So you’re wondering what income level is considered rich. After all, if everybody makes $1,000,000 a year, are you considered rich if you make only $500,000 a year? Probably not! In other words, rich is relative and also subjective.
When Obama was president, he considered single people making over $200,000 to be rich. He specifically called for raising taxes on singles making over $200,000 and couples making $250,000 every year he was in office.
At the end of 2012, there was a compromise in Congress for raising income taxes for individuals making $400,000 and married couples making $450,000 and above.
Why $400,000 + $400,000 doesn’t equal $800,000 before a married couple has to pay more taxes, I’m not sure. The government harkened back to its old days of believing one spouse should stay at home. Thankfully, the marriage penalty tax has all but been abolished.
Today, Joe Biden also believes anybody or any household making over $400,000 is rich. He has promised to raise taxes back to 39.7% from 37% for individuals making over $400,000 and married couples making over $450,000. W2 income-earners pay the most in taxes.
Therefore, if you are constantly stressed out making a lot of money, you might want to consider taking things down a notch. Making over $400,000 while working 80 hours a week is not considered rich. That makes you a time mendicant with minimal freedom to do what you want.
New Tax Changes Increase The Definition Of Rich
The Trump administration viewed individuals making $500,000 and married couples making $600,000 as rich. Those are the rough income thresholds that now pay the top federal marginal income tax rate of 37%.
Further, the estate tax threshold increased to $12.06 million per individual and $24.12 million per married couple for 2022. For 2023, the estate tax threshold increases to $12.92 million per individual and $25.84 million per married couple. That’s pretty rich!
Income Rich And Capital Rich
There are two aspects of monetary wealth we can focus on: Income and Capital. Some make a lot of income and are considered income rich. But they have only a little amount of capital since they are either starting off in their careers. Or they haven’t saved and invested an appropriate amount.
Thankfully, that’s not going to happen to you because you read Financial Samurai! You will follow my savings guide to ensure capital accumulation over the long run.
Meanwhile, there are those with a tremendous amount of Capital, with little income given. They may have inherited their wealth, won the lottery, landed a big settlement, and, therefore, have no income generating skills.
Capital-rich people may have also invested skillfully over the years, built great companies, or were incredibly disciplined in their savings. There are many different types of folks in the Capital-rich category. It’s not a bad place to be at all.
Ideally, to be rich, it’s best to have both high income and a large capital base. This is my goal, and therefore my goal for all of you as well. In this post, we’ll focus on the income side of the equation.
What Income Level Is Considered Rich?
Instead of just saying what I think, I’m going to share my thoughts on various income levels per person for populations living in coastal cities such as San Francisco, New York City, Los Angeles, Boston, and Washington DC and work out the answer.
The idea is to focus on the more expensive parts of America. If we do, we can translate the figures into living in other expensive countries in the world such as Paris, Hong Kong, London, Tokyo. Of course, if you move to much cheaper places, you’ll be considered that much wealthier.
Let’s look at what income level is considered rich.
Is Earning $50,000 Considered Rich?
Not at all. The median household income in 2022 is about $72,000. After contributing $10,000 to your tax-deferred 401(k), you are left with $60,000 in gross income to live. High inflation is eating away at the earnings power of all individuals.
With an effective tax rate of about 15%, you have about $51,000 left after taxes. $51,000 is enough to live a middle-class lifestyle. However, you’ll probably want to find a partner who makes at least $25,000 a year to be comfortable with a family.
Is Earning $100,000 Considered Rich?
Earning $100,000 is not considered rich either. You are considered middle class to lower middle class in expensive coastal cities. $100,000 is considered upper middle class in lower cost areas of the country.
After contributing $19,000 to your tax-exempt 401k, you are left with $81,000 a year in gross income, and ~$60,750 net income based on a 25% total effective tax rate. The income limit where you can no longer contribute to an IRA is $73,000. It’s too bad the government puts income caps on certain retirement programs given everyone should improve their finances.
Earning $100,000 a year is definitely not considered rich. Only if you are under the age of 25 and live in the MidWest would earning $100,000 be considered well-off.
Is Earning $200,000 A Year Considered Rich?
At $200,000 a year, you are considered upper middle class in expensive coastal cities and rich in lower cost areas of the country. After $19,000 in retirement contributions to your 401(k), you are left with $181,000 in gross income, leaving you with roughly $126,700 in after tax income using a 30% effective tax rate.
By the time you are making $200,000 in your career, you’re probably in your 30s or older and have a mortgage and kids to consider. Preschool may run $10,000-$25,000 a year, followed by $30,000-$40,000 in annual housing costs for a reasonable home. You’re left with $20,000-$40,000 to spend on food, travel, groceries, gifts, lessons, and so forth. Not bad.
Here’s a sample $200,000 household budget. It comes from my post: How To Make Six Figures And Still Not Feel Rich. The money goes quick!
Is Earning $350,000 A Year Considered Rich?
At $350,000 a year, you’re living a upper middle class lifestyle in an expensive coastal city. In a heartland or southern city, earning $350,000 a year is considered rich. After $19,000 in 401(k) retirement contributions, you’re left with $331,000 in gross income, or roughly $231,700 in after tax income using a 30% effective tax rate.
With a 30% after-tax savings rate, you guys have $157,000 left to spend. Your family has grown to four, and you seek a bigger home. An average 3 bedroom, 2.5 bath home in a good area in San Francisco will run you about $1,500,000 to $1,700,000. We’re not talking anything super fancy at 1,800-2,800 square feet. Your mortgage at 3.5% on $1.1 million will therefore cost around $60,000 a year + $15,000 a year in property taxes.
Below is a detailed budget I’ve put together for a family of four earning $350,000 living in an expensive metropolitan area. Both parents work, so they get to contribute double the amount to their 401(k) while also now earning $4,000 worth of child tax credits. The family is comfortable, but not rich.
Personally, our family is shooting to consistently generate over $300,000 a year in passive investment income so we can be stay at home parents. We fell $300,000 is enough to provide my family of four a pleasant lifestyle.
How About Earning $500,000+? Does Half A Million Dollars Feel Rich?
With a $500,000+ income, you are considered rich, wherever you live! According to the IRS, any household who makes over $500,000 a year in 2022 is considered a top 1% income earner. Of course, some parts of the country require a higher income level to be in the top 1% income, e.g. Connecticut at $580,000.
With $479,500 in gross income after contributing the current $20,500 maximum to your 401(k), you have about $300,000 in after tax income (effective at 34%, which includes 10% state). That’s right, you are paying around $183,000 in taxes alone, yet the government still wants to take more from you!
For reference, here are the 2023 retirement plan contribution limits.
Undeterred, you crank up your savings to 35%, and put away another $105,000, leaving you with $195,000. Subtract $70,000 for annual mortgage/property tax leaves you with $125,00. Then subtract another $40,000 in tuition for two.
With around $7,000 a month in money available for travel, food, entertainment, goods, gifts, you are sitting pretty, especially since you are putting away away $122,000 a year in savings. That said, there are couples still struggling to get by on $500,000 a year!
Rich Income Levels By Age
Another way to know if you are considered rich is if you earn the top one percent income level for your age. After all, it’s not fair to compare a 25-year-old’s income to a 45-year-old’s income.
Below is a great chart that shows the top income by age based on 2015 numbers. The income numbers are roughly 15% higher today.
For example, if you make at least $116,000 at age 25, you are considered rich. If you make at least $173,000 at age 30, you re considered rich. At age 35, if you make at least $291,000 you are considered rich. And if you make at least $388,000 a year at age 40, you are also considered rich.
The Alternative Way To Know You Are Rich
The debate about what income level is considered rich is endless. The income level really depends on your cost of living and your desires. Therefore, here’s another definition for when you considered yourself rich.
If you don’t have to work for a living, you are also considered rich! To be financially independent, you just need to have enough investment income to cover your desired daily living expenses.
If you are super frugal, then becoming rich is much easier. You’re rich if your living expenses are only $24,000 a year but your investments generate $25,000 a year after taxes. However, there is obviously a balance where you don’t want to be so frugal that you’re miserable.
I left full-time work in 2012 at the age of 34. Even though I went from a multiple six-figure salary to $0 active income, I felt incredibly rich because I was 100% in control of my time. I had about $80,000 a year in passive investment income that could provide a simple life for my wife and me in San Francisco.
For five years, we lived a care-free life and traveled the world. Then in 2017, we were blessed with a baby boy. The desire to earn more money took a jump higher. We needed to make enough so that both my wife and I could continue taking care of our boy full-time before he goes off to kindergarten in 2022.
Build Passive Income To Be Rich
At the end of 2019 we were also blessed with a baby girl. Therefore, we’ve been 100% focused on building more passive income. Our ultimate goal is to regularly earn over $300,000 in passive income consistently every year to provide for a family of four.
Below is our latest non-401(k) retirement portfolio income streams. Although $300,000 only provides for a middle-class lifestyle in expensive San Francisco, we feel very rich because we have time freedom. We disliked commuting and sitting in meetings all day. It is a blessing to be full-time parents.
Here is our latest estimated passive income breakdown.
Favorite Passive Income Investment
My favorite passive income source right now is real estate crowdfunding. To simplify life, we sold an expensive SF rental property for 30X annual gross rent and a 2.5% cap rate, and reinvested $550,000 of the proceeds into real estate crowdfunding across the heartland of America in 2017.
Now we don’t have to deal with maintenance and tenant hassles, while earning a much higher cap rate. If you’re interested in diversifying into real estate, check out Fundrise for free. It is my favorite real estate crowdfunding platform if you want a diversified, low volatility portfolio portfolio. For most investors, investing in a eREIT to earn income 100% passively makes the most sense.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income.
The Rich Person’s Game Plan
If you want to get rich, here is the game plan I would follow.
Depend on yourself.
Earning a high level of income is a choice, no matter what the naysayers tell you. It is up to each of us to further our education to develop a skill-set that enables us to earn more.
It is up to us to work longer than our peers, so that after two more hours of work a day, we’ll have made over 600 more hours of progress a year. Don’t you think you could develop something amazing with 600 hours of time? You know you can.
Get a mentor.
If you want to learn how to become wealthy, learn from someone who is already wealthy, not someone who tells you how to get wealthy without being wealthy. Those folks are charlatans, and some do it very well, which is why they are wealthy.
Instead, seek out a mentor and do everything possible to ingratiate yourself into their circle. Successful people want to give back. It’s the way they are hardwired. Your mentor can tell you what income level is considered rich and give you great guidance.
Remove disabling beliefs from your mind.
Wherever you go, there you are. You mind is either like a power plant of positivity, or a cesspool of negativity. You must believe in yourself, otherwise nobody else will.
I am so internet/computer illiterate that I thought there was no way I could start a website, until one day in 2009 I said ,”f*ck it” and got it done. I’m only slightly more literate than a doorknob now, but at least things are running and I can just do this full-time if so desired.
Go the traditional route.
Earning six figures and saving millions of dollars is straightforward. It just takes time. When you are incredibly rash, you do stupid things and screw up your financial goals. Save and invest even 10% of your income over 30 years and you will likely have more money than you will ever need.
Be your own boss.
Time and time again, you stumble across stupid things that turn out to be big hits. Twitter, for example, was one cockamamie idea that has revolutionized the way we communicate. Airbnb is another idea that has helped lower costs in the hospitality industry.
Everybody should at least own their brand online by starting a website. I started FinancialSamurai.com in 2009, and by 2012, I was making enough to live a good life in expensive San Francisco. Now, I never have to go back to work again! Not a day goes by where I’m not thankful for starting this site.
Find an amazing partner.
Let’s be frank. Life is much better if you can find a loving partner to share not only your experiences, but your expenses. Your loving partner will also be your greatest champion, pushing you ahead during difficult times. If you’ve haven’t found someone yet, it’s absolutely worth spending more time finding a life partner.
I found my amazing partner in college. I knew she was the one when she woke up at 5 am to make sure I’d get up by 5:30 am to make it to my first interview at 6 am on Wall Street!
Shoot For A Net Worth Target
Now that you know what income level is considered rich, it’s time to focus on building your net worth. After all, it’s not so much how much you make, but how much you keep. To be truly rich, you should aim for a net worth equal to 20X your average annual gross income or more.
You can also shoot for 25X your annual expenses, but I’ve found many people cheat using expenses as a variable. As a shortcut, people will just severely restrict their spending to try to get to 25X.
By focusing on 20X income, you force yourself to continue saving and investing more the more you make. I know too many people with big incomes who spend everything they make. As a result, their net worth is below average.
Income is great, but it is taxed the most aggressively. Therefore, it’s also a good idea to ultimately focus on building a large net worth to be considered rich. Once you have a large amount of capital, focus on capital preservation. The last thing you want to do is lose a lot of money in a bear market, which ultimately takes away your freedom!
Here are the net worth thresholds to be considered rich by city. Overall, a net worth of at least $1.2 million is required to be considered rich in America today. Although, the net worth amounts are much larger in more expensive cities.
Track Your Net Worth Like A Hawk
I hope this post has answered what income level is considered rich. Choose the income you believe to be ideal, and go for it.
In the meantime, sign up for Personal Capital. It is the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to track your spending and manage your net worth. You can also make sure you are not paying excessive investment portfolio fees with their award-winning Investment Checkup tool.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely check to see how your finances are shaping up as it’s free.
There is no rewind button in life. Therefore, you might as well do the best you can now to make sure your finances are in good shape.
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What Income Level Is Considered Rich was originally published back in 2012. It has been updated post pandemic. It now takes over $500,000 to be a top 1% income earner. If you disagree with what income level is considered rich, at least you can try to feel rich.
To subscribe to my free newsletter, join 55,000+ others and click here. I’ve been writing about achieving financial independence since 2009. In the newsletter, you learn a lot more nuanced personal finance tips as well. What Income Is Considered Rich is a Financial Samurai original post. Thanks to inflation, what is considered rich keeps on going up!