than West Virginia!)
- Annual healthcare: $9,198.80
- Annual transportation: $6,860.88
- Annual utilities: $7,472.30
- Annual groceries: $5,953.08
The biggest difference? Housing costs in Hawaii are more than 5 times higher than in West Virginia!
The Reality Check: Average Retirement Savings by Age
While we’re talking about $5 million retirements, it’s worth putting this in context of what most Americans actually have saved. Here’s a sobering look at average and median 401(k) balances by age group:
| Age Group | Average 401(k) Balance | Median 401(k) Balance |
|---|---|---|
| 20s | $91,133 | $34,225 |
| 30s | $181,500 | $73,763 |
| 40s | $370,879 | $154,212 |
| 50s | $592,285 | $252,850 |
| 60s | $573,624 | $210,724 |
| 70s | $431,962 | $106,654 |
| 80s | $393,826 | $86,301 |
Notice the huge gap between average and median numbers? That’s because a small number of super-savers pull the average way up. The median (middle point where half have more and half have less) gives a more realistic picture of typical retirement savings.
Even Americans in their 60s have a median 401(k) balance of just $210,724 – a far cry from $5 million!
Factors That Impact How Long $5 Million Will Last
Beyond just location, several key factors determine how long your retirement savings will stretch:
1. Inflation Rate
Inflation is the silent retirement killer. Even a modest inflation rate of 2-3% annually can dramatically reduce your purchasing power over a 30+ year retirement. At 3% inflation, prices double approximately every 24 years!
Using a retirement calculator that accounts for inflation is crucial. A seemingly sufficient nest egg can be eroded significantly if inflation runs higher than expected.
2. Investment Returns
The growth of your remaining investments plays a huge role in how long your money lasts. The difference between earning 4% vs. 7% annually on your investments can add or subtract decades from your retirement funds.
Most retirement planners recommend maintaining some stock market exposure even in retirement to help your portfolio keep pace with inflation.
3. Withdrawal Rate
Financial advisors often cite the “4% rule” as a guideline for sustainable withdrawals. Under this approach, a $5 million portfolio would provide $200,000 in annual income (adjusted for inflation each year).
However, some experts now suggest that a 3-3.5% withdrawal rate may be more appropriate for extremely long retirements or during periods of lower expected returns.
4. Healthcare Costs
Healthcare expenses tend to increase dramatically as we age and can be the wild card that throws off even the best retirement plans. Long-term care, in particular, can cost $100,000+ annually and quickly deplete savings.
Medicare doesn’t cover all healthcare expenses, and supplemental insurance becomes increasingly important (and expensive) as we age.
The $5 Million Lifestyle: What Can You Actually Afford?
So what kind of lifestyle can $5 million actually buy you in retirement? Using the 4% rule as a starting point:
- Annual income: $200,000 (before taxes)
- Monthly income: Approximately $16,667 (before taxes)
This would allow for:
- A comfortable home (owned outright or with modest mortgage)
- Regular travel, including international trips
- Dining out frequently
- Expensive hobbies or collections
- Gifting to family or charity
- Quality healthcare including supplemental insurance
- Some luxury purchases without financial strain
However, if you’re in a high-cost area like Hawaii, California, or New York, this same $5 million might provide a more upper-middle-class lifestyle rather than a truly luxurious one.
Real Talk: Do You Actually Need $5 Million?
Here’s where I get real with ya – most Americans don’t actually need $5 million to retire comfortably. While having a large nest egg provides security and options, many people live perfectly happy retirements with far less.
The key questions are:
- What lifestyle do you actually want?
- Where do you plan to live?
- What are your expected healthcare needs?
- Do you have pension income or strong Social Security benefits?
- Do you plan to leave a large inheritance?
If you’re planning a modest lifestyle in a low-cost area with good health, you might be perfectly comfortable with $1-2 million (or even less). Don’t get caught up in arbitrary big numbers without considering your personal situation!
The Bottom Line: Location, Location, Location
If there’s one takeaway from all this data, it’s that WHERE you retire matters almost as much as HOW MUCH you’ve saved. A $5 million nest egg can last anywhere from 46 to 103 years depending on your location.
For those fortunate enough to have saved $5 million (or who are on track to do so), you have incredible flexibility in choosing your retirement lifestyle and location. You’re in the enviable position of being able to prioritize what matters most to you – whether that’s living in your dream location regardless of cost, or stretching your dollars in a more affordable area.
For the vast majority who won’t reach the $5 million mark, don’t despair! Strategic choices about location, housing, and lifestyle can help you create a wonderful retirement with far less.
What’s your take? Are you surprised by how much variation there is across states? Are you factoring location into your retirement planning? Drop me a comment below – I’d love to hear your thoughts on the retirement planning journey!
What factors should I consider for early retirement?
Consider your annual expenses, healthcare costs, and investment returns. These factors will impact how long your money lasts.
Can You Return to Work if Needed?
If retirement funds run low, consider part-time work options or consulting/freelancing opportunities.
Consider exploring alternative work arrangements and flexible job opportunities for supplemental income.
Consider the option of part-time work to supplement your retirement income. Many retirees find part-time employment as a way to stay engaged and add extra cash flow. It can give you the freedom to balance free time with making extra money, which can help you stay financially stable.
Suze Orman Says You Need $5 Million to Retire, Dave Ramsey Says $1 Million (Who’s right?)
FAQ
How long will $5 million last in retirement?
Five million dollars can last for several decades in retirement, potentially 40 years or more, depending on your withdrawal rate, investment returns, inflation, and lifestyle. As a general rule, $5 million can provide a $2 million annual income, enough to maintain a comfortable standard of living for at least three decades.
What percentage of retirees have 5 million dollars?
Only about 0. 1% of U. S. retirees have a net worth of $5 million or more. This figure is a very small fraction of the retired population, though 3. 7% of all U. S. households have a net worth over $5 million.
Can you live off interest of 5 million dollars?
Yes, you can likely live off the interest of $5 million, which could provide roughly $200,000 in annual income at a conservative 4% return, but your ability to do so depends on your specific expenses, lifestyle, and investment strategy. Factors like your retirement age, the need to outpace inflation, investment risk tolerance, and potential taxes on investment gains all play a crucial role in determining how long your $5 million will last.
Is $5 m net worth rich?
Yes, a $5 million net worth is considered rich, as it places an individual in the “very high net worth” (VHNW) category, often within the top 1% of the U. S. population.
Can you retire with $5 million?
Yes, you can retire comfortably and happily with this amount to fund your non-working lifestyle. If you want to retire at the normal age, $5 million will be enough to get you by, even if the value of that money never goes up again. Let’s play that scenario out: The average reported retirement age, according to Gallup, is now 61.
How long does $5 million last in retirement?
And even if you don’t plan to reach centenarian status, data shows this amount covers a minimum of 40 years in retirement. To determine how long $5 million lasts in retirement, GOBankingRates found the national average annual expenditures for people aged 65 and older and created state-level annual expenditure estimates.
How many people have a $1 million retirement?
While $5 million retirements are scarce, even $1 million retirements are relatively uncommon. Only 3. 2% of retirees have amassed over $1 million in savings. This comparison highlights the significant gap between average retirement savings and these high-value benchmarks.
How much money does a retiree have?
Retiring with $5 million dollars is an exceptionally rare achievement. According to data from the Employee Benefit Research Institute, based on the Federal Reserve’s Survey of Consumer Finances, a mere 0. 1% of retirees have managed to accumulate over $5 million in their retirement accounts.
How much money do you need to fund your retirement?
If you decide to retire at 50, 40, or even 30, $5 million will be enough to cover your costs. If you retire at the average retirement age, $5 million will provide you with over $170,000 annually. Estate planning needs to be carefully considered to ensure your beneficiaries aren’t subject to excess tax after your passing.
How much money should you set aside for retirement?
Depending on where you live in the United States, $5 million set aside for your retirement can potentially fund more than 90 years of the next chapter in your life. And even if you don’t plan to reach centenarian status, data shows this amount covers a minimum of 40 years in retirement.