Is $2.5 Million Enough to Retire at 65?

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. 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.

For answers to your retirement questions, talk to a financial advisor.

How Much Income $2.5 Million Can Generate

With $2.5 million saved by age 65, many retirees are in a strong financial position, but whether it’s enough depends largely on how much income that portfolio can produce. A common guideline, the 4% rule, suggests that withdrawing 4% in the first year of retirement could provide about $100,000 annually, adjusted for inflation in future years. This framework is designed to help balance income needs with portfolio longevity over a 30-year retirement.

However, the 4% rule isn’t a guarantee. Market performance, inflation and withdrawal flexibility all influence how long $2.5 million will last. In strong markets, your portfolio may sustain higher withdrawals, while downturns may require temporary spending adjustments to preserve assets.

Other income sources also matter. Social Security benefits, pensions or part-time work can supplement withdrawals and reduce pressure on your savings. For example, if Social Security provides $40,000 per year, your portfolio may only need to cover the remaining portion of your annual expenses.

Ultimately, the sustainability of $2.5 million depends on your lifestyle and spending patterns. A well-diversified investment strategy designed to balance growth and income can help extend your nest egg. Careful planning and ongoing adjustments are key to turning $2.5 million into reliable retirement income at 65.

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 ¹ 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

When evaluating whether $2.5 million is enough to retire at 65, estate planning should be part of the conversation. If your goal is to leave money to heirs, support charitable causes or fund future generations, your withdrawal strategy may need to be more conservative. Preserving principal while generating income can help balance current lifestyle needs with long-term legacy goals.

Taxes also play an important role in estate planning. Assets held in taxable, tax-deferred and tax-free accounts are treated differently when passed on to beneficiaries. Coordinating beneficiary designations, trusts and account structures can help improve tax efficiency and reduce complications for heirs.

Finally, healthcare and long-term care planning intersect with estate strategy. Unexpected medical expenses can quickly erode savings if not properly accounted for. Incorporating estate planning into your broader retirement income plan ensures that your $2.5 million supports both your lifetime needs and the legacy you intend to leave behind.

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 $24,500 per year to a 401(k) and up to $7,500 per year to an IRA (as of 2026). If you’re 50 or older, you can contribute an extra $8,000 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

Retiring at 65 with $2.5 million can provide a comfortable income for many households, but its long-term sustainability depends on spending, investment performance and additional income sources like Social Security. A thoughtful withdrawal strategy can help balance lifestyle needs with portfolio longevity. Factoring in taxes, healthcare costs and estate planning goals adds another important layer to the decision.

Retirement Planning Tips

• A financial advisor can help you plan for a secure retirement starting at any age. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call 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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