Is Five Million Dollars Enough To Retire Comfortably Or Early?

Are you wondering is five million dollars enough to retire comfortably? Five million dollars is a lot of money. But depending on where you live, when you retire, and how many dependents you have, five million dollars may not be enough to retire comfortably.

Today, $3 million is the new $1 million, largely due to inflation. Therefore, five million dollars is more like having $1.7 million back in the 1980s or earlier.

Five million dollars should be enough for anybody or family to retire early today. However, let's look into the details a little further since there are so many variables to a comfortable retirement.

Inflation is always making things more and more expense. Therefore, we must always be investing and earning.

It Has Become Harder To Retire Off Five Million Dollars

Not only has inflation eaten away at the value of the dollar, interest rates have collapsed since the start of the global pandemic. As a result, five million dollars doesn't generate as much income for retirement as in the past.

Back in 2007, when the 10-year bond yield was at 5%, five million dollars could have generated $250,000 a year in risk-free passive income.

Today, five million dollars can generate only $55,000 a year in risk-free -income since the 10-year bond yield is at around 1% as of 2021. Although a decline in interest rates has helped support the U.S. economy, it has hurt the average retiree's ability to generate retirement income.

To retire comfortably, you need to generate enough passive income to cover your retirement lifestyle. This is the main definition of financial independence. Five million dollars generating only $55,000 a year in risk-free income isn't exactly living it up in retirement.

Let's look at various ways in which someone with a five million dollar net worth, or preferably, five million dollars in assets can generate more income and have a more comfortable retirement.

Ways To Generate More Retirement Off Five Million Dollars

To generate more retirement income, you must take more risk. At the same tim, you don't want to take so much risk that you put your five million dollars in jeopardy. Losing 30%, or $1.5 million of your $5 million in one month would feel really painful!

Here are some investment ideas that have the potential to generate higher yields with a reasonable amount of risk.

  • Investing in a REIT ETF like VNQ, which has a yield of ~3%
  • Investing in individual REITs like O, which has a yield of ~4.5%
  • Investing in private eREITs (what I’ve been investing in recently) that have historically provided a ~9% return, even when the stock market is down
  • Investing in individual dividend-paying stocks like AT&T with a forward yield of ~6.5%
  • Investing in a dividend ETF like VYM with a ~3.5% yield
  • Buying rental property
  • Lending out hard money
  • Buying an annuity

Instead of only making 1% a year in risk-free income from your five million dollars, you may be able to generate between 3% – 4% returns. If you do, you would be able to generate $150,000 – $200,000 in returns or income. With $150,000 – $200,000, you should be able to live a very comfortable retirement, especially if you don't have a mortgage.

The thing is, with interest rates so low, it would be prudent to lower your safe withdrawal rate in retirement. In finance, investment returns are intertwined with the risk-free rate of return, aka the 10-year bond yield.

Ways To Make Your Five Million Dollars To Go Farther

If you don't want to take on more risk, the next best way to make your five million dollars in retirement go farther is to lower your cost of living. Since you're no longer tied down to a job, you could relocate to the heartland of America to save on living costs.

After all, Des Moines, Iowa is about 90% cheaper than San Francisco, California! Once you've made your retirement fortune, it makes sense to geoarbitrage. Some retirees have relocated to different countries, like Mexico or Thailand to save on living costs.

Five million dollars in New York City would be like having fifteen million dollars in Mexico or Malaysia.

Finally, another way to get your five million dollars to last longer is to not touch it for longer. Instead of retiring in your 40s or 50s, wait until a later age to retire. This way, you allow your five million dollars to compound for longer and potentially grow even bigger.

Further, the earliest you can receive Social Security is age 62. With the average Social Security benefit of roughly $18,000, you can now earn additional money on top of your $55,000 – $200,000 in investment income.

Of course, if you retire with a pension for the rest of your life, then your five million dollars will be more than enough in retirement.

Earn Side Income In Retirement

Five million dollars is enough to retire comfortably. However, I suggest generating additional side income in retirement to ensure your five million dollars will last. Earning side income also brings about a sense of purpose.

When I retired in 2012, I experienced some negatives of early retirement nobody talked about. Thanks to Financial Samurai, I've found a purpose and something to do during the pandemic. This has helped with my mental health and happiness.

Below are my latest passive income streams. Notice how most of my passive income comes from investments. However, I do earn roughly $45,600 a year in supplemental retirement income from a severance negotiation book I wrote in 2012. I just keep updating the book every couple of years.

For reference, when I retired in 2012, I had about three million dollars generating about $80,000 a year in passive income. Thanks to the bull market and the income generated from Financial Samurai, my net worth and passive income have grown commensurately.

Financial Samurai 2021 Passive Income Streams - Is five Million Dollars Enough To Retire Comfortably?

So long as you can generate enough passive income to cover your desired living expenses, you will have a good retirement. Here are the best passive income investments today, ranked.

My main sources of retirement income include municipal bonds, dividend stocks, three rental properties, and 18 real estate crowdfunding investments across the country.

Retiring Early With Five Million Dollars With A Family

Now that we know five million dollars can generate between $55,000 – $200,000 without too much risk, let's analyze a budget.

This budget is a household of four with two young children living in big city like Los Angeles. I assume their five million dollars is generating $200,000 a year.

Retiring Early With Five Million Dollars With A Family Budget

As you can see from the budget, $200,000 a year goes pretty quick when you have two kids and a mortgage. This family only has $770 a year left over in cash flow.

If the couple paid off their mortgage, they would save $38,904 a year in cash flow. Having this extra $38,904 in breathing room is key because there's not that much extra to cut.

If the couple decides to send their two kids to private grade school, their costs will increase by $30,000 – $110,000 a year for two. And when you have five million dollars in retirement, you will likely want to send your kids to private school.

The annual 529 funding is an expense that will help down the road.

Stay Flexible In Retirement

One of the great things about retirement is that you no longer need to save for retirement. Therefore, psychologically, your retirement income will go farther than you think.

For example, I saved 50%+of my after tax-income from 1999 – 2012 before I left the workplace for good in 2012. Once I retired with three million dollars, the income decline didn't feel so bad because I was only spending less than half of my income anyway.

Everything was going great in retirement from 2012 – 2017. My wife joined me in retirement in 2015 when she negotiated a severance as well. We travelled the world for 10 weeks a year. Then we decided to start a family.

We had our first child in 2017 and our second child in late 2019. As a result, our expenses went up. We needed to buy a larger house, a larger car, and save for our children's education. If they decide to go to college in 2036+, surely annual tuition for public and private school tuition will be at least 100% higher.

In other words, don't expect your lifestyle and your expenses to stay static once you retire. You might have kids late like we did. Or, god forbid, you might get into an accident or have a health issue.

As a result of the unknown, even with five million dollars, it's good to keep trying to build more wealth. You might want to even shoot for 10 million dollars.

401(k) Guidelines To Five Million

Below is a median and average 401(k) by age chart I put together to help you on your retirement planning journey. The 401(k) is the main way most Americans save for retirement today.

Your five million dollars for retirement can consist of your 401(k) savings, taxable brokerage accounts, and real estate holdings. However, I recommend viewing your 401(k) as “bonus retirement money” for after you turn 59.5.

This way, you will focus on building as much wealth in your non-401(k) accounts. Your non-401(k) investment accounts are what will generate the passive income you need to retire early.

Notice how if you are a younger save, I believe you can reach five million dollars in your 401(k) by 60 if you max it out each year and earn the historical market returns.

Can You Retire Comfortably On Only One Million Dollars?

$5 Million Should Be Enough To Retire Happy And Free

If you've been able to accumulate $5 million, congratulations! You should be able to retire with little-to-no financial concerns. Go ahead and enjoy life to the maximum today! You're ahead of 97% of the American population who have an average of ~$200,000 save up for retirement.

If you're still on your journey to financial independence, accumulating $5 million worth of investable assets is a worthwhile goal. Just know that inflation really does eat into your money's purchasing power. With low interest rates, maybe inflation will pick up and help with income generation. But the future is not certain.

If you are fortunate to be able to accumulate millions of dollars, then I highly recommend you track your finances like a hawk. Sign up for Personal Capital, the web’s #1 free wealth management tool. I've been using this free tool since 2012 and have seen my net worth more than 5X since.

In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

Personal Capital Retirement Planner Free Tool
Personal Capital's Free Retirement Planner

After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms.

Your goal is to have the calculator spit out a high probability percentage and show you what your Projected and Planned retirement income and spend figure are.

Boost Your Retirement Income With Real Estate

Finally, if you want to boost your retirement income or build more wealth for retirement, I recommend investing in real estate. Real estate is a core asset class that has proven to build long-term wealth for Americans.

Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. Unlike stocks, real estate values don't go poof over night. Real estate offers diversification and is my asset class of choice over dividend stocks.

I've personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. The other goal is to generate income 100% passively.

Take a look at my two favorite real estate crowdfunding platforms:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.

Both platforms are free to sign up and explore. 

About the Author 

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much he spent 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom. was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal. You can sign up for his free newsletter here.