The $5 Million Net Worth Lifestyle - What Can It Get You? (2024)

$5 million sounds like an incredible amount of money. It’s likely more than most of us will see at once at any time in our lives! So, what can the $5 million lifestyle get you?

It all depends on what level of expenses your incur, the returns you generate from your investment portfolio, and whether you’re generating any supplemental income. Let’s take a look at what you need to know.

How do I make $5 million?

There’s no fast track to a $5 million lifestyle. Many people make this kind of bank by carefully investing, buying and selling companies, or building on an inheritance.

If you have a high enough income, you may be able to build up a portfolio of $5 million from a regular paycheck. Ensuring regular contributions to your 401k and other investments by saving and investing wisely over many years could help you get there.

Can you retire off $5 million?

Based on the detailed figures discussed below, I think it’s safe to say that a family can retire off a $5 million portfolio. A retiree couple can easily live a very comfortable lifestyle and not have to worry about much at all.

The one takeaway here is that it’s vitally important to invest the cash in an appropriate manner so you can generate returns from it over the long run. If you simply spend the $5M without having invested it, it will likely run out fairly quickly!

Of course market and economic conditions will cause the year-to-year values to differ, so please remember to plan for these variations.

Expected Return Ranges

Let’s assume that your liquid net worth is $5 million and let’s look at some ranges for how far that money will go.

If you put the money in relatively secure savings account or money market funds, you can expect to generate an interest return of anywhere from 3-5%. This of course varies over time. If you invest the money in the market in a 100% equity fund, you could generate up to 8% on average, but with some volatility.

This puts your expected annual pre-tax income on a $5 million portfolio in the $150,000 to $400,000 range. This is equivalent to $12,500 to $33,333 per month of pre-tax income.

Now let’s look at the same figures assuming your total net worth is $5M.

If your home is worth between $1 to 2M, then your liquid net worth is between $3 million to $4 million. These liquid assets are what will generate income for you and what should be used to calculate the passive income generation.

As you can see, the range of income is quite wide, so what you can do really depends on both how you have invested the money and how you spend the money.

If you find all of this confusing, here’s a simple way of thinking about it: An investment in a balanced portfolio – suitable for those with moderate risk tolerance – will yield an average return of at least 5%. So your average annual pre-tax return will be in the range of $150k (with a $3M portfolio) to $250k (with a $5M portfolio).

At the mid-point of $200k annually, your household income exceeds those of most in the US! This much money is more than enough to live a comfortable life for an very long time!

If you want much more detailed calculations, please use ourretirement calculatorto help plot out your specific situation. Your financial advisor can also help you build a portfolio with the correct asset allocation for your target needs.

Expected Expenses

The statistics show that on an average, a family of four (two adults and two kids) has an annual expenses of around $100,000. This figure includes housing costs.

If your home is fully paid off, you can knock-off $30,000 from that figure, so the annual expenses will be in the range of $70,000. In that case, even with the lowest end of the range shown above, it’s clear that a family can live fairly comfortably.

Of course HNWI families would likely have a higher spending level than the average family, but even after accounting for that, you’re likely to be fine.

Where you live can also have a big impact on how far that money stretches as local costs can vary significantly. If you live somewhere like California, for example, this fortune is likely to soon peter out. Using it in Ohio, meanwhile, is likely to get you a little more traction.

As a retiree, you should also anticipate medical and other healthcare expenses to be above average. While employment may have previously provided you with a corporate health plan, during retirement, you’ll bear the full price of insurance. This of course applies a lot more to those who retire early.

Fortunately, after turning 65, you become eligible for Medicare, which will significantly offset many of your healthcare costs.

There are a few other important points to keep in mind if you plan on retiring and living off your portfolio. Let’s go through them below.

Income Taxes

It’s important to remember that you will have to pay income taxes on returns generated from your portfolio and this can get messy!

Navigating the complexities of taxation will require early consultation with a financial advisor as the accounts where you’ve stashed your savings can significantly influence the taxes you owe during withdrawals.

In addition to the typical 401(k)s and Roth IRAs, there is now also the option of the Roth 401(k), a relatively new retirement tool. You’ll have to account for current marginal tax rate and your future expected tax rates to figure out which type of account is best suited to build up your wealth.

If you own a small business you’ll have to take in to account how potential business income or a sale of your business will impact your finances.

Starting your retirement planning early is essential, even if actual retirement seems like a distant prospect. You certainly don’t want to find your substantial savings trapped and facing steep tax rates upon withdrawal!

What are some perks of the $5 million net worth lifestyle?

Perks of having $5 million net worth include being able to afford a nice home, high quality vacations, nice cars, and generally enjoying a very comfortable lifestyle! Most importantly, it makes you financially free.

While money may not be everything in the world, it does have a big impact on day-to-day stress levels. And wow it would be great to not have to deal with the daily work commute or with an annoying boss!

It’s also important to note that the millionaire lifestyle may actually not be that much more different than a “regular person’s” lifestyle. For someone on the outside looking in, this is in fact the most surprising. This is because most self-made millionaires often got to that stage by living a simple lifestyle.

They drive simple cars, wear normal clothes (not designer labels), and live in regular houses. Those who often look like millionaires, may not actually be so as they simply spend too much money and actually have no savings or investments!

Having said all that, let’s look at some of the benefits that come with having such a nice pot of cash.

Being Financially Free

More than anything else, being financially free is the biggest reward that one can get with having such a nice pot of cash. People define financial freedom in different ways. We choose to define it how Robert Kiyosaki did in his famous book, Rich Dad Poor Dad: when your passive income (returns from investments and assets) are more than sufficient to cover all your needs (bills, mortgages, living expenses, etc.), you are financially free!

As outlined above, even at the lowest end of the range, the income generated from your liquid wealth will be more than enough to cover your core expenses, which puts you in a very comfortable spot!

This means that you no longer have to work to simply to pay your bills or keep your family fed. You have the option of retiring, or you can choose to pursue a lifestyle hobby – like traveling the world, or you can even pursue entrepreneurship! Once you no longer have to work to pay the bills, your mind is free!

From this point forward, your life is only limited by your imagination and your expenses. As long as your expenses remain under control, not only can you live your life comfortably, but you can easily pass on the remaining money to your children or relatives as an inheritance.

It’ll keep your family housed

I think it’s fair to say that under most circ*mstances, with a net worth of $5M, you have the ability to pay off your mortgage (should you still have one) and eliminate a major debt overhang. An average household spends 31% of their expenditure on housing, so if you’re able to eliminate that cost, you’re annual expense requirement will drop considerably.

Of course whether you choose to pay off your mortgage or invest the cash depends on many factors. On a pure financial basis, it comes down to comparing the after-tax interest rate on your mortgage with the after-tax returns from your investments.

If the two figures are relatively close, it might make sense to just pay off the mortgage and eliminate a big debt overhang over your head! Reducing and eliminating debt is one of the best ways to reduce to finance-induced stress in your life.

It’ll keep your family fed

A fortune of $5 million will, at least, give you something to be grateful for. In an age where many people struggle to feed themselves, $5 million will handily cover most basic necessities and then some. On average, US households spend between $420 per month (single person) to $1,000 a month (family of four) on food. This works to between $5,000 to $12,000 per year. You will have sufficient income to cover this aspect of your needs!

You will not have to worry about bills

A resounding response from millionaires on this question revolves around regular bill payments. While housing and inflation may start to sap away at your savings, it’s safe to say you can ignore some of the smaller expenses you’d otherwise budget carefully for.

For example, think about electricity, gas, phone bills – even Netflix and Amazon Prime. These costs are likely to feel very small when you have liquidity of $5 million available. It’d be nice to ignore these costs once in a while…!

It’s nice to know that, at least initially, there’s some financial comfort to be had.

The Fun Stuff

Of course when we think of being rich, it comes down to the luxuries of life! How much you can splurge ultimately depends on how your portfolio is structured. Do you plan to run down your portfolio to $0 over your life? Or do you plan to live purely from the returns and pass on the portfolio to your heirs? Both scenarios are wildly different and can impact how you spend the cash. The following sections outline the latter scenario.

You can take a nice annual vacation

Who doesn’t like vacations? With a $5 million dollar investment portfolio, you can certainly generate hefty returns and use some of that to fund a nice vacation. If you’re going to a fancy location with your family and flying first class, you could potentially afford to do that once per year. You could probably afford one nice vacation that costs $15,000 to $30,000 per year. Or you can split that amount up in to multiple buckets and take multiple vacations!

Of course it all depends on how much income you’re generating from your portfolio and other sources and making sure all your basic needs are covered first.

You can’t take the private jet yet

When we dream of being millionaires, the first thing that comes in to people’s mind is a private jet (or a yacht). After all, it is the ultimate status symbol! Unfortunately, even having $5M in liquid assets may not be enough to help you take a private jet.

Using a shared jet service like NetJets would cost you something like $6,500 per hour at a minimum and you would need to sign up for at least a 50-hour commitment. This means you’re looking at a minimum bill of $325,000 per year. Ouch!

But no need to worry. You can still comfortably fly business class for a lot less and without any minimum annual commitments. That alone is more than enough for me!

You can buy a nice car or luxury gear

One nice aspect of already having a good pot of cash is that you no longer need to save. Any excess income in the year can be spent however you see fit. It could be a vacation, or it could be a nice car, luxury watches, purses, clothing, fine wines, etc.

Enjoy this lifestyle – you’ve earned it!

Charitable Donations

Many people wish to donate to charitable causes that they believe in. If this is you, that’s fantastic! You could pursue this in two different ways – a lump sum contribution or annual donations. There are also multiple different tax-efficient ways to donate this money, such as directly through a stock portfolio (as opposed to pure cash). There are pros and cons to each method so this is best discussed with your financial advisor.

My personal preference is annual contributions, as retaining the money in your control gives you greater flexibility to deal with any contingencies. This could be a financial emergency in your family or it could turn out that you decide to donate to several different causes in varying amounts each year.

If you do wish to donate a lump sum, a good option would be donate it via your will. This gives you the best of both worlds – keeping your money over your life and then finally leaving a big chunk when you pass away.

Of course this is a deeply personal decision, so one has to decide what works for each person! Regardless, donating to charity is ultimately a good decision, and the details are just about what works best for your life situation.

Before You Go…

Hopefully you found this information useful. Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles.

In a nutshell, the fastest way to becoming financially free is to cut your debt, minimize unnecessary expenses, so you can save and invest your money!

There are plenty of investment books and podcasts that you can use as a learning resource along the way to help you reach your goal faster.

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by Brianna Johnson

Brianna Johnson, a Miami-based finance veteran, is a wealth advisor for high net-worth families. She loves to write and to share her knowledge. For PFF, she writes in-depth articles on finance and investments that help readers get unique insights. See more.