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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.