Reaching a $5 million nest egg in retirement savings is undoubtedly a major accomplishment. But does it mean you can finally stop diligently adding to your portfolio? GOBankingRates consulted with financial experts to determine if this substantial sum signals true financial freedom or simply marks another milestone on the path to retirement security.
Flexibility Trumps Fixed Numbers
Jeff Herman, founder and investment advisor at The Jeffrey Group, emphasizes that a truly successful retirement plan hinges more on adaptability than hitting a specific dollar amount. “While $5 million might appear like financial independence on paper, it’s really a checkpoint – not the finish line,” he explains. “The crucial question isn’t ‘Do I have enough?’ but ‘Can my plan evolve to meet unforeseen circumstances?’ Unpredictable factors like inflation, healthcare costs, and shifting tax laws can all erode the purchasing power of even substantial savings.”
Herman advocates for building retirement income streams that are resilient against these fluctuations. “Retirement security isn’t about a magic number attached to your account balance,” he stresses. “Prioritize establishing consistent income sources that aren’t solely dependent on market performance.”
Can Your Portfolio Weather the Storm?
Steven Rogé, CFP and CEO of R.W. Rogé & Company, Inc., advises those with $5 million saved to critically evaluate their portfolio’s ability to withstand market downturns. “A balanced portfolio, coupled with a conservative withdrawal rate of around 3% to 4%, can typically support $150,000 to $200,000 per year before taxes from a $5 million nest egg,” he explains. “The goal is to generate income through both growth and dividends, rather than solely relying on maximizing dividends which could jeopardize long-term principal.”
Rogé outlines specific conditions that would allow someone with $5 million to confidently halt additional contributions: “Your near-term expenses must be fully covered by readily accessible cash and bonds, your long-term investments should be geared towards growth, and your withdrawal strategy and tax planning should account for potential market corrections.” He adds, “If early retirement, high spending habits, or substantial legacy/philanthropic goals are part of the plan, ongoing saving and meticulous tax planning remain essential. The ultimate test: Your financial plan should not only survive a bear market on paper but also instill confidence to navigate it in reality.”
A Question of Lifestyle
Andrew Latham, a certified financial planner at SuperMoney.com, suggests that for many individuals, $5 million is indeed sufficient to cease active saving. “For most people, this amount exceeds what they’ll need,” he states. “Using a standard 4% withdrawal rate translates to $200,000 annually in potential income – excluding Social Security or other assets. If your annual expenses comfortably fall below this figure and your plan incorporates tax considerations, healthcare costs, and inflation, you might have already achieved financial independence and can pause additional contributions.”
However, Latham acknowledges that continuing to save isn’t necessarily a bad thing. “Some people prefer to maintain savings because they enjoy working, desire greater financial security, or have philanthropic ambitions,” he explains. “Instead of fixating on maximizing every account, assess if your entire portfolio adequately supports the lifestyle you envision for both present and future years.”
The Reality Check: Your Dream vs. Your Budget
While $5 million represents a significant sum, it might not be enough to fund everyone’s dream retirement. “Retirement readiness isn’t defined by a dollar amount; it hinges on income,” asserts Nicholas St. George, CFP and owner of St. George Wealth Management. “Most people would find [$5 million] adequate for their needs. However, most people don’t share your lifestyle, tax bracket, or financial goals.” He warns that if expenses reach $400,000 annually, “that dream retirement could quickly turn into selling the vacation home to finance golfing trips.”
St. George emphasizes the importance of a detailed budget: “Create a comprehensive monthly spending plan for retirement to predict your expenses and then analyze these through a thorough financial plan that incorporates taxes, inflation projections, and investment risk tolerance.” Only after completing this analysis can you accurately determine whether $5 million truly provides the foundation for your desired retirement.
