The average 60-something today has $112,500 in retirement savings, according to Northwestern Mutual. But what if you manage to wrap up your career with a far more robust IRA balance than that?
If you manage to end your career with $5 million in savings, you'll no doubt be in the minority. But that might also give you plenty of options once your time in the workforce has come to a close.
A pretty sweet retirement
A $5 million nest egg won't necessarily make it possible to travel 360 out of 365 days a year or live in a 5,000-square-foot mansion. But it could mean living very comfortably once you're no longer working.
To see what a nest egg that large might mean for your retirement, let's break down $5 million into annual income. Financial experts have long recommended using the 4% rule for retirement savings, which essentially means you're taking out 4% of your balance every year. And it's important to set a framework for tapping your nest egg so your money doesn't run out.
But more recently, financial professionals have begun to make the argument that 4% is too aggressive a withdrawal rate given increasing life expectancies. So for the purpose of this discussion, we'll assume you're retiring with $5 million in your mid-60s and are sticking with a 3% annual withdrawal rate.
In that case, you're looking at an annual income from your savings of $150,000. Seeing as how you'll likely have some Social Security benefits on top of that, it's clear that a $5 million nest egg could make for a nice lifestyle. If you no longer have a mortgage to deal with, on more than $150,000 annually, you could take a nice vacation every few months or a modest trip every month while still having money left over to do things like dine out and improve your home.
Of course, one thing you'll need to account for is taxes. If you have a Roth IRA, withdrawals from your savings won't be subject to taxes in retirement. But with a traditional IRA, the opposite will hold true, which means $150,000 in withdrawals is not $150,000 in spendable cash. Even so, though, you'll likely end up with a nice sum to live on.
How to get to a $5 million nest egg
You might think that retiring with $5 million to your name is merely a pipe dream. But if you commit to saving and investing for retirement from a young age, you may be surprised at how much money you wind up with.
Let's say you earn a $60,000 salary throughout your career and commit to saving 10% of it, or $6,000 annually, for retirement. Let's also assume your IRA generates an average annual 10% return, since that's consistent with the stock market's average. If you start contributing to your savings at age 22 and continue doing so through age 69, you'll end up with a nest egg worth around $5.2 million. Really.
You might assume that anyone retiring with $5 million is apt to have had a six-figure income or a lot of generational wealth passed down to them. But that's not always the case. And as you can see, it's more than possible to build a $5 million nest egg of your own through consistent saving and investing. So if you like the idea of a $5 million retirement, commit to it and make it happen. And then get ready to enjoy your senior years to the fullest.
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FAQs
Is $5 million enough to achieve your goal? While the cost of living varies from place to place, a nest egg this size would likely give more than enough money for decades of comfortable living. Even if you live another 50 years, $5 million in savings would allow you to live on $100,000 per year.
What does a $5 million dollar retirement look like? ›
How Far Will $5 Million Go? The good news is even if you don't invest your money and generate returns, $5 million is still enough that you could live on $100,000 a year for 50 years. That'll last you until the age of 95, far beyond the average lifespan.
Can you live a good life with $5 million dollars? ›
Yes, this is very doable. If you were to retire at 50, assuming a life expectancy of 90 years, you could guarantee an income of at least $10,417 a month. You could also retire at 40 with at least $8,333 a month or even 30 with at least $6,944 a month.
How many Americans have $1000000 in retirement savings? ›
According to the Federal Reserve's latest Survey of Consumer Finances, only about 10% of American retirees have managed to save $1 million or more. This leaves a significant 90% who fall short of this milestone. Don't Miss: The average American couple has saved this much money for retirement — How do you compare?
How much money do most people have in the bank when they retire? ›
The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
How many people have 5000000 in retirement savings? ›
Data from the Employee Benefit Research Institute, based on the Federal Reserve's Survey of Consumer Finances, reveals that a mere 0.1% of retirees manage to accumulate over $5 million in their retirement accounts, whereas only 3.2% amass over $1 million.
Is 5 million net worth rich? ›
Investors with less than $1 million but more than $100,000 in liquid assets are considered sub-HNWIs. Very-high-net-worth individuals have investable assets of at least $5 million, while ultra-high-net-worth individuals have at least $30 million in investable assets.
How much income can you generate from 5 million dollars? ›
If you have $5 million invested in an account that yields 4%, it could generate $200,000 per year in income (5,000,000 x 0.04). However, inflation will impact your spending capacity. “If we apply a 2.5% inflation rate to the previous example, this yield is closer to $73,000 per year,” Jones says.
What percentage of retirees have $4 million dollars? ›
According to a 2020 working paper from the Center for Retirement Research at Boston College, the top 1% of retirees—which a retiree with $4 million in assets would fall into—can expect to pay about 22.7% in state and federal taxes.
How much yearly interest on 5 million dollars? ›
According to the FDIC, the national average rate for savings accounts as of June 21, 2022, was 0.08% (based on $2,500 product tier). So, if you made a $5 million deposit, it would generate approximately $4,000 of interest in a year.
Super wealthy (99th percentile): $16.7 million. Wealthy (95th percentile): $3.2 million. Well off (90th percentile): $1.9 million. Middle class (50th percentile): $281,000.
What is the average nest egg at retirement? ›
The median retirement savings for Americans was $86,900, and the average retirement savings was $334,000, according to the Federal Reserve's 2022 Survey of Consumer Finances.
What is a good net worth to retire? ›
By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.
What does the average American retire with? ›
Data from the Federal Reserve's most recent Survey of Consumer Finances (2022) indicates the median retirement savings account balance for all U.S. families stands at $87,000.
What is the average 401k balance at age 65? ›
Average and median 401(k) balances by age
| Age range | Average balance | Median balance |
|---|
| 35-44 | $91,281 | $35,537 |
| 45-54 | $168,646 | $60,763 |
| 55-64 | $244,750 | $87,571 |
| 65+ | $272,588 | $88,488 |
2 more rows2 days ago
As of March 2024, the average retirement benefit was $1,864.52 a month, according to the Social Security Administration. The maximum payout for Social Security recipients in 2024 is $4,873 a month, and you can only get that by earning a very high salary over 35 years.
How long will 5 million dollars last in retirement? ›
While $5 million may seem like a solid start, keep in mind that your retirement could last for decades. “If you retire at 65, you may have 30 or more years you need to provide income,” says Brad Bestgen, a financial planner and managing partner at Bestgen Wealth Management in Braintree, Massachusetts.
What percentage of retirees have $6 million dollars? ›
If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
What percentage of retirees have $3 million dollars? ›
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
