Photo from Unsplash
During the “Golden Age of Capitalism” — the post-WWII era spanning from 1950 to the 1970s — a six-figure salary became a symbol of the hard-won American dream. Anyone earning a $100,000 salary then would have been living like millionaires do today.
Despite multiple recessions and changing attitudes around money, most Americans still aspire to hit the $100,000 income benchmark. However, a convergence of economic and financial factors has fundamentally changed what it means to rake in a six-figure salary.
PYMNTS and LendingClub reported that 60% of U.S. millennials earning over $100,000 a year said they’re living paycheck to paycheck.1 Some of this might be explained by misguided money management, but that’s hardly the case for every six-figure earner.
Why six figures isn’t what it used to be
Earning a six-figure salary may still be a sign of status and success, but it comes up short in guaranteeing a comfortable lifestyle in many parts of the country.
A 2020 analysis by GOBankingRates questioned whether the American dream was still affordable in any state.2 Researchers tallied necessary living expenses — including housing, healthcare, education, childcare and food — plus discretionary expenses and a healthy 20% savings rate for a married couple with two children, a pet and a house. They found that it takes between about $108,000 annually (in Mississippi) and nearly $207,000 annually (in Hawaii) to achieve this version of the American dream.
So, what has changed? According to the experts, a whole lot. Here are a few reasons why a $100,000 salary doesn’t go as far as it used to.
Higher education is most often the ticket to a well-paying job. The typical college-educated worker earns $1 million more than a worker whose highest degree is a high school diploma according to the Brookings Institute.3 But the cost of earning a college degree has become increasingly unaffordable.
Today, Americans collectively owe more than $1.7 trillion in student loans, according to the Federal Reserve of St. Louis.4 That’s double the amount owed just a decade ago.
Most borrowers pay hundreds or thousands of dollars a month to their student loan providers. With a six-figure income, the less likely you are to qualify for lower payments or other relief.
The Bureau of Labor Statistics offers plenty of useful data on inflation rates over the years, including this Consumer Price Index inflation calculator. Play around with it and you’ll see that a modern family would need to earn over 50% more money in 2021 than they did in 2000 to keep pace with inflation.
Put another way, it would take $158,959 today to achieve the same kind of lifestyle that $100,000 afforded in 2000.
Unfortunately, wages haven’t kept up with inflation, and recurring costs — many of which families consider a necessity — like college tuition, childcare and healthcare have risen dramatically. Meanwhile, the only items to become markedly cheaper or remain the same price are discretionary, like toys, clothing and TVs.
Homeownership is a cornerstone of the American dream, but it’s harder than ever to get a foot in the door.
A six-figure income may still go quite far for those putting down roots in the South or the Midwest. But in large cities and coastal areas, the cost of real estate has escalated dramatically since the Great Recession. U.S. home values rose 18.4% from just September 2020 to 2021 thanks to a housing market boom brought on by the pandemic.
The median price of a home nationally was about $404,700 in the third quarter of 2021, according to the Federal Reserve Bank of St. Louis.5 In San Francisco, one of the most expensive large cities in the U.S., the median home sold for over $1.5 million, per Redfin.6 Higher home values also lead to higher property taxes.
But it’s not just ownership that’s eating into people’s salaries. Rents across the country were rising steadily before the pandemic and have taken a sharp turn upward since then.
According to a 2015 U.S. Department of Agriculture report,7 the cost of raising a child from birth to age 17 seven years ago had grown to a staggering $233,610 (now $261,473 when you factor in inflation). That figure includes shelter, education and daycare — items that have become significantly pricier over the past few decades.
Help in the form of college aid and subsidized daycare is often not an option for families who bring in six-figure incomes, making it harder for them to absorb such costs and still come out ahead. The current Child Tax Credit offers advanced cash payments only to couples making less than $200,000 and single parents making less than $100,000.
Raising a child is a huge expense, to be sure, but the true cost varies by family, geographic location and lifestyle.
Little else has eroded the buying power of a six-figure salary like the cost of healthcare. The amount individuals spend on healthcare in the U.S. nearly doubled from $2,574 in 2004 to $4,968 in 2018, adjusting for inflation, according to the Bureau of Labor Statistics.8
Overall, the change in price for healthcare services since 1983 has outpaced the total price increase for all goods and services. The BLS says that greater availability and quality of healthcare services and new technological innovations are responsible for the cost inflation.
The enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010, also known as Obamacare, underscored the notion that families with six-figure incomes should be able to cover their family’s healthcare, whatever the cost. The law disallows subsidies (except for the 2021 and 2022 coverage years) for families earning at least 400% of the Federal Poverty Limit, or around $104,800 for a family of four in 2021.
How to stretch a six-figure salary even further
It’s important to note that while a low six-figure salary might not go as far as it used to, it’s still much more than the U.S. household median income of $67,521.
If you’re feeling stretched on a six-figure income, here are some tips for making it work:
Live a frugal lifestyle. The key to making the most of a $100,000 (or higher) salary is spending less than you earn. Keep an eye on the three largest budget line items: housing, transportation and food. If you can manage to keep these costs lower than average, you should be able to free up more money for things you actually want to spend your money on.
Invest frequently. Investing in tax-advantaged accounts is one way to lower your tax liability now and prepare for retirement in the future. Utilizing a 401(k), IRA or self-employed retirement account usually means saving some of your income before you pay taxes on it, which helps if you’re creeping toward a higher tax bracket. In most cases, you’ll be locking up your funds until you retire, but also increasing the potential growth of your retirement account balance through compound earnings.
Work with a financial professional. One thing many rich people have in common? They consult experts to make the most of their wealth. If you’re angling to maximize your six-figure salary, find a financial professional you trust to help you strategize to meet your unique financial goals.
And that’s not all you can do to ensure a six-figure income actually helps you get ahead. Don’t feel like your earnings are enough? Consider changing jobs, consulting on the side or finally launching that side hustle you work on in your spare time. Struggling to get by in a high-cost area? Consider whether it makes sense to move to a new city or to the suburbs.
A six-figure salary is no longer a guarantee of financial success — and it hasn’t been for a while. With the cost of living in America rising still further, it’s time to be strategic about the money you bring in.
The bottom line
Managing your monthly spending and savings is just one part of your overall financial plan. You can take a few actions now to get yourself on the right track.
- Sign up for the Empower Financial Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all your accounts in one place, analyze your spending and plan for long-term financial goals.
- Consider talking to a financial professional for more detailed guidance on your retirement saving strategies.
Need help navigating your finances?
Our free money tools bring your accounts together in one place so you can monitor your investments and plan for your big financial goals.
1 PYMENTS, “Reality check: Paycheck to paycheck,” May 2021.
2 GOBankingRates, “The true cost of the American Dream in every state,” August 2020.
3 Brookings Institute, “Who owes all that student debt and who’d benefit if it were forgiven?” January 2020.
4 Board of Governors of the Federal Reserve System, “Student loans owned and securitized, Federal Reserve Bank of St. Louis,” August 2022.
5 U.S. Census Bureau and U.S. Department of Housing and Urban Development, “Median sales price of houses sold in the United States, Federal Reserve Bank of St. Louis,” August 2022.
6 Redfin, “San Francisco housing market trends,” July 2022.
7 U.S. Dept. of Agriculture, “The cost of raising a child,” February 18, 2020.
8 U.S. Bureau of Labor Statistics Consumer Expenditure Surveys, “How have healthcare expenditures changed?”, November 2020.
Author is not a client of Empower and is compensated as a freelance writer.
Original reporting by Holly Johnson. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.