I used to think that a million dollars was a lot of money. Then I started this personal finance blog and began educating myself about how much things really cost today and how inflation will slaughter an underfunded retirement (did you know that things will be 4x more expensive in 40 years than they are today?). If you’re under 30 years old, then a million bucks won’t be enough in retirement. So that begs the question, “How much should you have in retirement?” And that prompts even more questions… “Is 5 million dollars enough for retirement?” and “What is the interest on 5 million dollars?“.
Then, once you get it, what do you do with it? How do you invest it?
Have you had these same questions?
Yeah…me too. Let’s find the answers together.
What kind of money will the bank pay out on a huge chunk of cash? Another way of asking this question might be, “How much will I earn on $5 million in savings?”.
To cut to the chase, banks will likely pay out 0.5%-1.0% on your 5 million bucks. This will produce between $25,000-$50,000 a year. Not terrible, but certainly not enough given that large sum of money.
Related: What to Do With $100k Right Now”
Just over a year ago, you could have found savings rates of 1.5%-2.0%, but since Covid hit, money has gotten cheaper, which means savings rates have dropped as well. Maybe they’ll come back in a couple years, but for now, 1% is the top of the ladder for bank savings rates, even with a massive amount of cash.
What is the Interest on 5 Million Dollars Annually?
The question of how much 5 million dollars can generate per year is a great one, but it’s not the easiest answer to give since there are so many investment possibilities.
- Savings: 0.5%
- Certificate of Deposit: 0.65%
- Short term government bond: 1%
- Short term corporate bond: 2-3%
- Annuity: 3%
- Real Estate: 7%
- S&P 500 Index Fund: 10%
The real estate percentage is my estimate based on the crazy price of homes today (and FYI, rental rates have not kept up with housing prices). And, the S&P 500 is based on the historical average when including dividend reinvestment.
So now to answer the question of “what is the interest on 5 million dollars annually?”
- With a 0.5% savings account: $25,000 a year
- 1% government bond: $50,000 a year
- 3% annuity: $150,000 a year
- 7% real estate: $350,000 a year
- And, 10% in S&P 500: $500,000 per year
Dang, we’re getting into some pretty big numbers here! But I guess that’s what $5 million in liquid assets will get ya. 😉
The savings account certainly seems like much too little given the $5 million investment. Once you get up to 3% with the annuity, we’re starting to talk about some real money. The real estate produces a fantastic yearly amount, and the S&P investment will likely be even better than that (I bet you could figure out how to live on $500,000 a year…don’t you think?).
What is the Interest on 5 Million Dollars a Month?
If you had a whopping 5 million dollars, then what would the interest be on it per month?
Using the same investment figures as above, here’s how much you’d earn each month on 5 million dollars:
- 0.5% savings account: $2,083 a month
- 1% government bond: $4,167 a month
- 3% annuity: $12,500 a month
- 7% real estate: $29,167 a month
- And, 10% in S&P 500: $41,667 per month
Related: Can I Retire on 750k Dollars?
What is the Interest on 5 Million Dollars If You Let It Grow?
Let’s say you decide that $5 million is the amount you can expect to have stashed before you retire.
But, for simplicity sake, let’s say that you’re able to leave your nest egg alone and can just let it grow for a couple more decades. You know…maybe you can live on some other savings plus your social security or pension payments. So you’re able to leave the entire $5 million invested for the long-term.
If your money compounds annually, here’s the interest on $5 million (ie. the potential answer to the question, “what is the interest on 5 million dollars”….if it were left alone and reinvested?):
- 2% interest for 20 years = total after 20 years of $7,456,640
- 4% interest for 20 years = total after 20 years of $11,112,910
- 6% interest for 20 years = total after 20 years of $16,551,022
- 8% interest for 20 years = total after 20 years of $24,634,013
- 10% interest for 20 years = total after 20 years of $36,640,368
These numbers are getting pretty crazy!
If you want to seriously change your family tree, save up a million bucks and stash it away! These numbers are simply insane.
Sustainable Withdrawal Rates: The Key to Perpetual Income
Likely, the example above is unrealistic. In your case, you probably don’t want to know just the interest on $5 million. You’re likely going to take some of that money out at some point, right?
Instead, you’ll likely save diligently over many years, reach that $5 million mark, and then potentially retire and start drawing on those funds over (hopefully) a long period of time!
What you want to look for is the sustainable withdrawal rate: the percentage of your savings that you can take out for living expenses each year without ever exhausting your funds. Fidelity gives 4%-5% as a general rule of thumb, but it depends on a few factors.
- Your annual spending
- Length of your retirement
- Inflation rates
- Rates of return on your investments
Inflation is out of your control, but the others are somewhat impacted by your choices. What you can control, to a certain degree, is how much you spend each year.
I have been a long-time fan of Mr. Money Mustache. He points out that if you can ratchet down your expenses now, no matter what your age, you’ll reap double the benefits in retirement.
Here’s what decreasing your spending would do for you:
- Leaves you more left over to save and invest over your working career.
- And, it means you’ll need less money to live on once you’re retired.
You are also largely in charge of the length of your retirement.
No, you can’t predict exactly how long you’ll live for…But you can make reasonable assumptions based on your family health history, your lifestyle, etc. Decide when to retire based on when you think you’ll reach your optimum total retirement funds.
As far as rate of return, you get to decide how you’ll invest your money. If you have a basic 401(k), you usually have options of types of funds based on your risk tolerance.
While you can’t control the various markets, you can choose the types of investments to make, which impacts your overall returns. After reaching that total, your interest on 5 million dollars can fund however many years you need it to.
Interest on 5 Million Dollars for a Sustainable Retirement
If you’re retiring soon, $5 million is a pretty hefty amount of money! It should honestly be pretty easy to live on 5 million dollars. But, let’s check all the numbers just to be sure!
How much is your withdrawal rate on 5 million dollars? See below for a few different options.
- $5 million starting balance at 4% rate of return
- 30-year retirement (a pretty lengthy retirement)
- $250K withdrawal per year
Using Bankrate’s calculator, with the example above, you’d still have $1.8M left in your accounts by year 30.
You can live lavishly on $250k a month, AND you can leave a pretty solid inheritance to your kids!
More Frugal Retirement Example
- $5 million starting balance at 4% rate of return
- 30-year retirement
- $200,000 withdrawal per year
You’ve cut your spending by $50k a year and kept the rest the same, leaving you with over $4.7 million after 30 years! This would enable you to live a decent lifestyle in retirement, and you can even leave a robust inheritance behind.
Super-Early Retirement Example
- $5 million starting balance at 4% rate of return
- 50-year retirement (retire at 40 and live to be 90!)
- $150K annual withdrawals
End up with $12.4 million even after 50 years of retirement! Or withdraw/spend a bit more and be totally fine. Your spending likely wouldn’t stay exactly at the $150K number every year in an early retirement, but you get the idea.
If you play with the numbers, looking at the interest on $5 million, $3 million, or $2 million, you can check out different scenarios. Maybe you plan on working until age 70 and you anticipate living to be 90. You’d only need to finance 20 years of retirement in that case.
Or if $150K annual spending sounds too low for you, maybe $200K is a good middle ground. Withdrawing $200,000 a year for 50 years after retiring early would still net you $4.3 million at the end of your life!
Related: How to Become a Billionaire Family
$1 million isn’t as much as it used to be. But what about $5 million? Is 5 million dollars the right number for retirement these days?
Based on the examples we outlined above, if you retire at 65 and live for 30 years, you can withdraw $200,000 pretty comfortably.
Now, that might seem like a lot today, but remember that costs double every 20 years. So, if you’re used to living on $100,000 today, then in 20 years, you’ll have to spend $200,000 just to maintain the lifestyle that you’re used to today. In another 20 years, you’ll need to spend $400,000 to maintain that $100k lifestyle that you have today.
Suddenly, $200,000 a year doesn’t sound like quite as much…
If you’re near retirement and you have 5 million dollars, I’d say you’re totally fine to retire. Do it now. (ie. Yes, $5 million was overkill!)
But, if you’re 30 years old and you’re thinking about retiring and living large for the next 50-60 years, then you may honestly need more.
For most of us though, 5 million dollars in retirement should be plenty. If you spend $100,000 a year and ramp that up with inflation, you’ll likely have way more money when you die than when you first retired!
Have 5 Million Dollars in Your Retirement? You’re Probably Good…
If you’re not a diva (ie. you spend lavishly and without regard) and you have 5 million dollars in your retirement, I’d say you could retire comfortably.
Stop overthinking every situation and every doomsday scenario. Chances are, they aren’t ALL going to happen. Settle yourself down and enjoy life already.
Do something you love to do, whether it earns you money or not (heck, it can even COST you money at this point!):
- volunteer for a local non-profit
- start your own business
- invent something
- travel around the world
- impact someone else’s life!
For us, we’re targeting roughly $3 million for our retirement. This will enable us to continue the lifestyle we enjoy today without thinking too hard about the “what-ifs” of our future life. Sure, 5 million dollars would be great, but it’s not necessary, and probably not worth the extra 10 years I’d need to slave away in order to get there.
So what about you? Is 5 million dollars enough for you to retire on? Why or why not?
*Personal Capital Advisors Corporation (“PCAC”) compensates LAM Finances for new leads. LAM Finances is not an investment client of PCAC.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.