Milvionne Chery Copeland, Writer
@milvionne_copeland
Yes, $5 million may be enough to retire at 40 years old, depending on things like your spending habits and investment strategy. The average life expectancy is about 78 years, and if you retire at 40 with $5 million saved for retirement, you will have $125,000 per year ($10,417 per month) to use for the next 40 years.
Having $10,417 a month for your expenses can be plenty, especially if you don’t typically spend that much now, before retirement. However, it’s easy to go through that money faster than expected, depending on factors such as your spending habits, inflation, taxes, and how quickly your health care costs increase.
Factors That Affect How Far Your Retirement Savings Will Go
Spending Habits
The average person in their 40s spends about $95,000 per year, so having $5 million saved should be enough to cover your current expenses for many decades. However, it’s important to remember that your expenses are likely to change, and may even increase significantly, as you age.
You can check out the table below to get an idea of how long different spending amounts will last you during retirement. It’s important to note that these numbers factor in a 7% annual rate of return and a 2% inflation rate, so you may need to adjust your spending based on your investment results and the economy.
| Age | Savings | Max Monthly Spending | Max Annual Spending |
| 75 | $5,000,000 | $24,465 | $293,577 |
| 80 | $5,000,000 | $23,326 | $279,914 |
| 85 | $5,000,000 | $22,502 | $270,022 |
| 90 | $5,000,000 | $21,893 | $262,714 |
| 95 | $5,000,000 | $21,436 | $257,233 |
Source: WalletHub
Investment Strategy
Your savings will last longer if the funds continue to grow in retirement. You should regularly review your retirement portfolio and make adjustments as needed to ensure you are earning enough interest to keep up with your withdrawals, so you don’t run out of money.
Inflation
Inflation can cause you to spend more on your normal expenses than you previously did and eat up your retirement savings faster than you expected. For example, a 2% inflation rate could increase the cost of your expenses by 64% over 25 years, according to Fidelity. You need to manage your spending and adjust your investments to keep up with rising costs.
Taxes
You will have to pay taxes on the money you withdraw from your retirement account if you are withdrawing the money from a tax-deferred account, such as a 401(k) or a traditional IRA account. This can reduce what you have to spend in retirement. You can contact a financial advisor or a tax advisor to see what you can do to lower your tax burden during retirement.
Increasing Health Care Costs
Health care costs typically increase as you get older, which can erode your retirement savings. For example, people who are 75+ years old pay an average of 48% more for health care than 40-year-olds, according to the U.S. Bureau of Labor Statistics. So, be sure to account for increasing costs for health insurance, doctor visits, medical tests, prescriptions, and any other medical costs as you age.
Life Expectancy
The average life expectancy is 78.4 years. If you retire at 40 with $5 million, you may have enough money to live comfortably for the next 40 years. However, if you live well into your 80s or 90s, you may run out of money if you are not following an investment strategy to grow your funds during retirement. Even though you can’t predict how long you will live, you should plan to stretch out your retirement savings so they can last as long as possible.
To learn more, check out WalletHub’s guides on how to budget in retirement and ways to avoid running out of money.
People also ask
What should my net worth be at 40?
Your net worth should be around $135,000 at 40 years old, as that is the median reported by the Federal Reserve. Your net worth is your overall financial value, calculated by subtracting your liabilities (e.g. credit card debt, mortgages, student loans) from your assets (e.g. savings, investments, real estate).
Typical Net Worth by Age
| Age | Average Net Worth | Median Net Worth |
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