The middle class is the best social class in the world because nobody messes with the middle class. Politicians endlessly pander to the middle class in order to gain votes to stay in power. When you’re in the upper class, you become a target for hate groups who can’t stand success in the great USA. If you’re poor, well that just stinks.
But what about the mass affluent? You might have heard the term bounced around here and there on the TV, online, or on the radio. Surely including the words “mass” to signify a large population and “affluent” to signify wealth is an even better class than the middle class? As far as I can tell, the mass affluent are yet to be negatively targeted by hate groups.
In this post you’ll learn about the various financial definitions that aptly describe the mass affluent. Furthermore, we’ll discuss why being part of the mass affluent has its benefits.
WHAT IS CONSIDERED MASS AFFLUENT?
The main reason why the mass affluent is not assailed by hate groups is because the mass affluent is still a working class group. The mass affluent didn’t inherit their money, they earned it through hard work. The biggest gripe about the rich is the unfair advantages they use to get ahead.
When parents can buy their mediocre kid’s way into elite private universities and then use business hookups to land their privileged children high paying jobs, people get pissed off. I remember several of my classmates at Goldman Sachs who were there simply because their parents were GS Asset Management clients or senior government officials. There are thousands of bright students who never get a chance to get ahead because they either can’t afford to go to the best college possible, or lost out to more connected students.
When you’re earning a high six figure or seven figure salary and you’re paying a lower effective tax rate than someone making $50,000 a year, people will question how this is fair. It still amazes me that one can earn millions of dollars a year and still pay a 15% effective tax rate. But if you donate a lot to charity and make long term investments, you too, can get there. But let’s stop griping about the very rich. Let’s properly define the mass affluent.
Mass Affluent Definition By Income (Low Hurdle)
To be considered mass affluent by income, one must make at least 50% more than the median per capita GDP of your surrounding area. If you consider your surrounding area all of America, than you must earn at least $67,000 a year individually since the per capita GDP in America is currently around $45,000. The average household income is currently around $52,000, which means if you want to be considered a mass affluent household, then you must earn at least $76,000 a year.
In San Francisco, where I live, the median household income is roughly $73,000. I would therefore need to make at least $102,200 to be considered a mass affluent household. Do a quick search of your city’s per capita income or median household income and multiply by 1.5X to see your mass affluent income level.
Mass Affluent Definition By Investable Assets
The financial services industry, an industry in which I’m currently consulting for, defines mass affluent as an individual or household who has $100,000 to $1,000,000 in liquid assets to invest. That is a huge spread, but it is taking into consideration people of all ages and the opportunity for growth.
For example, Personal Capital focuses on clients who aggregate at least $100,000 in investable assets on their free financial Dashboard as potential wealth advisory clients. They have close to 500,000 registered Dashboard users and it would be very inefficient to call them all.
Goldman Sachs Asset Management, on the other hand, won’t even bother managing your money if you don’t have at least $5 million, and even that may not be enough. An acquaintance I know with $5 million could only have GSAM manage his money because his brother has over $25 million in assets with them.
The common cap is $1 million in liquid assets to invest as a definition because if you’ve got much more, then you’re obviously a millionaire and not part of the mass affluent crowd. Of course, a financial advisory firm would still love to manage your money when you growth your wealth far beyond $1 million. I’ve seen the range expand to $500,000 – $2 million thanks to the raging bull market.
Related: Who Are The Top 1% Income Earners?
Mass Affluent Definition By Net Worth
The median net worth depends on one’s age. Given the median age in America is around 36.8 years old, the median net worth is only around $40,000 per individual. Yes, the United States is largely illiterate when it comes to managing their personal finances due to a confluence of overspending and underinvesting. The median net worth per individual in Australia is roughly $200,000 in comparison. As you can see from the chart on the right, the highest median net worth reaches around $230,000 for the 65+ age group.
Based on the mass affluent definition by income and by investable assets, I believe a a net worth of between $500,000 – $5,000,000 in net worth should be considered mass affluent. It’s very hard to have investable assets of $100,000 – $1 million if you don’t have a net worth of $500,000 – $2,000,000, unless you are gutsy enough to invest your entire net worth in the markets. Based on a US Federal Reserve report entitled, “Wealth In The US,” the mass affluent divide their net worth in the following way:
Principal Residence – 23%
Investment Real Estate – 14%
Liquid Financial Assets – 22%
Pension And Employee Retirement Plans – 16%
Insurance And Annuities – 9%
Privately Held Business – 16%
In other words, the mass affluent are highly diversified. Only roughly 1/5th of their net worth is in liquid financial assets, which therefore buttresses my $500,000 – $5 million net worth estimate if we set $100,000 – $1 million in investable assets as mass affluent.
DESCRIBING THE MASS AFFLUENT
Now that I’ve highlighted the hard figures to define the mass affluent class, I’d like to verbally describe what mass affluent means to me.
The mass affluent built their wealth the old fashion way through hard work and diligent savings. The large majority of the mass affluent work for companies and participate in tax-advantageous retirement plans. The mass affluent have a diversified net worth consisting of at least a primary residence and a balanced portfolio of stocks and bonds. It is not uncommon for the mass affluent to also invest in alternative asset classes as well.
The mass affluent believe there’s a strong likelihood they will eventually become millionaires in their lifetimes. That said, they clearly feel the sting of ever rising college tuition and health care costs. They earn enough to afford tuition, but they earn too much for their children to receive need-based scholarships.
The mass affluent wish to leave an inheritance for their children or their loved ones. Because most mass affluent people still need to work for a living, it’s common for them to have six months or more in cash reserves. Most mass affluent people realize they will never be extremely wealthy. But they are satisfied with their opportunities for advancement.
Based on the financial metrics in this post, I believe everybody should strive to become part of the mass affluent crowd. There are 33 million mass affluent people in the United States according to the Federal Reserve. Making six figures or reaching the seven figure net worth milestone is achievable based on occupations that are available to the masses today.
RECOMMENDATIONS TO BUILD WEALTH
Manage Your Finances In One Place: The best way to become financially independent and join the mass affluent class is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They’ve also got an incredible Retirement Planning Calculator, which uses your real linked data to see how you’ll do in retirement. There is no better financial tool online for people serious about building wealth.
Mobilize Your Idle Cash Earning Nothing: Wealthfront is an excellent algorithmic advisory choice for those who want the lowest fees and can’t be bothered with actively managing their money themselves once they’ve gone through the discovery process. In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market. Wealthfront charges $0 in fees for the first $10,000 and only 0.25% for any money over $10,000. Their minimum is only $500 to get started. Invest your idle money cheaply, instead of letting it lose purchasing power due to inflation.
About the Author: Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $150,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
Updated for 2016 and beyond.