There's little benefit to squashing down a year's worth of work into 5 commits because you can just as easily tag each of those 5 commits with a version number, give it a little write up, and call it a release.

I think the reason to squash commits is to cut out the noisy bits that were only useful to the original developer that day and create a timeline that's helpful for future readers. It doesn't really make sense to get more granular than the level of a single commit with a good comment and a small set of cohesive changes. So you store your history at that granular level and you can take care of the rest with tags, minor and major versions, etc.