$5 Million Net Worth Lifestyle (Is 5 Million Dollars a Lot of Money?)

Ever watch those movies where bad guys walk around with a million dollars in a briefcase? Is that actually real? Could a million dollars really fit in that small of a space?

What about $5 million? What does that look like?

Surprisingly, the movies are fairly accurate. I bet you could actually fit a million bucks into a thick briefcase. This means that $5 million is roughly five briefcases worth of cash.

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Honestly, I thought $5 million in cash would look more impressive than it does (you can prove me wrong by sending the said amount to my address).

But is it still an inordinate amount of money in practice? I mean, how many people can actually say they have a $5 million net worth?

The 2020 Federal Reserve Survey of Consumer Finances (the most recent study we have until late 2023), says that those that have a $5 million net worth are in the upper 3% of all households in America.

The estimated number of households in the US is 128 million, which means that approximately 3.8 million households have a net worth over $5,000,000.

Avery high net worth individual (VHNWI) is someone who has a net worth of $5 million, excluding personal assets and property. So, if your net worth is $5,000,000 without including the value of your home and land, you would be considered a VHNWI.

If you have a net worth of 5 million dollars, you are in the upper 3% of Americans. You can also divide investable wealth into three tiers:

• Millionaires: $1 to $5 million

• Mid-tier millionaires: $5 million to $30 million

• Ultra millionaires: over $30 million

Meaning, if you were in a room of a hundred people, you'd likely be the 3rd richest person in the room. (I’d consider that rich.)

A wise individual always thinks in terms of net dollars. In other words, what is their money worth after taxes?

If your money is in long-term investments, your tax bracket will likely be 15%. This means that after tax, your $5 million will be cut down to $4.25 million.

If you’re pulling money out of a retirement account, your withdrawals will be taxed at an ordinary income rate. For example, if you pull out $200,000 a year as a married couple filing jointly, you’ll put yourself in the 24% tax bracket.

Since we have a graduated bracket system in America, the net tax percentage calculates to 16.8% (I could dive more deeply into this—but that’s not what this article is about, so just trust me on that percentage, okay?).

This means that $5,000,000—when withdrawn $200,000 at a time—is worth approximately $4.16 million. Still, not too shabby.

(Interested in learning more about net income and tax brackets? All income tax rates can be found at IRS.gov.)

Based on my research and my experience, you can expect to get the following rates for the respective investments:

• Savings: 2%

• Certificate of Deposit: 4%

• Annuity: 6%

• Real Estate: 8%

• S&P 500 Index Fund: 10%

The real estate percentage is my estimate based on the high price of homes today (and FYI, rental rates have not yet caught up with housing prices). And, the S&P 500 is based on the historical average when including dividend reinvestment.

Given the above information, what is the interest on 5 million dollars annually?

• With a 2% savings account: $100,000 a year

• 4% Certificate of Deposit: $200,000 a year

• 6% annuity: $300,000 a year

• 8% real estate: $400,000 a year

• And, 10% in S&P 500: $500,000 per year

Now that’s a decent chunk of change right there—

This is what you can expect to earn per month with $5 million

• With a 2% savings account: $8,333 a month

• 4% Certificate of Deposit: $16,667 a month

• 6% annuity: $25,000 a month

• 8% real estate: $33,333 a month

• And, 10% in S&P 500: $41,667 a month

The multi-millionaire author of ESIMoney.com said it well, “The assets themselves provide an income which allows us to both spend a considerable amount each year ($100k) and give away that much as well.”

When most people visualize multi-millionaires, they’re picturing yachts, mega-mansions, and expensive dinners out every night. This isn’t the case for those in the $5 million net worth category:

“To me, I always envisioned rich guys like the Duke brothers in the movie Trading Places. Numbers on paper may say we are technically rich, but I don’t feel that way at all.”

Another respondent had similar sentiments:

“$5 million allows for a comfortable lifestyle that is not encumbered by concerns about money. But, it also depends upon your definition of rich. $5 million doesn’t pay for the life of the 0.1%—an estate, a staff, a yacht, private air travel, etc.”

So what is it like to have a $5,000,000 net worth lifestyle?

“We can afford the major home-improvement projects, fly first class whenever it makes sense to us, buy quality groceries without checking prices or coupons, and tip generously.”

It’s a pretty sweet life. Not the swanky life of the rich and famous, but a great life nonetheless.

If you have 5 million bucks, you could buy:

• A 7-bedroom, 5-bath house directly on the shores of Lake Michigan (value: $1.65 million)

• A brand-new Ferrari F8 Tributo (value: $280,000)

• Porsche Macan SUV (value: $100,000)

• Brand new 50′ Cruisers Yacht (value: $1.8 million)

• Cottage away from home with acreage (value: $1 million)

And you’d still have $170,000 for stocking stuffers.

But here’s the thing. No one that has $5 million will actually buy all of these things.

And why not?

Because then they’d have nothing left—

If you want a mansion, fancy cars, a cottage, and a yacht, then you should probably have a net worth of $10 million, if not more.

This is a no-brainer. Yes, you can retire comfortably with $5 million and live anywhere in the world. However, you have to invest and spend wisely to make the money last.

Placing 5 million dollars into a savings account and spending $100,000 a year should be enough for fifty years of retirement.

Can you live off the interest of 5 million dollars?

What if you wanted to keep the $5 million whole and only live off the interest it produced? Could you do that with $5 million?

Easily.

Remember our calculations above? If you earned just 2% on your money, that would produce $100,000 a year in income. And again, no matter where you live in this world, you could likely survive on $100,000.

Don’t want to “suffer through life” on just $100,000? Earn 4% on your money (still very doable) and you could live on the interest of $200,000 a year instead.

Based on the conversations I have with people, I’d say that only a few want to work their butts off in their own businesses to make their wealth.

Instead, most are interested in earning a decent paycheck, living somewhat frugally, and investing over time so they can continue to live a fairly normal and carefree life while they do it.

Makes sense to me.

So how do you do this? How much do you have to put away each month to accumulate $5 million in twenty years?

According to my free investment calculator tool, if you stashed away $6,600 a month and earned 10% interest, you’d be worth 5 million dollars in twenty years. That’s a big chunk of change each month, but that’s what it’s going to take if you want to be in the top 3% wealth bracket.

A high-yield savings accountis a type of savings account that rewards you with a higher interest rate—typically 20 to 25 times more than the typical savings account.

Having a high-yield savings account allows your money to grow without risks, as you don't need to stress about risks associated with market volatility.

A Certificate of Deposit (CD) is a type of savings account that holds a lump sum of money for a fixed time period—usually from three months to five years.

CDs are fully insured and come with a fixed interest rate which has higher rates than typical savings accounts. However, the higher rates come in exchange for not accessing your money until the fixed withdrawal date.

A corporate bond is a debt obligation, like an IOU, which is issued by cooperations and sold to investors.

By purchasing the bond, the investor is lending money to the cooperation that has issued the bond. In doing so, the cooperation makes a legal commitment to pay interest on the bond once it expires.

You can purchase treasury bonds for a term of 20 or 30 years. Treasury bonds come with a minimum $100 purchase and a maximum of $10 million.

Interest rates are fixed at auction and are paid every six months until it reaches maturity; however, you also have the option to sell the bond before it matures.

Dividend stocks represent the payments companies reward their shareholders to share their profits.

Dividends are paid out regularly by companies that have a good reputation for distributing their earnings back to shareholders. Dividend stocks are a smart way for investors to earn a return on their stocks.

If you’d like to get more aggressive with your investments (higher risk, but greater rewards), you could also invest in:

• Rental properties

• S&P 500 Index Funds

• Or look into private shared investments like Crowdstreet or Yieldstreet