Why $5 million is the new $1 million

Who wants to be a millionaire? A lot of people. After all, that’s synonymous with being rich.

But these days, many wealth seekers say $1 million is no longer enough to be considered wealthy. With the rising cost of living, and the lengthy retirements many people must plan for, financial experts say the new benchmark for the rich is $5 million.

“It can be said that the new $1 million is $5 million,” said Ajay Gupta, vice president, wealth management adviser at Merrill Lynch in San Diego. “We’ve seen a lot more $5 million net worth families than before.”

While the number of millionaires has nearly doubled in the past decade, the number of "penta-millionaires" has quadrupled.  The number of U.S. households with $5 million or more in net worth has grown to 1.14 million as of last year from 250,000 in 1996, according to Spectrem Group, a Chicago-based research firm that focuses on the "affluent" market. There are about 9 million households with $1 million or more, up from 5 million a decade ago.

Financial advisers at firms like Merrill Lynch and Schwab Institutional say they are seeing growing numbers of multimillionaire clients. “It’s the fastest-growing segment (of our business),” said David Welling, a vice president at Schwab Institutional investment advisors in San Francisco.

For many affluent individuals, a $1 million nest egg is just not enough these days. “Everything costs more — gas, housing, education, health care, food — everything,” said Welling. “A million dollars used to be the magic number, and while it still is a lot of money, it may not be enough to retire or support the kind lifestyle people think it could.”

Longer lifespans are one reason why $1 million may not be enough to provide a lifetime of financial security, he said. “What do you do if your mom ends up living to 100 but her retirement plan only lasts till 80?”

“Robert,” 40, a penta-millionaire in San Diego, made his fortune through stock options at a technology company where he worked. His net worth hit the $1 million mark in 1995. But he felt it was not enough.

“When I had a million dollars, certainly the thought came to mind, ‘Gee, I wonder if I’m gonna need to keep working?’” said Robert, who did not want his real name used. “But that thought lasted about 10 seconds, because $1 million just isn’t as much as it used to be.”

For Robert, the turning point came in 1999, when his assets hit $5 million. He quit his job, set up a charitable foundation and became a full-time philanthropist. “When you have a lot of extra money, you start thinking about the causes that you’ve always cared about,” he said.

Of course, $1 million in Boise, Idaho, will go a lot farther than it will in New York or San Francisco, where a typical home can easily cost more than $1 million. But for many wealthy individuals, the point at which they begin to think about retiring is when their assets move into the $2 million to $10 million range, financial experts said.

Somewhat surprisingly, the Securities and Exchange Commission still uses $1 million — a figure that was established in 1982 — as an important benchmark for wealthy households, although there is a pending proposal to raise the minimum to $2.5 million.

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