Do you really need $5 million to retire?
Based on the median costs of living in most parts of America, $5 million is more than enough for a very comfortable retirement. Based on average market returns, $5 million can support many households indefinitely. However, it also depends on your standard of living as every household is different.
The Bottom Line
With $5 million you can plan on retiring early almost anywhere. While you should be more careful with your money in extremely high-cost areas, this size nest egg can generate more than $100,000 per year of income. That should be more than enough to live comfortably on starting at age 55.
How much do I need to save to retire? A good rule of thumb is that your retirement income should equal about 80% of your pre-retirement income, says Steve Sexton, financial consultant and CEO of Sexton Advisory Group, a retirement-planning company.
Retirement Scenarios
For example, you might assume an average 8% annual return on your investments. This is a middle-of-the-road return for a diversified portfolio of stocks, bonds and cash. At this rate of return, $5 million will generate $400,000 in the first year.
Retiring at age 45 with $3 million is quite feasible if you already have the money and your post-retirement income needs are not excessive. Accumulating that much money in time for such an early retirement will likely be challenging.
This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement. You'll likely need less income in retirement than during your working years because: Most people spend less in retirement.
Although 65 is a conventional retirement age, reaching this point with $2 million is quite a feat. This sum can generate investment and interest income to support you well in the decades to come. However, saving this amount takes effort. And it's crucial to allocate it properly among asset types.
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The average 401(k) balance by age.
| Age | Average 401(k) balance | Median 401(k) balance |
|---|---|---|
| 55-60 | $199,743 | $55,464 |
| 60-65 | $198,194 | $53,300 |
| 65-70 | $185,858 | $43,152 |
How Much Does the Average 70-Year-Old Have in Savings? According to data from the Federal Reserve's most recent Survey of Consumer Finances, the average 65 to 74-year-old has a little over $426,000 saved. That's money that's specifically set aside in retirement accounts, including 401(k) plans and IRAs.
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
Can you live off of $5 million in retirement?
Based on the median costs of living in most parts of America, $5 million is more than enough for a very comfortable retirement. Based on average market returns, $5 million can support many households indefinitely.
Types of High-Net-Worth Individuals
An investor with less than $1 million but more than $100,000 is considered to be a sub-HNWI. The upper end of HNWI is around $5 million, at which point the client is referred to as a very-HNWI. More than $30 million in wealth classifies a person as an ultra-HNWI.
The answer to this question is a resounding yes! You can retire on five million dollars. You could retire quite comfortably on that amount of money. The key is ensuring that your money lasts as long as you do in retirement.
Somewhere around 4,473,836 households have $4 million or more in wealth, while around 3,592,054 have at least $5 million. Respectively, that is 3.48% and 2.79% of all households in America.
Orman says 10% of your salary is the minimum amount you should put in your 401(k), and she says 15% is a smarter target. If you're not putting in 15% yet, raise your contribution by 1% per year until you get there. Vow to use half of a raise for retirement.
1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.
In 2019, about 50% of households reported any savings in retirement accounts. Twenty-one percent had saved more than $100,000, and 7% had more than $500,000. These percentages were only somewhat higher for older people. Those ages 51 to 55 were the most likely to have a retirement account.
The point is that if you earned $120,000 per year for the past 35 years, thanks to the annual maximum taxable wage limits, the maximum Social Security benefit you could get at full retirement age is $2,687.
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.
What percentage of retirees have a million dollars?
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you're looking to be in the minority but aren't sure how to get started on that savings goal, consider working with a financial advisor.
Can you live off of $2 million in assets? The answer is yes, if you manage your investment portfolio smartly. One common option is to invest $2 million in an index fund. But you will still need to make absolutely sure that you have a rainy day fund since the market can be reliable over decades but fickle over years.
More than ever, Americans who desire a “comfortable” retirement must squirrel away money in a retirement account. Yet nearly half of private-sector employees, 57 million Americans, have no option to save for retirement at work.
If you hit full retirement age at 66 then the average monthly check you will receive is $3,627 per month.
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
Your net worth is what you own minus what you owe. It's the total value of all your assets—including your house, cars, investments and cash—minus your liabilities (things like credit card debt, student loans, and what you still owe on your mortgage).
Average Retirement Income in 2021
According to the United States Census Bureau, the median annual income for individuals ages 65 and older is $47,620, while the mean annual income is $75,254.
The most common source of retirement income among retirees is Social Security, with 79% of those surveyed citing it as a source of income. However, the average monthly Social Security payment is just $1,692, which likely is not enough for most retirees to cover their expenses.
If you have a low living cost and can supplement your income with a part-time job or a generous pension, then retiring on $3,000 a month is certainly possible.
This depends on a person's anticipated expenses and the lifestyle they'd like to lead in retirement. That said, the average retiree in America spends $60,593 per year, or $5,049.42 per month.
Is $4,000 a month good in retirement?
First, let's look at some statistics to establish a baseline for what a solid retirement looks like: Average monthly retirement income in 2021 for retirees 65 and older was about $4,000 a month, or $48,000 a year; this is a slight decrease from 2020, when it was about $49,000.
Using the 4% rule to estimate how much money you need to never work again involves knowing how much you plan on spending that first year or retirement. For example, if you want to spend $200,000, the math is $200,000/. 04 = $5,000,000. Another way to calculate this is that you would need 25x your annual spending rate.
Putting that much aside could make it easier to live your preferred lifestyle when you retire, without having to worry about running short of money. However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.
It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.
You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth. That's how financial advisors typically view wealth.
| Age of head of family | Median net worth | Average net worth |
|---|---|---|
| 35-44 | $91,300 | $436,200 |
| 45-54 | $168,600 | $833,200 |
| 55-64 | $212,500 | $1,175,900 |
| 65-74 | $266,400 | $1,217,700 |
A high-net-worth individual, or HNWI, might be defined differently at certain financial institutions. But in all cases, a high-net-worth individual is someone with a large amount of wealth. Typically, a high-net-worth individual will have a net worth of at least $1 million.
Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face.
If you choose to retire at 62, your Social Security benefit could be about 25-30% lower than if you wait until your full retirement age, which varies depending on your birth year. On the flip side, you'll be receiving benefits for a longer period.
Is $5 Million Enough to Retire at 50? A $5 million nest egg can provide $200,000 of annual income when the principal gives a return of 4%. This estimate is on the conservative side, making $200,000 a solid benchmark for calculating your retirement income versus expenses.
What is the average net worth of the top 5% of Americans?
People with the top 1% of net worth (opens in new tab) in the U.S. in 2022 had $10,815,000 in net worth. The top 2% had a net worth of $2,472,000. The top 5% had $1,030,000. The top 10% had $854,900.
This is according to a study conducted by Ramsey Solutions, which is the largest study of millionaires to date. The average age of a millionaire is 49 years old, which means it takes them over 27 years of saving and investing to reach this status. This may seem daunting, but the truth is, it's never too late to start.
What percentage of the U.S. population has $3 million dollars? According to The Kickass Entrepreneur, there are about 5,671,000 households in the U.S. that have a net worth of $3 million or more.
In short, to enjoy a reasonably high expectation of not running out of money prior to death, you should never withdraw more than three percent of your initial portfolio value in retirement.
One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.
The (Overly) Simple Math Behind the “$1000/Month Rule”
The math behind the $1000-a-month rule is simple. If you take 5% of a $240,000 retirement nest egg each year, that works out to $12,000/year, which, divided into 12 months, gives you $1000 each month. Painless, right?
| Quintile | Definition | Median Net Worth |
|---|---|---|
| Next 20% | Lower-Middle Class | $43,760 |
| Middle 20% | Middle Class | $104,700 |
| Next 20% | Upper-Middle Class | $201,800 |
| Top 20% | Wealthy | $608,900 |
Based on the median costs of living in most parts of America, $5 million is more than enough for a very comfortable retirement. Based on average market returns, $5 million can support many households indefinitely.
Experts say to have at least seven times your salary saved at age 55. That means if you make $55,000 a year, you should have at least $385,000 saved for retirement. Keep in mind that life is unpredictable–economic factors, medical care, and how long you live will also impact your retirement expenses.
How much does a 55 year old couple need to retire?
The exact amount of income you should have put away is going to depend on different factors. But if you want a general rule of thumb, financial experts say you should have saved a minimum of seven times your salary by age 55 for retirement.
| Age | $50,000 salary | $100,000 salary |
|---|---|---|
| 53 | $275,000 - $350,000 | $550,000 - $700,000 |
| 54 | $290,000 - $370,000 | $585,000 - $735,000 |
| 55 | $310,000 - $385,000 | $615,000 - $775,000 |
| 56 | $325,000 - $405,000 | $650,000 - $810,000 |
To figure out just how much money you need to save to retire by 55, Doe suggests using a common rule of thumb: Take your current salary and multiply it by 10. Keep in mind that this is just a jumping-off point — there are many other factors you'll need to consider.
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you're looking to be in the minority but aren't sure how to get started on that savings goal, consider working with a financial advisor. What Does the Average Retiree Have Saved?
It's recommended that most couples save at least seven to eight times their combined annual income to retire comfortably.
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
In 2021, roughly 14% of investors maxed out employee deferrals, according to 2022 estimates from Vanguard, based on 1,700 plans and nearly 5 million participants.
By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.
By their calculations, in order to enjoy a comfortable lifestyle, single people will need $545,000 and couples $640,000 in super when they retire. 1. That will deliver an annual income of around $43,000 and $60,000 respectively.
A financial advisor can help you design a plan to pay for a secure retirement. Is Retiring at 55 with $4 Million Possible? The average age at which most people retire is 62, according to a 2021 Gallup Poll. But if you have $4 million in savings, it's entirely possible to retire by age 55.
What is the 4 rule for retirement spending?
The 4% rule is easy to follow. In the first year of retirement, you can withdraw up to 4% of your portfolio's value. If you have $1 million saved for retirement, for example, you could spend $40,000 in the first year of retirement following the 4% rule.
The 4% Rule
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04).
