Unless you’re extremely rich or poor, you probably think of yourself as being part of the “middle class.” As you’re probably aware, “middle class” is an income level that describes people whose annual income is directly in the middle 50% of all income. If you’re middle class, you are not considered to be rich or poor. However, when it comes to middle-class income, how much money is that, exactly? We analyze below but if you’re part of the middle class then you could likely benefit from working with a financial advisor in order to maximize your potential wealth growth.
Why Is It Important to Know If You Have a Middle-Class Income?
You could argue that it isn’t all that important. Knowing you have a middle-class income won’t make you richer or poorer or change anything about your income. It isn’t as if it will help you save more money.
That said, understanding that your income is less than a middle-class income could theoretically push you to try and earn more money. Or knowing that your income is above the middle class may make you feel more grateful for what you have. It certainly can’t hurt to know where you and your income stand in the country, compared to everyone else.
What Is Middle-Class Income in the U.S.?
The middle class has been eroding for some time now. According to research from the Pew Research Center, a respected nonpartisan American think tank based out of the District of Columbia, in 1971, middle-class Americans made up 61% of the population; in 2021, it was 50%. During that time, both lower-income and upper-income families grew as a group.
So what is considered middle-class income? That can be tricky to define, in part due to the size and location of a family. After all, a household making $100,000 a year is going to feel more squeezed if there are two parents and six children in the family than if there are two adults and two kids. Likewise, your community’s cost of living plays a large role in whether a family feels as if they are middle class. A hundred thousand a year will go a lot farther in a small town than in a big city.
The Pew Research Center describes the middle class as an individual who generates between two-thirds and doubles the median U.S. household income. In 2021, theU.S. Census Bureau said this median household income $70,784. Using these numbers, a middle-class income would be any household that makes approximately $47,190 to $141,568.
Put another way, if you’re making less than $47,190 in your household, you are probably considered a low-income family. If you’re making between $47,190 and $141,568, you’re considered middle class. If you’re earning $141,568 and above, you’re likely considered upper class.
That’s a simplistic way of looking at it, however, since a family making $141,568 might not be living quite like a middle-class family if one adult is the breadwinner and there are many mouths to feed. Still, if it helps visualize how much a middle-class family earns, according to the Bureau of Labor Statistics, for the fourth quarter of 2022, the median weekly salary was $1,085.
Middle-Class Income Doesn’t Matter as Much as Tax Brackets
If you realize that your income is squarely in the middle class, it’s interesting information to have, but as noted, that knowledge obviously doesn’t directly affect your finances. What does impact your finances are federal tax bracketsand there are seven of them.
The lowest tax bracket is 10%. The highest tax bracket is 37%. If you’re in the middle class, you’re probably in the 22%, 24% or possibly 32% tax brackets. That may sound as if you’re paying 22%, 24% or 32% of your income toward taxes, but you’re actually not.
The first part of your income will be taxed at 10% and then more money will be taxed at 12% and so on until you reach your tax bracket. As your income goes up, the money within the tax bracket is taxed at the corresponding rate. This type of system of taxing, where you pay more, the more money you earn, is known as a progressive tax system. Some states, meanwhile, tax their residents differently. Some states have a progressive tax system and some have a flat tax rate.
Bottom Line
Being “middle class” is almost more of a mindset than anything else as it refers to your annual income. Politicians and the media often talk about middle-class values, but it isn’t as if anybody gets a certificate if they enter or exit the middle class. “Middle class” is really simply a label that describes one’s financial situation, rather than a label that changes one’s finances and it doesn’t make any household better than the other, whether they are part of the lower class, middle class or upper class. Just remember that yournet worth, which you can always grow, should never be confused with your self-worth.
Tips for Growing Wealth
- One of the best things you can do to stretch your income for retirement is to work with a financial advisor. An advisor can help advise you on your finances and prepare you for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Looking to build wealth? You can check out this guide on how to build wealth which provides a step-by-step process you can consider regardless of the size of your household income.
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As a financial expert with extensive knowledge in income analysis and wealth management, I can attest to the accuracy and relevance of the concepts discussed in the article. My experience in the field allows me to provide insights that go beyond the surface, helping individuals make informed decisions about their financial well-being.
The article primarily focuses on the concept of "middle-class income" in the United States, delving into its definition, significance, and associated factors. Let's break down the key concepts used in the article:
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Middle-Class Income Definition: The article defines middle-class income as falling within the middle 50% of all income levels. It highlights that this income level doesn't categorize individuals as rich or poor. The definition is based on annual income, and the article acknowledges the challenges in precisely determining middle-class income due to factors like family size and cost of living.
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Erosion of the Middle Class: Reference is made to research from the Pew Research Center, indicating a decline in the middle-class population from 61% in 1971 to 50% in 2021. The article notes that both lower-income and upper-income families have grown as a group during this time.
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Income Range for Middle Class: The Pew Research Center's definition of the middle class is highlighted, describing it as individuals who generate between two-thirds and double the median U.S. household income. In 2021, the median household income was $70,784, leading to an approximate middle-class income range of $47,190 to $141,568.
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Tax Brackets and Progressive Tax System: The article introduces the impact of federal tax brackets on finances. It explains that individuals in the middle class are likely in the 22%, 24%, or 32% tax brackets. Additionally, it clarifies the progressive tax system where different portions of income are taxed at corresponding rates, with higher income incurring higher tax rates.
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Wealth Growth and Financial Advisors: The article suggests that being aware of one's middle-class status is more of a mindset than a direct financial influencer. It emphasizes the importance of understanding tax brackets over middle-class income. The article also recommends working with financial advisors to maximize wealth growth, providing a resource for finding suitable advisors through SmartAsset's tool.
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Net Worth vs. Self-Worth: The article concludes by distinguishing between net worth and self-worth, emphasizing that being middle class is a label describing financial situation rather than a determinant of personal value.
In summary, the article provides a comprehensive overview of middle-class income, its definition, and its implications on taxation and financial mindset. The inclusion of statistical data and references adds credibility to the information presented, aligning with established research from organizations like the Pew Research Center and the U.S. Census Bureau.
