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 a seasoned financial analyst with a background in economic research and cost of living analysis, I can attest to the intricacies of the challenges highlighted in the article. My expertise spans evaluating income tax implications, understanding regional variations in the cost of living, and providing actionable financial advice for individuals navigating these complex economic landscapes.
The article discusses a pervasive issue: even individuals earning six-figure salaries are finding it challenging to maintain financial stability in the face of rising costs of living and inflation. This aligns with broader economic trends, and the evidence presented in the study conducted by SmartAsset sheds light on the struggle high earners face despite their substantial income.
The study's methodology involves a comprehensive analysis of income tax burdens at federal, state, and local levels on a $100,000 salary. It then adjusts this income for the cost of living in 76 major cities across the U.S., considering factors such as housing, groceries, utilities, transportation, and other goods and services. This meticulous approach reveals the real purchasing power that individuals have after accounting for taxes and living expenses.
The findings highlight the stark contrast in the financial landscape across different cities. For instance, after taxes and adjusting for the cost of living, $100,000 is significantly diminished in cities like New York, Honolulu, San Francisco, Washington D.C., and Long Beach/Los Angeles. On the other hand, the study identifies Memphis, El Paso, and Oklahoma City as cities where the same income goes much further due to lower living costs.
The article also touches upon the perception of a six-figure salary in the U.S. According to Zippia, 18% of individuals earn more than $100,000, and while 56% of Americans believe this income would make them rich, it is generally considered upper-middle class today. This discrepancy underscores the variation in income and living standards across different regions.
SmartAsset provides practical advice for individuals earning six figures, such as maximizing contributions to retirement accounts to reduce tax liabilities and carefully evaluating a city's cost of living before considering a move.
In summary, the article paints a comprehensive picture of the economic challenges faced by high earners in different cities, backed by evidence from reputable financial insight companies. It underscores the importance of strategic financial planning and the need for individuals to be aware of the broader economic context when making decisions about their finances and living arrangements.
