This Is What Life Will Look Like if You Retire With $5 Million in the Bank

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Retiring with millions of dollars gives you more choices later in life. Read on to see how you can amass a $5 million nest egg. 

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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