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.
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As an expert in personal finance and economic trends, my extensive knowledge in the field enables me to delve into the intricate details of the article you provided. My expertise is built upon a comprehensive understanding of income dynamics, cost of living considerations, and financial strategies for wealth accumulation.
The article discusses the challenging financial situations faced by individuals earning six-figure salaries, despite the common perception that such incomes should provide financial security. The evidence presented in the article includes findings from a study conducted by financial advice company SmartAsset, as well as data from other reputable sources like PYMNTS, Lending Club, and Zippia.
The key concepts covered in the article can be summarized as follows:
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Income Struggles Despite High Salaries:
- A significant portion of individuals earning six-figure salaries is reported to be living paycheck-to-paycheck, challenging the assumption that such incomes guarantee financial stability.
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Inflation Impact:
- The article highlights the impact of rampant inflation, citing a 6% inflation rate in February. This inflationary pressure contributes to the erosion of the real purchasing power of high earners.
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Regional Disparities:
- The study focuses on regional disparities by analyzing the after-tax income and adjusted cost of living for individuals earning $100,000 in 76 major U.S. cities. Cities like New York, Honolulu, San Francisco, Washington D.C., Long Beach, and Los Angeles are identified as challenging places for high earners due to high living costs.
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Best Cities for Six-Figure Earners:
- Conversely, the article identifies Memphis, Tennessee, El Paso, Texas, and Oklahoma City, Oklahoma, as the best cities for individuals earning $100,000, considering their lower costs of living.
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Perceptions of Wealth:
- Zippia's data reveals that 56% of Americans believe earning $100,000 per year would make them rich. However, it emphasizes that a $100,000 salary is now considered upper-middle class, raising concerns about financial struggles even among higher-income individuals.
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Median U.S. Salary and Income Variation:
- Zippia provides context by stating that the median U.S. salary in 2022 was $44,225, underscoring the significant income variation across cities and states.
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Financial Advice for Six-Figure Earners:
- SmartAsset offers advice for individuals with six-figure incomes, including maximizing contributions to retirement accounts to reduce tax bills and reviewing a city's cost of living before relocating. Consulting a professional financial adviser is also recommended for tax efficiency.
In conclusion, the article highlights the complex interplay between income, cost of living, and financial strategies, challenging preconceived notions about the financial security associated with six-figure salaries.
