Is $5 Million Rich? An In-Depth Look at High Net Worth and Wealth

In short – yes, $5 million in net worth unequivocally qualifies as rich by financial standards today. While ‘rich‘ is certainly subjective, a $5 million nest egg places a household well within the top income percentiles in the U.S.

With judicious investing, this level of assets can provide a lush, secure lifestyle in retirement. Read on for an extensive examination of what being a $5 millionaire truly means.

The Rarified Air of $5 Million Net Worth

A $5 million net worth represents exceptional wealth relative to most Americans. Only around 3.6 million U.S. households (2.8% of the total) have accumulated a $5 million or greater nest egg, according to the Federal Reserve‘s latest Survey of Consumer Finances.

It is an elite status that few ever attain. Here is how rare households with over $5 million in net worth actually are:

Table data source: Federal Reserve Survey of Consumer Finances 2019

As the table illustrates, $5 million in assets puts a household well within the top 3%, closing in on the ranks of the ultra-wealthy. It takes a high income, prudent saving and steady investing to reach this upper echelon.

Financial researcher Thomas Stanley, in his classic book The Millionaire Next Door, found that the typical American millionaire is a disciplined saver who accumulates wealth through company stock options and long-term investing – not a lavish spender. While Stanley profiles those with $1 million or more, this frugal, patient approach also applies to building wealth up to the $5 million+ level and beyond.

Defining ‘Rich‘ – Public Perception vs. Financial Reality

Surveys show the average American believes it takes around $2 million in net worth to be considered ‘rich‘. But at $5 million in investable assets, you are certainly rich not just by public perception, but by financial industry standards.

With $5 million diversified across stocks, bonds, cash equivalents and other holdings, you could safely withdraw $200,000 per year – a hefty income stream.

Compare this to the median household income in America – $64,000 in 2019 per U.S. Census data. So a $5 million portfolio could supply over 3 times the spending power of the typical U.S. family from investment income alone.

And today‘s low interest rates allow affluent individuals access to another powerful wealth-building tool – cheap leverage. With interest rates under 4% on 30-year mortgages, a $5 million net worth allows borrowing immense sums to acquire additional income property or other assets.

So how do financial advisors define wealth? The commonly accepted brackets are:

• High Net Worth: $1 million to $5 million
• Very High Net Worth: $5 million to $30 million
• Ultra High Net Worth: $30 million+

Under these industry standards, $5 million clearly places a household in an elite financial position – the upper echelon of ‘high net worth‘ individuals.

Affording Your Dream Lifestyle

"Being wealthy allows you to live the life you want, not what you can afford," writes author Robert T. Kiyosaki. With $5 million in assets, what luxuries become affordable that are out of reach for mainstream America?

• Reside in an exclusive, gated community in your preferred city or a luxury second home in an elite resort town like Aspen or Malibu. A 8,000 square foot home in these prime enclaves easily runs $5 million.

• Fly first class or private charter anytime for vacation. Charter a yacht for $25,000/week in the Mediterranean or Caribbean.

• Pay full cost for any Ivy League or private university for your children. Join an exclusive country club with a six-figure initiation fee.

• Own multiple premium vehicles – a top-of-the-line Mercedes S-Class, Porsche 911, Lincoln Navigator, and Range Rover in the garage simultaneously.

• Indulge freely in $500 prix fixe Michelin-starred dinners, $10,000 designer handbags, $20,000 Rolex watches, and other luxuries.

These extravagances would strain most family budgets. But with a net worth safely over $5 million, the world of luxury products and services opens up to you.

In his book Richistan, Wall Street Journal reporter Robert Frank found virtually all those he profiled with a net worth over $10 million own multiple homes, cars, and other costly indulgences few Americans can fathom. While not quite Richistan-level wealth, $5 million provides many of the same elite privileges.

Wealth Is Relative

Of course, luxury is subjective. To some, rich means private jets and mega-yachts. For others, it means not worrying about expenses and medical bills in retirement. With prudent financial planning, $5 million can fund an extravagant lifestyle, modest comfort, or anything between.

Yet virtually all agree a $5 million net worth means freedom from the financial stress most Americans face. From this lofty perch, you can live, work, travel, and consume on your own terms.

Retiring in Style with $5 Million

Retirement planning experts commonly recommend saving enough to withdraw 3-4% per year in living expenses while preserving your nest egg.

With an ultra-safe 2% withdrawal rate, a $5 million portfolio would supply $100,000 annually for life, adjusted upwards for inflation each year. With a 4% rate, you could comfortably spend $200,000/year.

To put this in perspective, finance site Financial Mentor notes "the average retirement lifestyle costs between $50-$100k annually." So a $5 million nest egg provides ample savings to retire in comfort.

Let‘s compare some common annual retirement costs against what a $5 million portfolio could safely provide:

Table data sources: Cruisecritic.com, Healthcare.gov, Edmunds.com

With expenses coming in under the 4% withdrawal guideline, this illustrates $5 million provides a cushion for an opulent retirement lifestyle. You can comfortably afford country club memberships, luxury travel, premium healthcare, new cars, and more year after year.

And historically, the 4% rule holds up remarkably well. Finance researcher William Bengen found a 50% stock/50% bond portfolio invested consistently over any 30-year period from 1925 on would support 4% annual withdrawals, adjusted for inflation, without ever fully depleting the portfolio.

$5 Million Across Generations

Properly invested, $5 million could potentially provide lifetime security not just for you, but extended family members.

Set up trust accounts for children and grandchildren that pay out a fixed percentage each year from the trust principal. These can fund education costs, first home purchases, and other needs for generations down the line from your wealth.

With competent wealth management, $5 million allows you to potentially create a "family bank” supplying financial security for heirs decades into the future. It is an immense legacy to leave behind.

The Bottom Line

A $5 million net worth unlocks access to a world most people only glimpse through media, placing you financially in the top tier of American families. It provides funds well beyond what the average retiree can dream of, with room for multi-generational planning.

While ‘rich‘ is open to interpretation, $5 million in assets removes all money concerns most people contend with in daily life. With diligence and patience, this elite level of wealth is attainable for high savers and investors over the course of their working years.

Yet the non-financial returns from family time, personal growth and making a difference that wealth allows may be equally valuable. As billionaire entrepreneur Richard Branson put it, “Too many people measure how satisfying their lives are by the money they earn.” Ultimately, what matters most cannot be valued in dollars and cents.