You’ll Probably Never Need More Than $5 Million — Here’s Why

I want to start this video a little bit differently. Recently, a video popped up on my feed from Moneywise titled 10 million versus 100 million. The difference between being rich and really rich. Actually, I found this by way of Graham Stefen, whose video was titled Why You Never Need More Than $10 million. And I'll be honest, as a whole, I generally agree with that statement, which is why I clicked on the video. But when I saw that Graham's video was based

on one from Moneywise, I clicked on the Moneywise video to get the data behind the statement. And that video broke down income, net worth, [clears throat] and spending habits for those with very high levels of wealth. Net worth categories from under 1 million to 1 to 5 million, 5 to 10 million, 10 to 20 million, 20 to 50 million, and 50 to 100 million and beyond. And these are business owners and founders who built their net worth and built their incomes and are actively

managing their wealth at a high level. Now, before we go any further, it is important to state that this is an incredibly small sample size, just about 150 people or so. So, we absolutely need to keep that in mind when we interpret this data. Because this is such a limited sample size, we can't say that it broadly applies to a broader set of people. However, I do think the data is somewhat useful. Hey guys, what's up? I'm Aaron and welcome back to the channel. What I found most interesting

in this data was not the net worths, it was not the income, rather, it was the spending. They broke down monthly burn by wealth level, and I found it genuinely fascinating. I'll put all this information in a table, but for households with a net worth of under 1 million, the median monthly burn was about $9500 a month. When you move into the 1 to5 million and5 to$10 million net worth ranges, the median burn increased to about $15,000 a month. That's a good monthly spend, but it's not unthinkably

large. And I think what we can take away from this is that even at a high net worth and with a high income, spending eventually levels off. You buy the house you want, you furnish it, you take the trips you want, you make the upgrades you want in life, but at a certain point that's it. Even as income increases to the 500 or $1 million per year range, paired with net worths of 10 to 20 million or 20 to 50 million, the median monthly spend is around $25,000 a month.

large. And I think what we can take away from this is that even at a high net worth and with a high income, spending eventually levels off. You buy the house you want, you furnish it, you take the trips you want, you make the upgrades you want in life, but at a certain point that's it. Even as income increases to the 500 or $1 million per year range, paired with net worths of 10 to 20 million or 20 to 50 million, the median monthly spend is around $25,000 a month.

Again, that's large, but it's not completely unrecognizable. It's not cartoonish. You get to the point where you've bought everything you need and spending still kind of levels off. And one of the points made in the video that I wholeheartedly agree with was that at a certain level of wealth, $1 million more just doesn't move the needle that much. If you go from a net worth of $500,000 to a million, you're going to feel that. That's going to give you a greater level of confidence and security

and meaningfully increase your spending. But what if you already have a net worth of $8 million? How much does it change your life to get to a net worth of $9 million? probably not that much. What's interesting is at these wealth levels, these individuals lives look pretty normal. These aren't the people who are on a private jet every other week and own homes in five different countries. Rather, their lives look pretty fundamentally normal. And one of the best comments I saw was actually on the

Moneywise video itself, and I'm going to share it here. I got off the treadmill and retired early. My goal had always been 10 million in net worth. I didn't make it, but I got more than halfway. When I spoke to my financial adviser to ask if I could afford to retire early, she said yes. I asked if I work another five years, can I afford to fly private? She said no. So, I decided to retire. Why keep up with the grind if it isn't really going to change my lifestyle?

There's something very incredibly powerful in that comment because that is an individual who's figured out what enough is. And this is something that I want to address because so often in the comment sections of so many of these videos, I see comments like, "You can't retire if you don't have $10 million, especially in a high cost of living area." And for the vast majority of retirees, and I can't even believe I'm saying the sentence, that is far more than they'd truly ever need. But I feel

like there's a lot of fear-mongering in the financial community. There's such an emphasis on having a portfolio that is bigger and bigger and bigger and never stopping to ask why. My goal is to slow down a bit, to hit the pause button and say, "Hey, let's figure out how much you're actually spending." And from there, we can work backward to figure out what kind of portfolio you actually need. So, with this video, I'm going to take a very specific approach. We're

going to look at these lofty spending targets. And I mean lofty spending, not average. We're going to look at the spending of the high net worth, highincome individuals because suddenly looking at everything below that might become a lot less intimidating. We'll look at households spending $15,000 a month and $25,000 a month and we'll ask the simple question, what kind of portfolio would it actually take to support that in retirement? And I know full well that these are not typical

spending numbers. That's the whole point. We're looking at the uppermost edge so we can make everything below that look a lot less intimidating. So, let's walk through an intentionally aggressive example. Spending $25,000 per month. Say we have a household at full retirement age earning $72,000 a year from social security. One spouse receiving $4,000 a month, the other receiving $2,000 a month. That's $6,000 a month or $72,000 a year before we even touch their portfolio. We're going to

spending numbers. That's the whole point. We're looking at the uppermost edge so we can make everything below that look a lot less intimidating. So, let's walk through an intentionally aggressive example. Spending $25,000 per month. Say we have a household at full retirement age earning $72,000 a year from social security. One spouse receiving $4,000 a month, the other receiving $2,000 a month. That's $6,000 a month or $72,000 a year before we even touch their portfolio. We're going to

say that this household wants the ability to spend $300,000 a year. But this is also key. Spending $300,000 a year after taxes means we need a higher income. And the vast majority of retirees don't go into retirement with 100% of their assets in Roth. Rather, it's likely they have a mix of accounts. Some Roth, some brokerage, and some traditional accounts. So for this retiree, we're going to assume an effective tax rate of 35%. That's fairly reasonable at this income level. So to

net $300,000 after tax, we'd need roughly $460,000 of gross income. Social Security already provides $72,000 of that, which means the portfolio needs to generate about $388,000 per year. Even saying that number out loud sounds enormous, and that's because it is, especially for the vast majority of retirees. But let's translate that into a portfolio that a retiree would need. If we use a 4.7% withdrawal rate, which sits toward the upper end of the commonly cited safe rates under

reasonable assumptions, then to generate $388,000 a year, you would need a portfolio of roughly $8.3 million. Now, I genuinely believe that this is the highest portfolio anybody would ever need to target to have a reasonable retirement. Are there retirees who are spending $300,000 a year? Yes, they absolutely exist, but it is not common. If your goal is a comfortable and flexible and secure retirement, this goal is well and above and beyond what the typical household would need. And that's the

point of this exercise. We're looking at the uppermost limits. And if we look at this number as the ceiling, we can start to think about are people chasing a number that is higher than what they truly need to live the life they want. And that really can change how you think about retirement. Now, let's shift gears for a moment. When we talk about someone spending $30,000 a month, that is not typical. It's not typical for the working American and it's not typical

for the retired one. Sure, it happens, but it is not the norm. So, instead of saying at that extreme level, let's step it down a bit and let's look at households with very strong higher incomes, but much more typical higher incomes. If you look at the data, households within the 1 million to $10 million net worth range often have median take-home incomes around $325 to $350,000. That's what I would reasonably call a wealthy household. What's interesting is that their median monthly burn is about

$15,000 a month or $180,000 a year. These are still very powerful incomes. It might be that we have a household with two high income earners. It might be that we have a household with one high income earner. Every situation is different, but let's run the example again. We'll assume $72,000 a year from social security with one spouse receiving $4,000 a month at full retirement age and the other $2,000 a month. For a household with two high income earners, it very well could be

the situation that their social security payout is even more robust. But we're going to keep it a little bit more conservative here. There's also another reason we're not adjusting the social security and that is because there's caps involved. There's a cap on how much you pay into the system and there's a cap on the max benefits you can receive. Once you reach higher income levels, you're already maxing out Social Security. So, a higher income isn't going to meaningfully change the

benefits you receive. So, for targeting $180,000 in after tax spending, we'll assume a 30% effective tax rate, which is fairly reasonable at this income level. you'd need about $260,000 of gross income to support it. Social Security is already providing $72,000 a year, which means the portfolio only needs to generate about $188,000 per year. Now, let's translate that into a portfolio size. Using a 4.7% withdrawal rate, you'd need a portfolio of about $4 million. $4 million. Yes,

that's a large portfolio, but it's not unthinkably large. And more importantly, it's grounded in real spending data, not just assumptions. Here's why this example matters. We're looking at households with high incomes. We're talking $325 to $350,000 a year. And this is their median level spending. So, I think we can reasonably say that this is the highest target that anyone would need to aim for if they're aiming for a comfortable retirement. And let's not miss the role of Social

Security here. If we removed Social Security entirely and tried to fund the same $180,000 of spending from a portfolio alone, that same $4.7% withdrawal rate would need over 5.5 million as a portfolio instead. Even at high income levels and high net worth levels, Social Security takes massive pressure off a portfolio. And that's the real key and why I talk about social security so much on this channel because even highincome retirees use it wisely in their retirement. Now rather

Security here. If we removed Social Security entirely and tried to fund the same $180,000 of spending from a portfolio alone, that same $4.7% withdrawal rate would need over 5.5 million as a portfolio instead. Even at high income levels and high net worth levels, Social Security takes massive pressure off a portfolio. And that's the real key and why I talk about social security so much on this channel because even highincome retirees use it wisely in their retirement. Now rather

than taking the most simplistic approach possible retiring at full retirement age assuming flat spending assuming a constant 4.7% withdrawal rate. Let's introduce a little bit more realism to this situation. Let's say this retiree wants to retire 10 years early around the age of 55 or 57 instead of waiting until full retirement age. That means they're going to have to fund the first 10 years of their retirement fully from their investments and then once social security kicks in, they want to

seamlessly transition to that stage of retirement without having to change their spending. We'll continue using the same benchmark we've already been working with. Spending $15,000 a month or $180,000 a year. So gross. That means we need an income of $260,000. Phase one, the early retirement bridge. Because this phase is only 10 years long, we're not locked into ultraconservative withdrawal assumptions. Research shows that for shorter defined time horizons, withdrawal rates in the 8 to 10% range

can absolutely be reasonable. We'll split the difference and assume a 9% withdrawal rate. That means to generate $260,000 per year for 10 years, the retiree would need $2.9 million dedicated to funding this early retirement bridge. This bucket exists for one reason and one reason alone, to carry the retiree cleanly from early retirement to Social Security. Once Social Security kicks in, the pressure on the portfolio drops significantly. At that point, Social Security provides $72,000 per year in

income, and the portfolio only needs to generate $188,000 per year. Total spending remains at $260,000 with no lifestyle adjustment required. Now, we're going to introduce a declining spending model, which reflects how real retirees spend their money. We see a natural decline in spending for those who enter into their 70s and their 80s and beyond. We're going to start with a 6% withdrawal rate and assume that spending declines at a rate of 1% per year to support $188,000

a year as a draw in year 1. This phase would require a portfolio of $3.13 million. Here's what that declining withdrawal would look like once you layer in social security. In year 1, their gross income would be $260,000. Year five, $253,000. Year 10, $244,000. Year 15, $235,000. Year 20, $227,000. What we see here is that spending is declining gently. There's no abrupt changes. And Social Security really does act like a stabilizing force. And that $3.1 million portfolio, that's what's

needed 10 years from now when Social Security begins. That's not necessarily what you need on day one of an early retirement. If we look at our retiree who's going to stay invested for 10 years throughout their early retirement, we can work backward. Let's assume a 5% or a 7% rate of return and see how much we would have otherwise need invested at that time if we were to allow it 10 years of compounding 10 years prior. That later life bucket might need 1.9 or

$1.6 million depending on the rate of return you want to assume. So to pull off a retirement 10 years before social security, this household would need $2.9 million for the early bridge strategy and anywhere from 1.6 to $2 million for the later life portfolio that would eventually compound to $3.1 million. So that's roughly 4.5 to 4.9 million or let's just call it 5 million. That's the key takeaway. Even with an early retirement and strong spending assumptions and conservative tax

treatment and real world behavior factored in, that number is far less than what many people believe they need. And it's not because we're being overly optimistic. It's because we're matching the math to how realworld retirement behavior looks. To me, this is really the most important thing to sit with. The idea that the most you might ever need to live a comfortable retirement, to take vacations, to dine out, to spoil the ones you love realistically might be around 4 to5 million. That's a big

number. Yes, it's aspirational. It's not the everyday household we're talking about, but it very well could be the highincome earners, those pursuing an early retirement, those pursuing financial independence with every ounce of their being. But that number is far more realistic than many of us are told. Often we're told that true financial freedom is only achieved at 10, 15, or $20 million, maybe even more. But in reality, for most people, it's unlikely you'd ever need anything beyond this to

number. Yes, it's aspirational. It's not the everyday household we're talking about, but it very well could be the highincome earners, those pursuing an early retirement, those pursuing financial independence with every ounce of their being. But that number is far more realistic than many of us are told. Often we're told that true financial freedom is only achieved at 10, 15, or $20 million, maybe even more. But in reality, for most people, it's unlikely you'd ever need anything beyond this to

afford the life you actually want to live. A life where you can comfortably say yes to all the things that matter to you. And no, at this level of wealth, you're not flying private with a private chef in a full entourage, but you're also not doing that at 10 or $15 million either. So maybe this is an invitation to step back and do a different kind of exercise. Rather than picking a number out of thin air like 10 million or 20 million, write down what you think your

loftiest ideal spending could ever be. Not your typical spending, your loftiest, highest spending, and work back from there. You might find that your most ambitious version is entirely feasible and entirely achievable sooner than you ever thought because the goal of money isn't to have the biggest balance sheet. It's to be able to live the life you actually want to live. That's financial freedom. So, are you willing to try this exercise or do you already know what that number is? Would

you care to share it in the comments down below? I post new videos every single week. If you got anything at all out of this one, please give it a like. If you're new here, please consider subscribing. Or if you know of someone who might get something out of this type of content, please consider sharing. I'll see you soon. Bye. $4 million. Yes, that's a large portfolio, but it's not on. I looked that way. I'm sorry. I'm sorry. We'll continue using the same benchmark we've [music] been working

with. We'll continue using the same benchmark we've been working We'll continue using the same benchmark [music] we've been working with. We'll continue to use the same benchmark we've been working with.

with. We'll continue using the same benchmark we've been working We'll continue using the same benchmark [music] we've been working with. We'll continue to use the same benchmark we've been working with.