Is $5 Million the New Baseline for a Comfortable Retirement in America?

If you have successfully achieved a $5 million-dollar net worth, it’s absolutely time to look back and feel incredibly grateful, as only 0.1% of retirees have achieved this number. This dollar amount isn’t an easy achievement, and it’s one that likely came from hard work and dedication to your job, investing, and saving.  

Now that you have hit this magical number, it’s high time to ask the big question, and that is whether or not it’s enough to comfortably retire on. Better yet, ask yourself if $5 million is the new baseline for retiring comfortably in America without ever feeling the need to return to the workforce. 

When You Can Retire With $5 Million

Enjoy a High Cost of Living

One of the perks of achieving this level of net worth is that you can enjoy a more luxurious and high-cost-of-living lifestyle. It doesn’t mean you can spend freely on everything, but living in areas like San Francisco, New York, or Miami will all be possible. 

In these areas, your annual cost of living will be between $100,000 and $150,000, while your 4% safe withdrawal rate is $200,000. This gives you flexibility for a $1 million home and the opportunity to regularly go out to eat, travel, drive well, and enjoy a hobby or two. 

Less Healthcare Worries

While a high cost of living is great, nowhere will your $5 million cushion make you feel more comfortable than with healthcare expenses. Unfortunately, healthcare costs only go up as we get older, so having this level of cash or investments available should give you peace of mind, which speaks directly to the idea of a comfortable retirement. 

It also means that, depending on your age, you can afford high insurance premiums for great medical coverage and comfortably handle out-of-pocket expenses. There is even money available for specialized treatments, if necessary, all of which you can afford without hurting your lifestyle. 

The biggest takeaway is that with this level of net worth, you are in a rare situation where medical worries don’t frighten you financially, and that is a great mindset to have. 

Enjoying Your Lifestyle

At $5 million, you likely won’t be carefree with your money when purchasing a yacht or something with considerable long-term costs. However, you can purchase a luxury vehicle without feeling like you’re squeezing your monthly budget. 

The same can be said for country club life, where you might want to enjoy rounds of golf, play cards, or play pool with friends. At $5 million, there is even room for the potential of looking at two properties. This amount could allow individuals who have reached “snowbird” retirement age in Florida to also have an apartment in New York or Chicago. 

When $5 Million Might Be Overkill

It might sound shocking to say that there is any scenario in which a $5 million nest egg is overkill, but this isn’t an unheard-of reality. 

Low Living of Living

Regardless of age, if you live outside of urban areas in the Midwest, the Southeast, or rural parts of the country, $5 million will be excessive. In many of these areas, it’s not impossible to own a home and live on just $50,000 a year. With a $200,000 SWR, you can forgo frugal habits for good, knowing you have plenty of money for travel, hobbies, and entertainment, all without touching a good portion of your wealth. In these scenarios, where you only spend one-quarter to one-half of your SWR yearly, you will likely feel this wealth level is overkill. 

No Plans for Family 

If you are a single individual or in a relationship with no plans for children, which means no 529 accounts to fund or a large inheritance to worry about leaving behind, $5 million might also feel excessive. Without any family-related costs, of which you can spend upward of $300,000 raising just one child until they are 18, you don’t have this number on the back of your mind anywhere. This means no additional insurance costs, no private school, no extra insurance costs, and best of all, no worries. 

Ultimately, this lack of a growing family might allow you to build even more wealth as you are not touching the bulk of your SWR every year. Having money left from this 4% withdrawal means you can reinvest, and depending on at what age you retire, this could mean having even more than $5 million. 

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