Can I Retire With 5 Million Dollars?
Retirement is a time in most of our lives that we look forward to. We’ve raised our children, completed our careers, and are ready to sit back, reap the benefits of a life well-lived, and begin to enjoy some of the finer things in life that we didn’t have time or money for before we hit the age of retirement.
But – those “finer things” come at a cost, and understanding what that cost is going to be, and whether or not you’ve saved enough to afford it is a big stressor for many of us as we get closer to that magic retirement age.
Believe me…most people are going to tell you that having 5 million dollars is going to be more than enough to retire with dignity…and a lot of it! But, let’s look at a few factors that could affect that, either in a positive or negative way.
1. Have You Determined When You Want to Retire?
For most Americans, the retirement age is 65 years of age. This is when social security benefits can be collected and when our government has determined you can receive those benefits with no reduction in payout.
But for someone who has 5 million dollars available to them, not only will they probably not be too worried about social security benefits (unless you are factoring those into this number), but that person may also be thinking about retiring much earlier than 65.
Early retirement has become increasingly popular, as people are beginning to value time over things and want to enjoy their years doing the things they want to do, not go into a job they don’t find rewarding.
So, before you can know if 5 million dollars is going to be enough for your retirement, you will have to decide at what age do you want to quit bringing in an income?
For example, if you want to retire at 35, there will be many more years of having to support yourself (and maybe a spouse and even kids) with that money.
There are lots of retirement calculators online that can help you determine how long 5 million dollars will last you, based on when you choose to quit working.
Just know that how many years you will need to live on that money (and who else may need to live on it as well), will make a big difference in whether or not you can retire on 5 million dollars or not.
2. Have You Determined What Your Cost of Living is Going to Be?
Once you have decided when you would like to retire, another big factor in determining if 5 million dollars is going to be enough for you, is determining what sort of lifestyle you would like to have with that 5 million dollars.
Obviously, this can vary greatly.
If your idea of the perfect retirement is multiple homes in exotic locations, private planes and a live-in cook and maid, then 5 million dollars may not last you as long as you are hoping it will.
On the other hand, if you plan to live a relatively modest lifestyle with a normal-sized home, adequate (but not over-the-top, lavish vacations), and reasonable other expenses, a nest egg of 5 million dollars should not only allow you to retire in comfort, but will also result in you leaving a legacy for your family as well.
No one should judge you on how you decide to spend your money. But – knowing how you want to spend it and what is going to be important to you will go a long way in helping you determine if 5 million dollars will be adequate for the lifestyle you desire.
3. Have You Invested Your Money Wisely?
Now that you’ve established when you’d like to retire, and how you want to live once you do, another big factor to consider is whether you have your money invested in a way that 5 million dollars will last the amount of time you need it to.
Investing can be complicated, and understanding things like: compounding interest, stocks versus bonds, and the 4% rule can all feel overwhelming to someone who has a good-sized portfolio, but still can’t determine whether or not it’s sufficient.
You can make sure your money is wisely invested in a number of ways. One is to partner with a reputable financial planner.
A good financial planner can look at your investment vehicles and give you a realistic idea of how your 5 million-dollar nest egg is being managed and how much risk you are taking with it.
They can advise you on what sorts of options you have, depending on how aggressively you want to continue to grow that money, or if you would prefer to have less risk and more stability with it.
Another option is to spend some time on your own getting to know where your investments are allocated and learning to manage your money on your own.
There are some great financial books on this subject and terrific tools online that can help you better acquaint yourself with how to invest wisely so that your 5 million dollars will last you for all the years to come.
4. Are You Prepared If Something Were to Greatly Compromise Your Savings?
Even after you’ve done everything you can to plan for your retirement savings to last, life can sometimes throw us a curveball we aren’t expecting.
A major illness, family emergency, or national crisis can derail even the best-laid retirement plans and extra-large nest eggs.
We constantly hear stories of the person who was underinsured and an accident or illness depleted their savings.
Or, a financial crisis strikes their family and leads to them having to spend large sums of money that were earmarked for something else.
Truth be told, if you have been lucky and wise enough to set aside a 5 million-dollar nest egg for retirement, even a large emergency will most likely not deplete it. But knowing it’s a possibility is never a bad thing, and it allows you to always prepare for the worst, even when it’s most likely not going to happen.