If you have $2.5 million saved for retirement, you’re among a select group of Americans. Only 1.8% of households have $2 million in retirement accounts and just 0.8% have reached $3 million, according to an Employee Benefits Research Institute analysis of Federal Reserve data. Retirees who begin saving early, use tax-efficient retirement accounts and harness the power of compound interest are more likely to build this level of wealth. Working with a financial advisor can help you optimize your savings strategy for retirement.
Retiring with $2.5 million gives you a solid financial base, with room for discretionary spending and travel. With the 4% rule, a retiree could withdraw $100,000 annually from a balanced portfolio. Adjusting for inflation, that approach may extend their savings for 30 years.
The 4% rule is a common benchmark, but there are other strategies to consider:
3% withdrawal strategy: Provides greater longevity, ensuring savings last 40 or more years. However, it would require lower annual spending (about $75,000 per year).
5% withdrawal strategy: Increases annual income ($125,000 per year), but raises the risk of depleting savings within 25–30 years.
Dynamic withdrawal strategies: This is where you would adjust withdrawals based on market performance, reducing spending during downturns to extend savings.
Spending habits, health status, and investment returns all influence how far $2.5 million can stretch. Here’s how retiring with $2.5 million might look in different scenarios:
Low-cost areas (rural locations or overseas retirement destinations). In some states or international destinations (such as Mexico, Belize or Thailand), $100,000 per year could provide an upper-class lifestyle, with ample room for luxury spending and extra savings.
High-cost areas (New York, California, or major metro areas). A retiree may need to allocate a significant portion of their budget to housing, property taxes and healthcare, meaning $100,000 per year may feel tight. Downsizing or moving to a lower-cost-of-living area could help stretch savings further.
Moderate-cost areas (suburban locations or mid-sized cities). A retiree could maintain a comfortable lifestyle, enjoying regular travel, dining and entertainment while covering medical expenses and homeownership costs.
A couple reviews their retirement goals together.
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If you don’t have $2.5 million saved for retirement, you’re certainly not alone. The average retirement savings for all families is $333,940, with balances varying by age. Specifically, individuals aged 65–74 have an average retirement savings of $609,230, according to the Federal Reserve ‘s most recent Survey of Consumer Finances.
However, median savings tell a different story. Since a small percentage of high-net-worth retirees push up the average, the median retirement savings for households led by someone between 65 and 74 years is $200,000. For the 75+ age group, the median retirement savings is $130,000.
Saving early leverages the power of compound interest as investments grow exponentially over time. Saving $1,000 per month from age 25 could grow to over $2.5 million by retirement, assuming a 7% average annual return. If the same savings strategy started at age 35, the total accumulated would only be $1.1 million, requiring higher monthly savings to catch up.
Utilizing tax-advantaged retirement accounts, such as 401(k)s and IRAs, is crucial. Contributing the maximum allowable amounts and taking advantage of employer matching programs can significantly boost retirement savings.
For 2025, the 401(k) contribution limit is $23,500 if you’re under 50. However, those 50 and older can contribute a total of $31,000, and anyone 60–63 has a total limit of $34,750 in annual 401(k) contributions. The IRA contribution limit for 2025 is $7,000, with an additional $1,000 in catch-up contributions allowed for those over 50.
Higher earnings over your career can help grow your retirement savings. Advancing education, gaining specialized skills or pursuing career growth opportunities can lead to higher salaries, allowing you to make greater contributions to your retirement funds.
You can also generate extra income through side businesses, freelance work or rental properties. For instance, an individual earning $100,000 annually who consistently saves 20% of their income and achieves an average 7% return on investments could reach $2.5 million in approximately 30 years.
A senior couple meets with a financial advisor.
Accumulating $2.5 million in retirement savings can provide significant financial security and the freedom to enjoy a flexible retirement lifestyle. However, doing so requires long-term planning, a strategic approach, disciplined saving habits and well-informed investment decisions. Working with a financial advisor can help you create a customized retirement plan that aligns with your individual needs, ensuring long-term stability and a comfortable retirement.
Treat retirement contributions like a recurring bill by setting up automatic transfers to a 401(k), IRA or other savings account. This consistent approach builds discipline, smooths out market timing risk, and helps your savings grow steadily over time without needing frequent decisions or adjustments.
A financial advisor can help you set retirements savings targets and then make a plan for meeting them. 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.
