You’ll Probably Never Need More Than a $5 Million Net Worth

You clicked this video because some number has been living in your head. 10 million, 5 million, 3 million. I don't know what it is. And you might be close to it. You might be far away from it. Here's what I want to tell you. That number, you probably made it up. Not intentionally, no, but nobody gave it to you based on your life. They gave it to you based on fear. This is Building Your Money Machine, where we help you master your money. Eliminate financial stress so you can live life by choice. Because earning more doesn't make you free. A money machine does. And I'm your host, Mel Abraham. And after 30+ years as a CPA, as an entrepreneur, as a money mentor, and someone who's walked this path to financial freedom from nothing to something, broke it and had to rebuild it, I've seen what works. And it's not about bigger numbers. It's about bigger and better choices. So in this episode, I'm going to show you what your life actually costs, how to stack your income so you can fill it faster, and why most people in most places $5 million is more than enough. Let's do it. So let's talk about the number, you know, the one that's been living rent-free in your head, and you— it's keeping you up at night. And honestly, probably not even the right number, because here's the thing. And I want you to sit with this for a moment. 71% of Americans don't believe that they'll have enough money to retire. 71%. That's crazy. That's not a small number. That's pretty much most of the room. So, here's the question that no one's asking: Enough for what? Because if you can't answer that question, you're basically doing financial planning the same way I actually pack for a trip. I just throw stuff in, in the bag and hope for the best. And spoiler, I always forget something, usually something important. And see, most people were chasing a number, $10 million, I don't know, $5 million, $3 million. It's a number. It could be whatever your neighbor happened to say at a barbecue after the third beer. But here's the thing we need to understand. The number isn't a plan. That's folklore. That's a spreadsheet. That's just a number. And I think about it with my parents because my dad immigrated here with nothing. He was age 17. He came here with nothing. They built a life from scratch. Mom, she raised, she raised us kids. She held the family together. She kept things going and did everything that a person was supposed to do. They worked hard every single year. Dad had an amazing work ethic and they saved what they could. They raised us 3 children. They put money away for retirement. And they did it all without ever once sitting down and asking, what life are we actually trying to fund? See, not because they were irresponsible, not because they didn't care, but because nobody ever told them that that was actually the first question. And when I look at my brother, I look at my sister, people I love right now, or even clients, I see the same pattern repeating itself. Work hard, save something, figure out later. You might even be doing that. See, that though is not a money problem. That's a vision problem that is showing up dressed as a money problem. And here's what I want you to take away before we go anywhere else. The number doesn't create the life. The life creates the number. And once you know how to figure out what that life costs, You may discover something surprising. You're a lot closer than you think. That's why I think most people don't even need $5 million to retire. So let's start there. What does your life cost? I mean, like, really cost? Like, let's look at some data. So here's where most people and most retirement conversations either get too vague or too complicated. And I don't want to do either of those. I want to give you some real numbers grounded in real data and give you some real math so you could actually see it for yourself. So this is based on the Bureau of Labor Statistics, and they track Americans and they— and their actual spending in retirement, not what they think they spend, but what they actually spend. And this is the number for households headed by someone that's 65 or over. And the average spending is $61,432 a year. That's about $5,100 a month. Now, before you say that seems low, let me tell you what exactly is in the number, because I actually sat back and said, that is way too low. I can't imagine that. But so I thought, well, what's in the number? What's in the number that they used is it covers housing, covers mortgage, rent, property taxes, utilities, maintenance, healthcare, insurance premiums, transportation, food, entertainment, basically everything in daily life. It's the full picture, not a partial number. Now, I know, I know you look at it and go, my mortgage alone eats that up. And if you live in California or New York or something, someplace like that, I get it. You're not wrong. And we're gonna get to you. So just hang tight because here's the important context. The $5,100 a month is a national average. That means depending on where you live, the real number looks very different. You could be in some of the more affordable places like Mississippi, Oklahoma, Kansas, the Midwest, some of the South, and retirement costs there typically range around $4,200. Or you could be in the middle of the country, uh, where the most of the Southeast, Mid— Mountain West, and parts of the Midwest You're between $5,100 and $5,500 a month. Or you could be in some of the high-cost areas, California, New York, Massachusetts, those kinds of places. And a comfortable retirement starts at like $6,000 to $7,500 a month or more. You know, so when we start to look at this, I want us to use some of that data, but I want to adjust it a bit. So I was looking at gobankrates.com Annual Retirement Cost Survey. By state, and it allowed me to break it down into 3 tiers. I'm gonna use 3 tiers for our calculations so, so you can see where you might be and how much it gets you. All right, Tier 1 is $6,000 a month. Basically solid, covered, comfortable retirement. No stress, no frills, no deprivation, but working comfortably in the majority of the country based on the data. Then there's Tier 2. We're going to push it up 50%, $9,000 a month. This is a more of a lifestyle type of retirement, travel experiences, those kinds of things, generosity, dinners out. This is a good life for most of America, and it covers most of the higher-cost metro areas outside the most expensive zip codes. And then we go to Tier 3. $15,000 a month. That's the premium. That's the San Francisco or the Manhattan, possibly the Hawaii. Just came back from Maui. Oh my God, it's expensive. So, this is more in the more expensive areas in the country. Now, if you're looking at it and go, "My number's actually higher than tier 3." Yeah. All right. I get it. That is not a $5 million problem. That is a conversation you and your partner need to have over a nice dinner and figure out, am I doing okay at that spending level. And if you are, great, you can clearly afford it. But most people see those tiers and immediately start calculating how big a portfolio they need to cover the whole thing. That's where the math goes sideways. So let me explain, because I think this is a really important distinction that most people miss. And, and so What happens is that they say, well, if I need $2 million, then I need to, I need to have $2 million in a portfolio because that's the challenge. But what we're trying to do with our portfolio, what we're trying to do with our retirement is to fund the cash flow necessary to fund the life. So we think that it's all going to come from our 401, our brokerage account, our IRA, and that kind of thing. But here's what you're forgetting. You already have income sources that are doing part of the job. For instance, Social Security. I know you might be sitting back going, Mel, there may not be Social Security. I get it. Humor me for a little bit and let's follow this math for a month. Let's just look at the average Social Security right now is about $2,000, a little under $2,100 for a retired worker, $2,079 a month. Okay, and here's the thing that most retirement calculators miss: Social Security isn't the same for everyone. If you spent your career in a more modest income level, your combined couple's Social Security might be closer to $2,500. If you were a mid to high earner, then it might be as a couple $3,500. And if you were a higher earner, you probably reached $4,000 as a combined. Now, that matters in the math. So I'm going to use realistic tiered assumptions for each spending level. So, so not one number for everyone. That way you can see what do you actually really need to have a life that costs you a certain amount. And what I want you to do is stop thinking about replacing your entire monthly spend, but to fund the difference between what is already covered by some other income and what isn't. See, your portfolio's only job is to cover that difference between the other income sources that pay for your life and what it actually costs. That's it. So I'm gonna oversimplify this intentionally because there's nuances. Taxes matter, inflation matters, sequence of returns matter, but this will at least shape the answer for you and give you something that maybe alleviates some of the panic, the concern, and gives you a direction. So let's talk about Tier 1 scenario. Tier 1, $6,000 a month. That's the spending level. A realistic Social Security at that point for a couple is probably about $2,500 a month. That means that, that the real gap is $3,500 a month or $42,000 a year. If we use a 4% withdrawal rate, the base portfolio for that couple is only $1,000,000, $1,050,000. So $105,000. That's it. Okay. Tier 2, we move from $6,000 to $9,000. And at this income level, the couple's Social Security may be closer to $3,500 a month. So the gap here is $5,500 a month, not $9,000 a month. And that's about $66,000 a year. Well, at a 4% withdrawal rate, the portfolio needs to be about $1,650,000. Then there's Tier 3, the expensive one, $15,000 a month. So, at that level, probably Social Security combined is going to be about $4,000 $1,000 a month. So the gap here is $11,000 a year— I mean a month. So $132,000 a year. At a 4% withdrawal rate, you need a portfolio of about $3,300,000. That's it. Okay, so at the most premium lifestyle tier, for a couple living what most would consider an incredibly comfortable life, the base number is $3.3 million. $3.3 million. It's not $10 million. It's not even $5 million. $3.3 million. Let that marinate. Now, I get it. What if Social Security isn't around? Or what if you don't want to count on it? That's a fair question to sit back and say, well, let me just do it without Social Security. And if it happens, great. So, let's look at the tiers again. Tier 1 without Social Security, $6,000 a month, $72,000 a year, 4% withdrawal rate goes to $1,800,000. Okay. Tier 2 without Social Security, $9,000 a month, $108,000 a year, 4% withdrawal rate, $2,700,000. Tier 3 without Social Security, $15,000 a month, $180,000 a year, 4% withdrawal rate, $4,500,000. So even in the worst case, no Social Security, the Social Security premium lifestyle, high cost of living, the portfolio needs $4.5 million. And here's the other thing that I think is important. So we layer this on, and I want to show you something because We mentioned Social Security, but if you have other types of income, it may not be Social Security. It might be a pension plan. It might be rental income. You might have a business generating cash flow. You might have an annuity or royalties that are paid. You treat each one of them the same way that you treat Social Security. Every dollar of guaranteed lifetime income reduces the gap your portfolio has to fill. So pension paying $2,000 a month works exactly as a Social Security. Paying $2,000 a month. It's the same math. Subtract it from the monthly spend, fund the gap, what's left. Now, let's talk about that withdrawal rate for a moment, because I used 4% because most people know the 4% rule from the Trinity Study. It's a classic benchmark. Now, it has been rewritten and said that it could be higher than that, 5% or more. But I want you to think about things a little differently. Here's how I would love for you to look at it. I want you to think about what if my withdrawal rate was a dynamic withdrawal strategy with guardrails? Here's what I mean by that. Instead of fixating on 4% forever and, and everything, you set a range. For instance, depending on what's going on in your life and the market, you might in strong market years where market's up 18%, 20%, 16%, you might actually draw 5%. So we go a little higher, we can do a little more. In down markets or markets where it's not as high, you might pull back off the 4% and do 3.5% or 3%. So the portfolio breathes and moves with the market just a little bit instead of forcing you to sell low when things get ugly. Plus, if you have the proper liquidity in place in the right buckets, you won't be forced when things get ugly. It's not complicated, but it is intelligent and it gives your money the flexibility to last as long as you do. Now, there's one other thing I want to add to this because it's something that I do in my own financial plan and I do it for my, my clients and my students. And most retirement calculators leave this out. I'm conservative by nature in the sense that I want to keep you safe. I want you to have an unshakable foundation. I want to plan for the things that are, are unplanned. And so, I always build in a buffer, a margin of error, a margin for volatility, typically 15 to 20% above the base number. Not because the math was wrong, but because life isn't a spreadsheet. Healthcare costs could spike. The kids might need help. The roof needs replacing. The main water line breaks. The markets have a bad run. See, the buffer isn't pessimism. It's wisdom. Think of it like leaving early for the airport. You might not need the extra 30 minutes, but you'll be a whole lot more relaxed on the drive because you have an extra 30 minutes. So, so let's apply the buffer so you can see what it does to the numbers. And I'm going to use the midpoint between 15% and 20%. I'm going to use 17.5% with Social Security. Involved and the buffer, Tier 1 goes from, from $1,050,000 to $1,250,000. So it goes up $200,000. Tier 2 goes from $1,650,000 to $2 million. And Tier 3 with Social Security goes from $3.3 million to $4 million. Great. Now, what happens if you don't have Social Security? Well, Tier 1 goes from $1.8 million to $2.1 million. Tier 2 goes from $2.7 million to $3.2 million. And Tier 3 goes from $4.5 million to $5.3 million. See, even at the most premium lifestyle tier, no Social Security at all, the full safety buffer built in, and you land at $5.3 million, which means that the, the title of this video, it ain't clickbait. It's just the math. And the vast majority of the people living around the vast majority of the places, $5 million is not just enough. It's more than enough. That's the thing that I want you to get. Now, if you're not sure what your numbers are, I get it. If you want to run your own numbers right now, great. I got a free tool for you. Okay. It's called the Freedom Number Calculator. You'll put some numbers in, you'll get a ballpark number. You go to Mel Abraham, melabraham.com/number. Play around with it. Start getting an idea. Look at what your lifestyle costs. Okay. So that's the game I want you to play, but I can hear it now. Some of you might be watching this or thinking, you know, this is great, Mel, but I am nowhere near these numbers yet. I've only got $50,000 saved, or maybe I have $150,000 saved. The whole conversation feels like it's for someone else. Let me tell you, it's not. Here's why. I want to show you something that literally changed the way I think about money. And once you see it, you can't unsee it. And most people, when they look at wealth, they actually think that wealth is built on a straight line, linear. If I need $1 million in 10 years, then I need to have $100,000 saved every single year. But that's not how compounding works. And That mental model that you have is costing people a decade of confidence. Let me show you the real math because I think this will open it up. Let's say for a moment you put away $10,000 a year and that's about $833 a month. And let's say it earns 8% on average over time. Here's what happens. You will reach your first $100,000 at about 7.6 years. It's what I call the flatline in my book. Progress feels slow. Every dollar feels like it costs you something because you're doing the heavy lifting. You're putting the majority of the money in. Then you reach the half a million dollar mark, $500,000. But now you're 20 and a half years in. You're contributing faithfully. The curve now all of a sudden is starting to bend, but you're 20 and a half years in and you say, wait a second, I got another half million dollars to go. But to get from $500,000 to $1 million at $10,000 a month at 8%, it takes you just 7.5 more years. It literally takes you less time for the last half a million dollars than it did for the first $100,000. And the point is, that is what the power is. You're in the acceleration zone. The money's working harder for you than you did for it. That last half million is fast and it keeps growing at a, at a growing pace. Because by that point, the money isn't waiting on you anymore. It's working harder than you do. That's the subtitle of my book. That's what I call the Wealth Creation Curve. Start out in the flat line where every dollar feels like it costs you and that the progress feels slow. The patience is down. You're struggling. You go, this isn't making a difference. But then you hit the tipping point where compounding starts to accelerate, and this is where you enter the acceleration zone, where the portfolio starts to generate more than your contributions ever could. And I know the flat line, it's brutal. You're contributing faithfully every month, watching the balance barely move, probably moving as fast as the line at the DMV. I get it, I've been there. The flat line though is where people quit. Which is exactly why most people never actually reach the acceleration zone or the wealth they desire. See, the people who get to the acceleration zone, though, they're not smarter, they're not luckier, they just stayed in the game. Here's what this really means practically. If you have $50,000 saved, $5,000 saved, and you're contributing consistently, you're in the flatline. I get it, but you're in the game and being in the game is everything because the tipping point, it's coming. The math guarantees it. And the only variable is whether you're still there when it arrives. This is not inspiration. It's basic arithmetic. And the single most powerful financial decision you can make today is to start or to keep going at whatever amount you have, $5, $10, $50, $100, it doesn't matter. So here's the thing. Let me bring this together for you because I want you to leave with something real, not a vague sense of what you should say, but an actual picture of what the number looks like. And probably, probably closer than you think when you look at it. My parents did everything right. And by the conventional standard, they did what they were supposed to do. They worked, they saved, they raised the children, they showed up every day for decades, and they never once sat down together and asked, what life do we actually want? What does that look like? What does it cost? How do we build toward it intentionally? Not because they were irresponsible, not because they didn't love each other or love us, but because the world told them the goal was retirement. It never told them to design what that retirement looked like. The money was there in some form at the end. The fully expressed life though, wasn't. And I see it everywhere. My, my brother, my sister, my clients, the people I love, they do the right things. They did the right things. They arrive at retirement with a number with no vision attached to it. And here's the thing. If you're watching this video right now, then it means you still have time. Time to ask the question that never got asked. Time to define the life you're building towards. Time to figure out what it costs, stack your income sources against it, fund the gap, and let the wealth creation curve do what it was always going to do. And I bet the number isn't $10 million. For most, in most places, it isn't even $5 million. I think we've shown that.. But it is the price tag on the life you actually want. And that number, hmm, you can build towards that. I think about my mom, we lost her 2 years ago, but I think about what she would've said to someone if we had shown her this math 30 years ago. If someone sat across from her and said, here's what your life could look like, here's what it costs. Here's how you get there. I think she would have started asking different questions. See, don't wait to ask the right questions. I hope that this gets you to ask the right questions. I hope that this video and this episode gets you to understand where you are and how close you might be, and that the gap may not be as wide. And even if the gap is wider than you anticipated, that you're on the path and you're in the game to make it happen. All right. I hope that you found this valuable. I hope that this gets you to see your number differently. And if it did, do me a favor, give me a thumbs up. And at the same time, if you haven't subscribed, subscribe to the channel. Let's have fun. Let's do this because YouTube likes it and it warms my heart at the same time. I want to make sure that we get this message out to people because I want people to live the life that they envision. And allow the life to define the money, and we'll give them the tactics to get the money to give them the life that they envision, just like I want for you. So here's the thing. If you found this valuable, if you thought that this was, this was something, do me a favor, send me a comment, send me a DM. I'd love hearing from you. I'd love having the conversations with you. And at the same time, share this with someone you know who's chasing a number that they never defined. It might be the most useful thing you do for them. This year and in their lifetime. Because you know what? Earning more doesn't make you free, but a money machine does. And a money machine built on the vision of your life is the right way to do it. All right, till I get a chance to see you in the next one or on your path. Thank you for listening to the Affluent Entrepreneur Show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Join the True Entrepreneur Facebook group now by going to MelAbraham.com/group and I'll see you there. And that's it for this episode of Building Your Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you'd do me a favor, Go to Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.