If you had $5 million, you could buy about five median-priced homes in San Diego or pay for approximately 91 years of tuition at Harvard University.
It’s also the amount “Shark Tank” star Kevin O’Leary recommended his YouTube audience have in their bank accounts for financial security.
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Living Off Interest
O’Leary said that for people to “survive the rest of your life,” they should aim for $5 million in their bank accounts. His rationale centers on passive income that a person could generate through interest. He proposes people set aside $5 million as untouchable money and use the rest of their income as capital for investments or riskier ventures that would not compromise the stability of the income-generating $5 million.
The underlying idea is that the interest earned on the invested $5 million creates a safety net for individuals and their families. For instance, at an annual interest rate of 5%, this could yield $250,000 in annual passive income.
O’Leary’s suggested $5 million received sharp backlash from many, with calls for it being “tone deaf” to the economic reality. The average family’s savings pales in comparison to the amount O’Leary suggested. According to Federal Reserve data for 2022, the average American family has $62,410 in savings in savings and checking accounts, money market funds and other similar instruments.
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According to a report from LendingClub, which examines spending and saving habits, 63% of Americans live paycheck to paycheck.
“Living paycheck to paycheck remains the main financial lifestyle among U.S. consumers,” according to the report.
And, retirement balances on average are nowhere close to $5 million. Data from Fidelity Investments shows baby boomers have average 401(k) balances of $212,600 and individual retirement accounts (IRAs) valued at $201,600. These are both far from $5 million, and high earners skew the average, which means there are many baby boomers with little saved for retirement.
The Importance Of Cash Reserves
O’Leary’s point with the $5 million suggestion is to encourage people to build and hold cash reserves before risking those funds in less stable investments. This perspective emerged from his own experience making investments, such as when the collapse of Silicon Valley Bank impacted his portfolio at O’Leary Ventures, leading him to diversify his financial assets across multiple institutions.
O’Leary, who has an estimated net worth of $400 million, offers financial advice and impacts many businesses through “Shark Tank.” Some of his most notable successes include the investment in Zipz Wine, a company that revolutionized the wine industry with single-serve wine glasses. Another was his partnership with Plated, a meal kit delivery service that was later acquired by Albertsons.
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This article Kevin O’Leary Recommends People Have A Minimum $5 Million For Financial Security: Sage Advice Or Tone Deaf? originally appeared on Benzinga.com
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