For most people, it will be little or no problem to retire at age 65 if they have $2.5 million in savings. If invested prudently, this amount can likely support a lifestyle that satisfies most retirees.
For answers to your retirement questions, talk to a financial advisor.
However, variables like inflation, market downturns and healthcare costs can alter the outcome. A longer-than-projected lifespan can also impact whether $2.5 million is enough. However, surveys of retiree financial satisfaction indicate that even much lower sums are probably enough to pay for an enjoyable retirement.
How Much Income Can $2.5 Million Generate?
A retirement nest egg of $2.5 million can likely produce an annual income of $100,000 for as long as you are likely to live. This is using the 4% withdrawal rate that many advisors consider safe.
You start by withdrawing 4% in the first year, then increase withdrawals annually to match inflation. For example, if inflation runs at the 2% rate that is the target of federal policymakers, you would withdraw $100,000 in your first year of retirement, $102,000 the next year, $104,040 the year after and so on.
According to this model and conventional wisdom, a 4% withdrawal rate will allow a portfolio to last for at least 30 years. This would permit a 65-year-old retiree to maintain consistent purchasing power until age 95 and beyond.
For most retirees, this will likely be adequate to maintain a satisfying standard of living. Only about 3% of 2,000 retirees surveyed by the Employee Benefit Research Institute in 2022 spent $7,000 or more per month, equivalent to $84,000 in annual spending.
This model leaves out several other factors. For instance, nearly all retirees are eligible for Social Security. For 2025, the maximum monthly Social Security benefit for people who claim at full retirement age is $4,018. And, like the safe withdrawal rate, Social Security benefits are indexed to inflation.
While it appears $2.5 million is easily enough to retire at 65, many factors could change the outlook. Among them are medical costs, inflationary spikes, market fluctuations and longevity risk. Here are ways these variables might influence the viability of retiring at 65 with $2.5 million.
Potential Impact of Healthcare Costs
Medicare eligibility begins at 65, but retirees still face out-of-pocket healthcare costs. In fact, the Fidelity Retiree Health Care Cost Estimate suggests an average 65-year-old who retired in 2024 will need $165,000 in after-tax savings to meet their healthcare needs throughout the rest of their life. The largest part of this will go for co-payments, coinsurance and deductibles, according to Fidelity.
These costs can reduce the income available for other needs. For example, if you are a 65-year-old married couple, you would spend an average of $16,500 a year on healthcare over a 20-year retirement. You might have to reduce your other expenses or increase withdrawals from your retirement account to cover it.
Potential Impact of Inflation
Inflation can powerfully influence retirees’ financial well-being. When inflation rises, it reduces the purchasing power of money withdrawn from your retirement account. Increasing your annual withdrawals helps maintain purchasing power but may drain your savings faster.
Exacerbating the problem is the fact that markets often decline during periods of high inflation. When valuations are down, you may have to sell more of your portfolio in order to increase withdrawals so you can maintain your purchasing power and lifestyle. That can reduce your future ability to generate income.
Potential Impact of Market Downturns
Inflation is not the only cause of market downturns. Business cycles and financial crises can exaggerate the normal fluctuations in stock market valuations. Whatever the cause, withdrawal rate research already accounts for normal downturns so there isn’t any need to panic just because returns are negative.
On the other hand, be aware that if you are selling your investments to generate income for living expenses, you have to sell more of them when valuations are down. This becomes more problematic early in retirement. This phenomenon is known as sequence of returns risk. In a down market this raises the issue of sequence risk, the idea that down markets in the first few years of retirement are particularly worrisome.
That approach can work for a while. But over the long term, selling when valuations are low can cause your nest egg to deplete faster than you planned. This may require tightening your belt and reducing living expenses to avoid selling in down markets.
Potential Impact of Longevity
While living a long life is positive, it’s possible to outlive the amount of money you have saved for retirement. This is what’s known as longevity risk. Many financial planners use life expectancy to age 95 or 100 when developing plans for funding retirement.
For most, this is sufficient. A 65-year-old man lives, on average, another 19.3 years; a woman lives nearly 22 more years, according to the Social Security Administration’s Life Expectancy Calculator.
These are only averages, and somewhere around half of all 65-year-olds will live longer than these estimates. However, people in their 80s and 90s also generally reduce their spending, with the exception of healthcare costs.
If you have exceptionally long-lived parents, few health problems of your own and generally healthy lifestyle habits, you may plan for a longer life in retirement. However, less than 1% of men live to be 100, while approximately 2.2% of women reach that age, according to Social Security Administration.
Factor In Estate Planning
Retiring with $2.5 million by age 65 typically requires a high income and consistent savings. Over the course of the rest of your life, you want to think about stretching your savings more. With estate planning, adding members of your family as a beneficiary for a home or vacation home you paid off with a mortgage can have long-term positives. No mortgage to pay down the road means more income to pursue other activities.
You may also want to think about additional income streams with your retirement accounts as well and setting up beneficiaries in case. And if you own a business, adding your family as a beneficiary so that they can decide to keep the business running or sell it can also be another strategy.
Strategies to Maximize Retirement Savings
Saving $3 million for retirement savings is an ambitious goal. Still, depending on what you plug into the calculator (and the plan you put together with a financial advisor), it might be necessary. In that case, there are steps you can take to maximize your retirement savings.
One of the most essential concepts here is to use compound interest to your advantage. Compounding means you will continue to earn interest on the interest you earned in the past. In other words, the more time that passes, the more quickly your portfolio grows. Thus, the longer you have, the greater the effect of compounding. Even if you can only save a small amount each month, starting early can make a big difference in the long run.
It’s also a good idea to max out retirement accounts like a 401(k) or an IRA. You can contribute up to $23,500 per year to a 401(k) and up to $7,000 per year to an IRA (as of 2025). If you’re 50 or older, you can contribute an extra $7,500 to a 401(k) and another $1,000 to an IRA. Maxing out these accounts can help you save more money on taxes and grow your retirement savings faster.
A provision of the SECURE 2.0 Act allows workers to contribute even more to their 401(k) and similar workplace plans. If you’re between 60 and 63, you can make “super catch-up contributions” worth up to $11,250 in 2025.
You should also diversify your investments by investing in stocks, bonds and real estate. Doing so has several advantages, such as these assets often have different volatility profiles. They also come with different tax treatments, so using a mix may improve your results.
Bottom Line
A nest egg of $2.5 million is likely to be adequate for most retirees to retire in comfort for as long as they live. Variables that could affect this include healthcare costs, inflation, market downturns and life expectancy. But at generally accepted safe withdrawal rates, this much capital can produce income that is more than all but a small minority of retirees spend.
Retirement Planning Tips
- A financial advisor can help you plan for a secure retirement starting at any age. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Deciding how to invest can be a challenge, especially when you don’t know how much your money will grow over time. SmartAsset’s investment calculator can help you estimate how much your money will grow to help you decide which type of investment is right for you.
- One of the most effective ways to reduce expenses in retirement is to relocate to a region with lower costs of living. SmartAsset’s Cost of Living Calculator can estimate how your cost of living will change if you move from where you are now to another part of the country.
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