What Is a Middle-Class Income?

The middle class. Marketers target it. Politicians
champion it. Economists talk about it. Most of us consider ourselves part of it.
Yet, when I’ve asked for a clear definition, I have not found anybody yet that really can
tell me what “middle class” is. I recently posted on Twitter that $90,000
was a middle-class household income and that it would take a nest egg of $3 million to
generate that income in retirement. A couple of my colleagues responded that my
figures were way too high and accused me of being out of touch. As a lifelong South Dakotan,
I’m used to being seen as “out of touch,” but the idea that $90,000 was beyond a middle-class
income intrigued me. I figured a few minutes with Google would
point me to a definition of “middle class.” It wasn’t that simple. I soon discovered that
neither politicians, economists, sociologists, nor financial advisors can agree on what makes
someone middle class. It is a little easier to define a middle class income.
I did find an excellent article in USA Today by Dan Horn of the Cincinnati Inquirer. He
cited three surveys that attempted to define the middle class by income. The Pew Charitable
Trust describes it as the middle 20%, an income range from $32,900 to $64,000. The U.S. Census
Bureau disagrees. They say a middle class income is the middle 60%, an income range
of $20,600 to $102,000. The U.S. Department of Commerce begs to differ with both and says
an income between $50,800 and $122,000 puts you in the middle class. Combining the income
range of the three studies ($20,600 to $122,000) puts two-thirds of all income earners in the
middle class. For me, defining middle class with such a
broad income range just raises more questions than it answers.
First of all, the same income that will provide a comfortable middle-class lifestyle in a
place like the Black Hills of South Dakota won’t necessarily do the same in San Francisco
or Boston. Second, if you want to assure yourself of
a middle-class income throughout your lifetime, you apparently have to get rich.
Let’s assume a young couple, both professionals, earn $45,000 each for a household income of
$90,000. Let’s assume they want to save enough to provide a similar income in retirement
without counting on Social Security. To generate that income, with a 99% certainty they will
never run out of money, how much will they need to save?
While financial advisors’ responses will vary, most will agree this couple would need between
$2 million and $4 million in today’s dollars. Let’s settle on $3 million. If they each saved
$1,000 monthly to 401k’s (about 25% of their salaries), our young couple could save $6,600,000
million ($3 million in today’s dollars adjusted for inflation) by the time they reached age
65. However, while a couple needs $3 million to
produce a middle-class income, someone with a net worth of $3 million is in the financial
top 2% of Americans. That’s hardly middle class.
And to complicate things further, Gallup polls have shown that most Americans think anyone
with a net worth of $1 million is rich. Yet having $1 million when you retire will generate
a secure lifetime income of $30,000. So the net worth that we define as wealthy provides
an income that we define as barely middle class.
Confused yet? I certainly am. There’s just one thing I’m still sure of. If you want a
middle-class lifestyle after you retire, what you’d better do now is live a modest middle-class
lifestyle so you can save enough to qualify as rich.

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