A $100,000 salary no longer buys you a middle-class lifestyle. Here’s why it costs so much more now.

A $100,000 salary may be considered middle-income in many parts of the U.S., but it’s no longer a ticket to the middle class.

A $100,000 salary may be considered middle-income in many parts of the U.S., but it’s no longer a ticket to the middle class. – MarketWatch photo illustration/iStockphoto

David Sweede and his wife pay $2,900 a month to rent a house near his parents in his hometown of Chesapeake, Va. The house is, in his words, “not that nice.” Child care for their twins is $2,780 per month. Groceries average about $1,500 per month, and “that’s even with couponing and being careful and not buying ingredients for just one meal,” the 44-year-old accountant said.

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These needs alone add up to $7,000 per month, and that doesn’t even factor in spending on transportation, healthcare or any kind of entertainment.

Sweede and his wife bought a house in 2021, when they were living in her home state of Oregon, but what they thought was a wise investment has turned out to be a financial misstep. When they left Oregon for work, they rented out the house, which has a monthly mortgage payment of $2,700, but the market cooled and they now take in $2,250 after paying the property manager. On top of that monthly loss, they recently paid nearly $6,000 for home repairs. Still, they are hesitant to sell, because they would lose money on the house after paying commissions.

It’s a shocking reality for Sweede, considering he and his wife together earn over $200,000, more than what 90% of U.S. households make. While they have a comfortable quality of life, he said, he finds it “insane” that they still face common financial pressures that he imagined would have faded by the time they reached this level of income.

“I can’t even fathom spending money right now on a vacation,” Sweede said. “We’re definitely not doing what you would think somebody with our income could do with the money. We just can’t.”

Across the U.S., many families — even those with a six-figure income — are struggling to support a middle-class quality of life, meaning they can afford to cover their needs and some of their wants, and still set aside money for savings.

The median income for a four-person family was $114,425 in 2022, according to the Census Bureau. Yet a confluence of data now shows that with the rising costs of housing, child care and healthcare, the typical American family with this income is just getting by, with little cushion for unexpected expenses, savings or planning for the future without making significant compromises.

The financial-information site SmartAsset, which connects people to financial advisers, told MarketWatch that based on 2024 estimates using the MIT Living Wage Calculator, a family with two adults and two children in large U.S. cities now must spend $117,500 annually simply to cover basic needs.

Data from the federal government further corroborate that annual spending by families in the middle of the income spectrum in the U.S. is in the six-figure range. The Bureau of Labor Statistics found that families of four averaged $101,514 in annual expenses in 2022. (Unlike the other estimates, the BLS figure includes pension contributions and $4,752 in entertainment expenses.)

In an analysis of the cost of basic necessities by the Economic Policy Institute, median annual expenses for a family with two adults and two children in the 100 largest U.S. metropolitan areas were $104,760. This means that in about half of those areas, the cost was higher than that. The nonprofit think tank’s 2024 family budget calculator does not include retirement, college or emergency savings, which are often critical factors for long-term financial security.

A Washington Post poll in late 2023 identified six indicators that most people say define the middle class: having a stable job, being able to save for the future, being able to afford a $1,000 emergency without taking on debt, being able to pay bills on time without worry, having health insurance and being able to retire comfortably.

Being middle-income, in other words, no longer affords a middle-class quality of life in many parts of the U.S.

“Typically, the term ‘middle class’ conveys some sense of financial security. We would define [our budget estimate] as a step right below that,” because it doesn’t account for any savings, Zane Mokhiber, EPI’s director of data management and analysis and a co-author of a report about the budget calculator, said in an interview with MarketWatch.

The most and least affordable places to raise a family

In 79 of the 100 largest U.S. metropolitan areas, the cost of basic necessities for a family of two adults and two children exceeds the median family income in that area, the EPI estimates.

In fact, a family looking to buy a home would need to allocate 66% of its income to mortgage and child-care costs, according to a February analysis by the real-estate platform Zillow based on early January interest rates and home prices in each area. “Little income would remain for potential home-buying families to spend on essential monthly living expenses,” the Zillow report stated.

To compensate, “a lot of people are making compromises in one way or another,” Mokhiber said. Some are combining households to reduce housing costs, forgoing healthcare or giving up car ownership and using public transportation if it’s available. Many borrow or put expenses on credit cards. Others receive subsidies from the government or employers for needs such as healthcare, Mokhiber said.

When EPI launched its family budget calculator more than 20 years ago, it aimed to provide a living-wage benchmark for policy makers and employers. The tool provides moderate cost estimates for each metropolitan area and county across seven categories: housing, food, child care, transportation, healthcare, taxes and other necessities. To estimate housing costs, EPI uses the Department of Housing and Urban Development’s fair-market rents, or the amount of spending at the 40th percentile in an area — i.e., slightly below median — to cover rent and utilities. EPI’s food-cost estimate is based on the Agriculture Department’s “low-cost” food plan. Child-care costs are for 4-year-olds and school-age children up to age 16. Healthcare costs refer to insurance premiums and out-of-pocket costs for families on the lowest-cost bronze plans on the Affordable Care Act marketplace.

MIT’s living-wage calculator uses similar measures. There are many places in the U.S. where a $100,000 salary is only enough to cover expenses, and where families would still be giving something up, said Amy Glasmeier, a professor at MIT and chief scientific adviser for the living-wage calculator. Across the board, basic needs — housing, medical costs, groceries and transportation — have gotten more expensive, she said.

“It begins to mount up, and it means that people are forced to make compromises that they probably wouldn’t expect if they were only looking at one item that was experiencing inflation,” Glasmeier said.

To cover living expenses and also “be able to have your kids in sports, the stuff that we think in America represents a middle-class lifestyle … [is] simply more expensive than that,” she said. “The precarity that people feel isn’t just the result of looking at their paycheck,” she added. It’s also the fact that when people are only able to cover day-to-day expenses, they have a harder time building up a cushion to account for the unexpected.

In EPI’s data, the five metropolitan areas with the biggest shortfall between income and expenses for a family with two adults and two children were New York City; Miami; McAllen, Texas; Bakersfield, Calif.; and Los Angeles. These places generally had a high cost of living (New York and Los Angeles) or low median income (McAllen) compared with the U.S. average.

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The five metropolitan areas where basic costs were the most affordable based on the local income were the Washington, D.C., area; Austin, Texas; Raleigh, N.C.; Baltimore; and San Jose, Calif. These areas didn’t have a particularly low cost of living, but they did have higher-than-average incomes.

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Getting to the middle class

To build in financial security on top of EPI’s cost-of-living estimate, a popular rule of thumb is to set aside 10% to 15% of pretax income for retirement. This alone would add roughly $10,000 to $15,000 in expenses, based on a household’s median expenses. (Some analyses have argued that setting aside this amount may not be enough for a person to stop working in their 60s, depending on what 10% to 15% translates to in dollars as well as on the age at which they start saving for retirement.) Saving for other financial goals could add thousands more per year.

Using the popular budgeting recommendation to spend 50% of income on necessities, 30% on wants and 20% on savings, also called the 50/30/20 rule, SmartAsset concluded that families with two adults and two children in large U.S. cities would need to make an average income of about $235,000. If a family requires $117,500 to cover basic needs (50%), this budget would — rather generously — include $70,500 for wants (30%) and $47,000 for savings (20%).

A spokesperson for SmartAsset said its estimates are based on pretax salary, making them higher than if the 50/30/20 rule were applied to take-home income, as is the standard. If this were recalculated using estimates from the Organization for Economic Cooperation and Development that the average married worker with two children in the U.S. took home 86.7% of their gross wages after taxes and Social Security contributions, a family of four would budget about $101,900 after taxes for needs (50%), $61,100 for wants (30%) and $40,700 for savings (20%), bringing the total to $219,300, according to calculations by MarketWatch.

It’s debatable whether these numbers — which exceed the earnings of about 90% of American households — or this budgeting plan are relevant to most people. Yet they offer a glimpse into the cost of a life of comfort, ease and abundance that the vast majority of families will never experience and that remains reserved for a sliver of the U.S. population.

The most flexible part of the 50/30/20 budget is the large amount set aside for “wants.” Plenty of families can limit their wants to less than 30% of their income, said Jonathan Swanburg, president of the Houston-based firm TSA Wealth Management.

The amount a family needs for savings — or financial security — is also flexible, but less so than for “wants,” as personal savings have become a substitute for a strong social safety net.

Let’s start with a rainy-day account: If a family spending $117,500 annually aimed to set aside three to six months’ worth of expenses in an emergency fund in case of unemployment or any other unexpected event, it would need to gradually put aside about $25,000 to $50,000.

As for retirement: If this couple set aside 10% of pretax income for their retirement, they would be saving a total of $23,500 per year, a commendable amount but one that is still well below the annual 401(k) contribution limit of $23,000 per person.

If the family wanted to save to buy a house, they would be looking at a median down payment of $51,250, according to the real-estate data company Attom. In many markets, prospective buyers would need to save much more: The median down payment was as high as $210,000 in Hawaii, $141,000 in California, $101,000 in Massachusetts and $100,000 in Washington.

If the parents wanted to pay one-third of the college expenses for their two children, as recommended by some college-savings plans, that would mean putting away another $7,200 each year, assuming the kids would attend an in-state public college.

For middle-income families, even if these goals are doable, they’re not easy to achieve. Financial pressures stemming from unaffordable housing and education, inadequate safety nets for healthcare, unemployment and retirement, and years of economic volatility and rising consumer prices have left many Americans feeling financially insecure.

There is no “pure, individual solution for these things,” said Alissa Quart, the author of “Bootstrapped: Liberating Ourselves from the American Dream” and executive director of the Economic Hardship Reporting Project. Rather, it’s important to strengthen workers’ influence through unions and to “vote for politicians who understand what it means to struggle” and who can implement systemic changes to tax policy and funding for expenses like healthcare and education, she said.

“People need to not blame themselves when we feel caught in this way,” Quart said. “It actually helps you to realize that this is why you’re running in place.”

How are middle-income families actually doing?

A lingering sense of pessimism has defined the recovery from the COVID-19 pandemic, despite an improving U.S. economy and gains in household wealth.

In 2022, families generally had sufficient income to cover their required payments, but families of color in particular had “grown more pessimistic and uncertain about the current and future state of both their own finances and the economy,” according to the Federal Reserve’s most recent Survey of Household Economics and Decisionmaking. Overall, people’s “self-reported financial well-being fell sharply and was among the lowest observed since 2016.”

As the rate of inflation increased, the share of adults who said they could pay all their bills declined to levels last seen in 2018, although most people were getting by, with 86% of households that earn $50,000 to $99,999 and 94% of those that earn $100,000 or more saying that they were able to pay their bills in full.

Some higher earners, meanwhile, were hardly doing better. In a recent survey by Pymnts Intelligence, 48% of respondents earning more than $100,000 said they were living paycheck to paycheck, including 36% of those earning more than $200,000. The top reason for living paycheck to paycheck for those earning $100,000 to $200,000 was debt, while for those earning more than $200,000, it was financial support for relatives.

Even people who are making ends meet feel challenged by retirement and savings. Only 31% of nonretired respondents to the Fed survey thought their retirement savings were on track. Many of them weren’t wrong: Among people ages 30 to 44, 28% said they didn’t have any retirement savings; for people ages 45 to 59, the share was 19%; and for those 60 and older, it was 12%.

Facing these challenges will require middle-income families to carefully evaluate their priorities and what tradeoffs they are willing to make. “I know some people that make $1 million per year and are very financially nervous because they spend too much and will never be able to retire,” Swanburg said. “I know other people that make very little, but they are perfectly content to live modestly and could easily retire early if that is what they want to do.”

Earning more can make things easier, he said, but ultimately, “financial comfort is more a function of spending habits than it is of income.”

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