Once coveted six-figure salaries are struggling to keep up with today’s cost of living, with more than half of people who are making six-figures still living paycheck-to-paycheck, reflected in a new study.
As rampant inflation pervades the economy, with it sitting at 6% in February, the study done by the financial advice company, SmartAsset, acknowledges that even high-earners are struggling to build wealth, especially in pricier cities. In December 2022, 51% of people who earn more than $100,000 reported living paycheck to paycheck, which is 7% more than the previous year, according to a survey from financial insight and advising companies PYMNTS and Lending Club.
In SmartAsset’s new study, researchers calculated income tax on $100,000—taking it into account at the federal, state and local level—to find earners’ real take-home pay in 76 of the largest cities around the U.S. Using 2022 data on cost of living prices in these cities from the Council for Community and Economic Research, SmartAsset analyzed how much purchasing power earners truly have. Cost of living indexes include average prices of housing, groceries, utilities, transportation and other goods and services.
The study found the worst places to live for people who earn $100,000. After taxes and adjusted for cost of living, $100,000 amounts to just $35,791 in New York, New York, $36,026 in Honolulu, Hawaii, $36,445 in San Francisco, California, $44,307 in Washington D.C. and $44,623 in Long Beach and Los Angeles, California.
Using the same metrics, the best cities to live in for people who earn $100,000 are Memphis, Tennessee, El Paso, Texas and Oklahoma City, Oklahoma. In Memphis, thanks to its cost of living, which is 14% lower than the national average, $100,000 is worth $86,444. Seven cities where six figures goes the furthest were in Texas, credited to low costs of living combined with no state income tax.
In the U.S. 18% of individuals earn more than $100,000, according to Zippia, a career advising company, and like the cost of living, income varies greatly between cities and states.
Zippia’s data also shows that 56% of Americans believe that earning $100,000 per year would make them rich, but Zippia notes that a $100,000 salary is generally considered upper-middle class today, rather than rich, and can even be lower-middle class in some cities. The median U.S. salary in 2022 was $44,225, according to Zippia, which raises major concerns if Americans earning more than double that amount are struggling.
SmartAsset shares some advice for six-figure earners, such as suggesting that they max out their retirement accounts. Contributing the highest possible amount to retirement accounts can help reduce a contributor’s tax bill for that year, potentially even dropping them into a lower tax bracket. They also recommend reviewing a city’s track record on its cost of living before moving there, along with consulting a professional financial adviser to be as tax efficient as possible.
FAQs
More than half of Americans earning over $100,000 a year live paycheck to paycheck. So what's going on? Many experts point to a phenomenon called lifestyle inflation as one of the culprits. Lifestyle inflation, or lifestyle creep, is the pattern of spending a little more as a person's income increases.
Why do rich people live paycheck to paycheck? ›
High earners' budgets are as inflexible as low earners.
Even as housing and food costs rise, more affluent consumers report that essential spending represents a smaller fraction of their budgets than lower-income consumers.
What is the main idea of living paycheck to paycheck? ›
What Does Living Paycheck To Paycheck Mean? Living paycheck to paycheck means you spend all your income on your monthly living expenses – like your rent or mortgage, utilities, groceries and transportation – and have little to no money left over.
Why do high income earners go broke? ›
The problem is many high-income earners don't focus on converting their income into assets, either because they don't know about it or they just think they can do it later.
How many people making 6 figures are living paycheck to paycheck? ›
Living paycheck to paycheck by income
According to a recent PYMNTS report, as of November 2022, 76 percent of U.S. adults who make less than $50,000 are living paycheck to paycheck, compared to 65.9 percent of those making $50,000 to $100,000 and 47.1 percent making more than $100,000.
Is a six-figure salary good? ›
While $100,000 may not have much purchasing power in California, the six-figure income goes a long way in other states, mainly due to lower taxes and cost of living rates than in the Golden State.
Are you poor if you live paycheck to paycheck? ›
Key Takeaways. "Paycheck to paycheck" is an informal expression describing one's inability to pay for living expenses if they lost their income. People living paycheck to paycheck are sometimes referred to as the working poor. Living paycheck to paycheck can occur at all different income levels.
Why do millionaires not pay taxes? ›
So how do they afford the daily expenses of life, whether it's a new pleasure boat or a social media company? They borrow against their stock. This revolving door of credit allows them to buy what they want without incurring a capital gains tax.
Do millionaires live paycheck to paycheck? ›
By definition, a millionaire is someone who has at least $1 million in assets. Someone who lives paycheck to paycheck has no savings or assets because they spend their entire paycheck by the time the next one arrives. So the answer to your specific question is no. A millionaire does not live paycheck to paycheck.
Why is living paycheck to paycheck not ideal? ›
Those living paycheck-to-paycheck often have little to no savings, and could face a financial crisis if they lost their jobs, which are typically their only source of income.
But despite the larger pressures, they're not satisfied with their situation; 57% of respondents said the current state of their savings is stressing them out. Nearly one in four (22%) of U.S. adults have no emergency savings at all, Bankrate found—the second-lowest percentage in 13 years of polling.
What does the Bible say about living paycheck to paycheck? ›
I explained the verse in Proverbs 22:7 – “the borrower is slave to the lender”. The Bible says we're enslaved because debt prevents us from being completely free. It's like having a cloud hanging over your head all the time.
Do most millionaires go broke? ›
Rich people often find themselves poor after making bad financial decisions. According to a blog by renowned penny stock investor Timothy Sykes, the average millionaire goes bankrupt at least 3.5 times. The reasons rich people go broke are not all that different than the reasons anyone goes broke.
What's the average salary in America? ›
How much does the average American make a year? According to the U.S. Bureau of Labor, the average U.S. annual salary in Q4 of 2023 was $59,384. This is up 5.4% from the same time period in 2022 when the average American was making $56,316 per year.
How do I stop living paycheck to paycheck? ›
How to Stop Living Paycheck to Paycheck
- Get on a budget.
- Take care of your Four Walls first.
- Cut extra expenses.
- Start an emergency fund.
- Ditch debt.
- Increase your income.
- Live below your means.
- Save up for big purchases.
78% of Americans are living paycheck to paycheck. Basically, that means almost 8 out of 10 people probably can't afford the home they're living in and the car they're driving. They might not even have the cash to cover the next emergency that pops up. Your income is your most important wealth-building tool.
Is it stressful to live paycheck to paycheck? ›
You're not alone. A majority of Americans (59 percent) report that they live paycheck to paycheck. Stressing about finances can go far beyond the wallet. It can seep into every aspect of your life and manifest itself as generalized anxiety, guilt, panic attacks, or trouble sleeping at night.
How rare is a 100k salary? ›
According to the U.S. Census, only 15.3% of American households make more than $100,000 annually. A $100,000 salary can yield a monthly income of $8,333.33, a biweekly paycheck of $3,846.15, a weekly income of $1,923.08, and a daily income of $384.62 based on 260 working days per year.
