Retire with $5 million: a complete guide
From navigating your taxes to how long your money will last, this article explores the ins and outs of retiring with $5 million.
$5 million will successfully fund your retirement even if you decide to retire at 50, 40 or even 30.
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.
If you want to get ready for retirement, a trusted financial advisor can help you manage your finances and ensure your retirement savings align with your goals.
Is $5 million dollars enough to retire on?
Yes, you can retire comfortably and happily with this amount to fund your non-working lifestyle.
If you plan for a normal retirement at the usual age, $5 million will easily see you through, even if that money never increases again. Let’s play that scenario out:
The average reported retirement age, according to Gallup, is now 61. Assuming a life expectancy of 90 and thus a retirement term of 29 years, $5 million would break into $172,414 annually or $14,368 monthly.
That possible annual and monthly distribution amount reduces as you apply different retirement ages but will likely still cover your needs if you exit the working world early. For instance, retiring at age 40 and retaining that 90-year-old life expectancy would reduce your annual and monthly payments to $100,000 and $8,333, respectively.
Beyond age, your chosen lifestyle will define the suitability of this amount for your life as a retiree. If you’re used to lavish extravagance and regularly spend over $15,000 monthly, you may need to keep increasing your savings.
How long will $5 million last in retirement?
If the question of “how long will my money last in retirement?” is playing on your mind, the best thing you can do is identify all the impacting factors and then assess how they might impact your money. This is especially important if you plan to retire early and need that money to stretch across a more extended period.
It’s wise to consider:
Your planned retirement lifestyle – As evidenced in the previous section, a lavish retirement lifestyle will eat away at your savings much more quickly than a more frugal retirement lifestyle. Though $5 million is a lot compared to the averages, it might not be a lot in the context of your life thus far.
Possible future care costs – Healthcare and long-term care can come at considerable expense in the US and will likely be needed in at least some way during your retirement. Earmarking a portion of your retirement savings for these costs can eliminate stress and give you a realistic sense of the income that will be available to you.
Any dependents or other financial burdens – If your retirement income supports anyone beyond yourself, consider how this will add to your outgoings and reduce the time you can live comfortably (according to your preferences) on $5 million.
The shape of your retirement savings – The easiest way to ensure your $5 million lasts you throughout your retirement, regardless of its length, is to be attentive to how you’re structuring your savings. Are you reinvesting so this money can keep growing? Have you purchased an annuity with a lifetime income rider?
With such wealth potential at your fingertips, you’ll also need to look carefully at how you’ll be taxed on your retirement income.
Can you retire at 50 with $5 million?
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.
The possibilities are near endless when you have this much in your retirement savings pot to play with.
What are the retirement income taxes applicable to retirees with $5 million?
As a retiree, you’ll be expected to pay tax on most of your income from savings – excluding any retirement accounts that offer post-tax distributions or apply their own tax rules. If you base your possible future taxes on the figures explored above, you’ll find yourself in one of the upper federal tax brackets, facing a marginal rate of 24 percent or more.
In reality, this might not be the case. There’s no need to withdraw as much as possible every month. Calculate your desired monthly income from your savings and go from there, figuring out your taxes based on what you’ll need in your daily life.
Regarding estate planning, you should consider how your beneficiaries might be taxed after your death if you still have savings to pass on (which is very likely when retiring with such a significant sum in your pocket). A financial advisor can help you minimize and understand this tax burden, allowing you, in turn, to inform your loved ones of what to expect. You can find a financial advisor to help you work out these figures and plan for the future with Unbiased.
How do I increase my retirement savings?
As discussed, medical expenses can take a toll, and how far your money goes is greatly affected by the age at which you retire and the sort of retirement lifestyle you have in mind.
If, even with $5 million banked, you’re still hoping to grow your savings for retirement, it’s best to speak with a professional financial advisor. An advisor can take a holistic approach to your entire financial and personal situation, giving you guidance tailored to your unique needs, expenses and sources of income.
How does $5 million compare to the average retirement saving?
If you plan to retire on $5 million, you are above the average retirement savings amount held by working-age US residents in 2023. The Economic Policy Institute (EPI) looked at mean amounts by age in 2016, and the results were as follows:
|Age group||Average/mean retirement savings amount|
The EPI also assessed amounts according to the median to account for data-skewing figures at either end of the spectrum. Since nearly half of American families have no retirement savings at all, these values were much lower:
|Age group||Median retirement savings amount|
The bottom line
Arguably, the most significant benefit of having such a large pension pot is that it can make money on itself – a vast portion can be reinvested in a way that allows it to grow, replenish and replace whatever is taken out.
With a great financial advisor on your side, managing your money and seeking the right opportunities, you could still have at least $5 million in savings by the time of your death. You could live off interest alone, allowing you to pass a healthy lump sum onto your loved ones (even after applicable inheritance and estate taxes have been accounted for).
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.