In Why People Who Openly Declare They Are Rich Should Pay More For Everything, a friendly reader mentioned she did not believe a 26 year old making $250,000 a year was a big deal. I responded that telling everyone you make $250,000 as a 26 year old puts him in the top 1%.
Then she replied, “$250k is not in the top 1% even in 2011, according to CNN Money. I have seen numbers as high as $585k to qualify. I am unsure why his age has anything to do with him being in the top 1% or 5% at that?”
Instead of citing CNN Money, there’s an authoritative article highlighting how much the top income earners make by percentage right here on Financial Samurai. It takes time to work your way up to higher income amounts. If you are making $250,000 as a 50 year old while supporting four kids and a spouse in Manhattan, then $250,000 is no big deal. But to make the same amount at 26 is killing it!
The Top 1% Income Levels By Age Group
Hopefully everybody agrees that everything is relative in finance. If everybody makes a million dollars a year, making a million dollars a year won’t be anything special anymore. $3 million is the new $1 million due to inflation.
Let me share a chart to highlight my point.
Source: Professors Faith Guvenen, Greg Kaplan, Jae Song 2014 (https://fguvenendotcom.files.wordpress.com/2014/04/gks_top_earners_2014_wpsep2014.pdf)
Let’s Discuss The Age Groups
Ages 27 – 31: You are in the top 1% if you make roughly $170,000. You are in the top 0.1% if you make roughly $300,000. Airbnb’s Haseeb Q told the world he makes $250,000 a year, therefore, he is definitely in the top 1%, especially since he’s only 26. Case closed.
Ages 32 – 36: You are in the top 1% if you make roughly $210,000. You are in the top 0.1% if you make roughly $570,000. We are now in the ideal income zone of $200,000 – $250,000 a year per person where maximum happiness is achieved and increases no further the more you make.
Ages 37 – 41: You are in the top 1% if you make roughly $260,000. You are in the top 0.1% if you make roughly $820,000. I’m a little surprised that making only $260,000 at this age puts you in the top 1%. Given the median age in the US is around 34-36 and the median income for the top 1% for all income levels is around $380,000.
Ages 42 – 46: You are in the top 1% if you make roughly $320,000. You are in the top 0.1% if you make roughly $1.1M. This age group finally breaks the $1M income barrier. Nobody is going to deny someone making over $1M a year is rich.
Ages 47 – 51: You are in the top 1% if you make roughly $360,000. You are in the top 0.1% if you make roughly $1.5M. $360,000 is a level which makes the most sense as a top 1% income earner based on IRS data and multiple media reports.
Ages 52 – 58: You are in the top 1% if you make roughly $350,000. You are in the top 0.1% if you make roughly $1.4M. Finally! The income levels are going down because people are finally living life a little more and not so focused on making more and more money.
All these income figures are great if you can get it. The key is to keep and grow what you’ve made!
Learning Points
1) The difference between the top 1% and the top 0.1% in terms of income is huge. When society rages at the top 1%, it should really be raging at the top 0.1% who likely pay a lower effective tax rate because they aren’t W2 wage slaves e.g. Warren Buffett. Their income is a combination of investment income, long term stock grants, and business income.
2) Even if you make a top 1% income of $260,000 between the ages of 37 – 41, you probably have dependents. And if you live in an expensive city with dependents, then you probably don’t feel rich. You may be comfortable, but retirement probably feels like a long ways away. See: How To Make $200,000 A Year And Still Not Feel Rich
3) Location matters. Earning $210,000 as a 35 year old in San Francisco might really be like earning a top 0.1% income if you live in Topeka. This is why the federal income tax system should be adjusted for cost of living. Three zones with different tax brackets will do: low, medium, high.
4) Getting an MBA from a top school will probably launch you into the top 1% fairly quickly. The median pay packages for 29 yo MBAs in finance, consulting, and tech range anywhere from $120,000 – $150,000. Add on stock grants and you’re close to $200,000, if not over. Settle down with another MBA alumni who makes a similar amount and now you guys have a total comp of between $300,000 – $400,000. Who you spend your life with matters.
5) As an experienced employee and entrepreneur, I believe achieving a top 1% income of $360,000 as an entrepreneur feels easier and probably is easier than as an employee. Both are undoubtedly hard to do, but as an entrepreneur you don’t have a visible cap. There is nobody or compensation structure standing in your way. See: Income Profiles Of Financially Free People
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Everything Is Relative In Finance
Below is aggregate taxpayer data I compiled from the IRS that shows the income splits for top 1%, top 5%, top 10%, top 25%, and top 50% income earners. It’s a good cross check to the data compiled by Professors Faith Guvenen, Greg Kaplan, and Jae Song above.
My strong belief is that everybody here can make top 10% income ($113,799) if you build multiple income streams, save aggressively, and invest wisely. If you can build a side business and stick with it for a long enough period of time while doing everything else, then a top 1% income might just be inevitable!
The older you get, the more society will allow you to “deserve” what you make and accumulate. Therefore, if you have some strange desire to tell everybody how much you really make if you are doing well at a younger age, use the above charts as a barometer to make sure you aren’t clueless. Making yourself a target is a donkey move if you aren’t already financially independent.
High income earning people who prodigiously accumulate wealth demonstrate a fanatic habit of tracking their net worth and spending habits. They develop a 6th sense of what to do with their money. And what’s great is that everybody can develop good financial habits as well. There is no monopoly on being wealthier!
Track your income and savings. It’s not what you make, it’s what you keep that counts!
Updated for 2018 and beyond. The bull market continues and the rich are getting richer. Make sure you do everything you can to maximize your wealth before the bad times return.
I expected the numbers to be higher, to be honest. And we’re not looking at taxable income or AGI. According to the referenced article, it’s “wages and salaries, bonuses, and exercised stock options as reported on the W-2 form (Box 1).” I think most newspaper articles I’ve read in recent years use tax return info, taking deductions into account and report AGI, but come up with somewhat higher numbers for the 1% than the graph displayed here.
Entrepreneurs are more likely to outperform employees, but also more likely to underperform. Employees make up the bulk in the middle of the bell curve.
It’s less true in medicine, where employed physicians can do quite well, but the only shot at 0.1% in medicine is to be independent and have multiple revenue streams. Ownership in surgery centers, lab and radiology facilities, head of a large staffing company, etc… but again, with those comes more risk and an increased chance of getting in over your head and losing it all. I’ve known physicians who have filed for bankrupty.
I’ve made over $1,000,000/year pre-tax since I was 21 years old. However, when you are young, paying a lot of money in tax, and haven’t had many years to accumulate much money, you don’t feel rich. You feel like you earn a lot of money but are not rich.
I now have a after tax net worth of ~$4,000,000 excluding the value of my company.
When you look at income and net worth percentiles, I am doing very well by income. I am in the top .1% of income earners in the US. However, to be in the top .1% by wealth, you need a net worth of ~$30,000,000.
It makes me wonder how most people get there if the top .1% by income are only making around $1.5m/year pre-tax. With a post-tax income of 900k, you’d have to keep that high of an income for 30 years while spending no money.
John, please share with us what you did at 21 to make $1.5M. When I was 21, I was still sleeping in and skipping my 8am college classes. But at least I was having the time of my life!
Yeah….I want to know also. How long did that streak continue? What industry are you in? Wow!
When I was 18, I started a software company that sold consumer products. Continued growing it through college. During my junior year, it was making $80k/month net. I left college between my junior and senior year since school was taking so much time. Kept growing the business after. I just turned 24 a few weeks ago. Last year, my business did around $2.2m net.
Right now, if I pursue a couple opportunities, the business should make between $4-$5m this year. If I don’t pursue, it will make the same amount as last year.
However, there is a disadvantage to having made so much money so quickly. I’ve started to lose motivation to work. I used to want to work because I had no money or was worried that my business would die out. Now, I am now generating enough cash flow just from investments to cover my lifestyle. Then, in my business, everything is automated so I will make money even when I don’t work. No one else my age has the amount of free time or money that I do and I wind up spending a good amount of time alone.
Unfortunately, it’s true what they say: “It’s lonely at the top”.
But that’s a good problem to have, congrats!
You can now focus on making a difference instead of making money. You will find your next passion soon. In the mean time, enjoy the down time….Nothing lasts forever.
You should consider building it to that level and selling it. You could get to that $30 million mark. As for friends that will be a tough one, maybe Sam can advise.
That is quite the accomplishment at such a young age, and emphasizes the notion of having a goal or outcome that is tied to something bigger than oneself so that yearning and hunger stays alive. If the passion is building via entrepreneurship, there are plenty of problems in our world and sure one will come along that reignites the fire.
Congratulations on achieving a successful business and FIRE at such a young age! It is very admirable and inspiring.
Whatever you do enjoy your free time, even if it’s nothing more than watching grass grow which has got to be better than spending 40hours (don’t kick me, there’s just no overtime at the moment! and we can’t work for free using company assets without being able to bill the client.) with politicians, backstabbers and zero friends at work.
It’s your reward (yes it is!) for achieving everything you have.
Great accomplishment. Consider making a higher goal for yourself that will motivate you. Also, consider giving a large portion of your earnings to charity. Why? this is a great thing to do, can get you talking with like-minded people who share a similar passion, will limit your spending automatically, and may also motivate you to work more, so you can make more, so you can give more. Think about it! This is one of the drawbacks to making money quickly as opposed to slowly over time.
Great job! I highly recommend, if you have time since things seem to be automated, that you setup a parallel effort for yourself to invest in commercial real estate (multifamily residential or office, etc). You can get relatively stable 6-7% returns on $1m+ which if minimally leveraged (no more than 50% LTV), can get you almost 9-10% IRR over several years. Do NOT manage these, obviously, manage the manager.
This will allow you a base passive cash flow for the rest of your life. Once you have enough passive cash flow to cover your personal living expenses easily, it will be easier to grow your company, without worry of the downside – as long as you don’t take on any PGs on corporate debt.
I’m at a much lower range and I kind of feel that way. I’m 35 household of gross of around 500k and nw of 2 mil. Lack of motivation….
I am 35 and don’t make millions but 6 figures. I already find it hard to find like minded people who have time and money to spend. Most people just work a day job and don’t want to get out of their comfort zone. I’d love to meet people like you, it’s so inspirational.
John, can I work for you?!
This is why there is stealth wealth.
John, I guess they reinvest it aggressively to get to the 30 million earlier than within 30 years… Also pardon my ignorance, but what does “consumer products” encompass? Thanks !
Are these #’s household income or by individual? Typically it’s always HHI you see collected everywhere, so I’m skeptical if the data is really pure individual income rather than HHI.
Also, in the case of the AirBnB guy, he isn’t really making close to $250k a year, since his base salary is actually $130k. Un-vested stock options at a questionable valuation (since the company is not public) shouldn’t count towards real income / salary, and it’s not something he could use on a mortgage application, either. I wonder how much silicon valley incomes are over-inflated by including stock options as part of the package. If the company is already public, it’s more believable, but otherwise it’s an arbitrary value at best.
Do you believe Airbnb will not be able to go public and be worth more than $27B if/when it does? If so, why?
Airbnb is about as sure of a thing in my mind for a private company to go public than any other. I think his $95K RSUs will be worth more and be liquid by 2020.
We can lower people’s incomes all we want to make our incomes look relatively better. Or we can just get motivated to make more, regardless.
Airbnb is certainly the exception and a rare unicorn, not the norm or the rule. Regardless of potential valuation (and for every Airbnb we know there are 10 startups that did not make it..), RSU’s are not salary and have a vesting schedule and a certain amount of risk to them. The article about this guy has been over-hyped, because the “$250k” figure is being thrown around to get media attention. However, his $130k actual salary is average if not below average in the valley, and many other engineers his age are making that in the area or even other cities in the U.S.
I think the numbers and his story paints a rosier picture than is really true. Not to mention the issues with housing in the valley and how that $250k is effectively the floor to be able to buy a decent property in the area. He’s going to need all the RSU’s he can get for a down payment one day.
Question: If you think his salary and total comp package is average to below average, how to do you rectify then saying his story paints a rosier picture than is really true?
Which is it?
I know MANY Google, Apple, and FB employees who make $200,000+ his age.
I agree with John that options/RSUs should not be counted as income until the company go public and are fully vested. During the tech bubble, I went from an almost paper millionaire to nothing. Most of my options were not vested when the bubble bust. There are too many unknown variables. Even if Airbnb go pubic, he wouldn’t get much, if the stock market crashed before they are vested. He also could get laid off, fired or quit. who knows?
I agree for most employees at startups, do not bother accounting for any RSUs as income or part of your net worth.
Airbnb is a special case. If Airbnb can’t IPO, everything will be going to hell.
Assuming regulatory issues don’t kill them (unlikely but a chance), yes Airbnb is a sure thing assuming he isn’t fired. I’m not 100% certain it will be worth more in 2020 but probably is a 50% chance. The company is worth more than Marriott and Hilton right now. I put a 50% value on RSUs for my salary and 25% on options for public companies, even lower for private as most people will never fully vest all of them and options may, and frequently do, go underwater and you need to discount the value of money a few years from now to today. My last company, the value of the options I got over 4 years was 10% of the cost to the company and the RSUs were 40% less than grant value, on average. These are less of a concern in a bull market but right now..
My company was actually a publicly traded company during the tech bubble. I was just starting out after college and I think my company’s stock split two times during the first year I joined and then plunged.
These days i still don’t count my unvested options and RSUs when I calculate my net worth. Not even the the vested ones that haven’t been exercised. If they go underwater before I exercise, they are still worthless to me.
AirBnB will be great until UberBnB crushes them. :)
I think an important question on the $250k “salary” is will the option grants continue at the same level each year. Many companies offer sign on options that are much higher than yearly grants: $100k sign on but $25-50k/yr after. It may very well be $100k each year but that may not be the case.
It should, otherwise, he wouldn’t have said $250,000 as that would be embarrassing to them tell people next year about a big pay cut.
But the reality is, the first option/RSU grant is usually the largest. It will be cool to follow his journey!
I always choke on my tea a little bit when I read posts like this about numbers. Your point about everything being relative is so important. As a teacher, I know exactly when I’ll crack the 6 figure mark…and it’s no time soon. But relative to my career, my district pays well. I’m also afforded lots of other benefits that might not show up in my salary – but opportunities for time off, fantastic health/dental/vision, etc., all should be factored in. Most days, though, I stress out about how I should be making much, much more because I just look at numbers – not careers and other specifics. It’s true that lots of people do and will continue to out-earn me. But I try to keep focused on what I’m doing (and the fact that I find so much fulfillment from my job that I wouldn’t really want to do anything else). Plus, there’s always side hustling!
Exactly. If you have a very set wage increase schedule, then the only way to accelerate that is through side hustling and savvy investments. Good thing NOBODY can stop us from side hustling. And nobody can stop us from leveraging the internet to create the biggest, most scaleable, low cost side hustle of all!
I think reaching the top 1% numbers are easier as an employee. You will need to be at a decent sized company – $200 million and above, but it’s certainly within reason.
But unless you are in a very lucrative field (i.e., banking, consulting, specialty physician, partner at a big law or accounting firm) or you’re in the very upper levels of a large corporation, getting to the 0.1% numbers as an employee will be difficult.
But that said, my experience is based on an older generation. I’m not sure I see the same opportunities today for Millennials to progress rapidly within companies and as such, for that generation, their best chance of achieving the 1% level may very well be in an entrepreneurial role.
I think if you’re smart about your career path, make changes often to help your income grow you can get to the 1% at a decent pace. Yes, it is all relative. Sometimes just purely based upon the industry or profession you choose out of college can affect base income HUGELY.
These numbers look really low. Are they just W2 income, or do they also include passive income?
A 35yo year old who makes $210k in passive and active income doesn’t seem like a 1%’er to me. That means not being able to afford a median home in some of the largest US cities, but being wealthier than 99% of people your age.
Getting into the top 1% is a goal of mine (which I had thought was closer to $400k a year), but it looks like I already made it.
I had the same reaction. I read the article and concluded that being in the top 1% is a little overrated, although I say this tongue in cheek because I know life’s easier for me than it is for my close friend who is a teacher. If most of your income is still w-2 income, there is still plenty of struggle and budgeting required. I guess the truly wealthy are the top 1% by income and networth, or really the top .1%
This is great you think these top 1% numbers are low per age group. It means you are doing well for your age, and also perhaps a lot more people make a lot more money than people think.
You can still shoot for the overall top 1% income figure of $380,000 – $400,000 if you wish. Let me know how life is once you get there.
380-400k as a couple or person? We are 40 and it’s ok at about the low end of that figure when you add everything up but doesn’t kick ass in LA. Granted that includes 2 incomes and multiple rental properties but I think we are probably in the top 15-20% and have decent cars and
travel when we like but couldn’t afford a new house in Manhattan Beach or Beverly Hills unless we sold our rentals
Nice post. It’s beneficial for people to see how they compare to the highest earners and it can be very motivational.
I took a look at the results of the poll and was surprised to see more than 100 people voted that they made $2 million+ as an individual! You sure have attracted some high-earning readers, Sam. Would be nice for some of them to share what they do.
I’m pretty sure most are entrepreneurs or work in finance. I’m telling folks, if you want a chance to make BIG money, entrepreneurship is the way to go.
See: Bankers, Techies, Doctors: You’ll Never Get Rich Working For Someone Else
As noted in another comments, I found these figures confusing. Are we talking about AGI, taxable income, MAGi, W2 income, per capita or per household income, etc?
When people are asked how much they make, they usually refer to their gross income, but many of the statistics that can be found around refer to one of the above measures, so it is very hard to grasp where one stands.
Making it to top 1 as an employee can be challenge. Each corporate I worked for has a quite fixed pay schedule, depending on your level. Climbing the ladder is tied to yearly evaluation proceses. You need to be a high potential and have a good senior sponsor to move up fast and furious… And the higher you go, the less places there are.
As an entrepreneur there is no visible limit, when your business is not time vs money related.
I would agree. Owning your own business has a better chance of making $1m plus versus being an employee. I started a business 25 years ago and I worked my ass off but I’m making over 1 million…giving half to the government but I also feel good employing people.
Looking closer at the IRS table… I find it a bit comical that only 139 Million filing show as Positive AGI in a country that has over 400million residents… Thats not even half of the population paying taxes (Even if its married filing jointly, the number still seems lower than I expected)… Is that right or am I reading something wrong ?
A lot of them are either dependents, stay at home mom/parents, or retired
To be fair – only ~325 million people in the US, not 400m+
As Ariel J said, you have dependents, students, stay at home parents, retired and lazy.
To further blow your brain, 46% of the 139 million pay no federal income taxes, so 75 million people are paying all the federal taxes for 325 million Americans. Put another, only 1 in 4 contribute to running the federal government and only 4 in 10 contribute to running the federal government or retirement programs. And you wonder the country has drifted left in the last 100 years, that’s why.
I’ve seen the future of America, and it looks so bright.
a graduated tax rate based on where you live and what the cost of living is? isn’t that a highly regressive tax?
It would be regressive in high cost of living areas relative to today but progressive in low cost of living areas and net neutral overall. That being said, its hardly regressive by any stretch of the definition of the word when it comes to taxes with 46% paying nothing and the top 1% paying 40%.
Im shocked how low the thresholds are. This country is going down the tubea.
I’ll be honest – the results of your survey do not make me feel amazing about my current salary.
But I WILL say that this post makes me want to work smarter, hustle harder, and work my way up quickly in terms of earnings.
There are many aspects of income and it’s not as simple as the graph would indicate. There are HUGE differences in net income between someone that is employed and a business owner. Citing gross income, in my opinion, is a bit of puffery. A person making 1M with no deductions takes a 60% or greater hit after taxes. On the other hand, a business owner making the same 1M can use taxes to their advantage and keep the majority of that income. It’s what you keep that counts.
Next are expenses. I interpret the graph as the younger you are the less expenses you have and therefore the less money you need to attain the 1% or .1% level. Would the graph level out if across the age ranges if you were not married? Or had no children? Or had little debt? It takes a lot less net income to live like royalty with little debt or financial responsibilities.
Sam preaches the 250k limit but I think that should be qualified. Individuals that are employed should not exceed that income because taxes will kill you after that. For business owners that number is not relevant due to tax deductions. As for happiness? Sam is spot on. After you reach a certain amount more means little.
Wealth consists not in having great possessions, but in having few wants.
Agree. Michael, where are you on the work spectrum: employee or entrepreneur?
The joy of making much more than $250K a year as a W2 wage earner really drops off a cliff due to the taxes and more work and stress required to hit those figures.
I would say a $250K a year salary is equivalent to a $150K a year entrepreneurial salary for happiness.
Thanks for collecting the data, I am surprised that the gap between 1 and .1% is so high, I like your points when cost of living is factored in – hearing about salaries on the coasts always intrigues me.
170K for a 27-31 yr old would be an insane amount of money in Minnesota – You would be doing very well at 170K as a household with two income earners.
Here is a pretty interesting calculator that shows what you would need to make if you were to move to a new city/state.
If you lived off 100K in Minneapolis – this shows you would need about 129K in Los Angeles
Absolutely fantastic post. Comments demonstrate it should be required reading.
“I thought the numbers would be higher???”
Yeah no crap… Because upper .01% of .01% politicians are using “1%!!!” as a battle cry knowing full well its a lot safer to keep thr hordes focusing their rage on those who make slightly to moderately more than them, but are still “wage slaves”. That way the *actually* wealthy have a nice buffer.
People hate the guy next door with the new deck and BMW with a passion, but stare in awe and admiration at the whale in the chauffeur driven Bentley.
Thank you for this article. As an Accountant major who is also very interested in Finance as well, you clarify a bit more for me as far as the 1% and .01%. As a student with 2 jobs I tend to forget that individuals with higher incomes may not be just wage income earnings. You reminded me of the other forms of income (interest/investment) and I am making more sense of this progressive tax rate and effective tax rate. How it can be fair/unfair to some. Helps me to put it a bit more in perspective as a student. Thank you!
Sam, keep in mind that not all work their max, for example some only put in about 6 days of work per month still make well into 100K Remaining days are for travel, sports, and chasing tail. This is ultimate success in this world, most bang for the buck, haha…
These charts show the numbers how our peers do currently. “How much is 1% or 0.1% ” is something good to know. Celebrate a little if you are in it, work a little harder if you are not in it yet.
But in the end of day, how much you get to keep and how much of that is left to working for you are the key.
Have a small goal of figuring out a way to move from 28 percent tax bracket to 33 percent bracket, in next couple of years. This small goal amounts to figuring out a way to make another 25k to 35k a year. Don’t fear and complain about taxes all the time, embrace them. I still wouldnt be in top one percentage for age group but think im already in top 1 percent by demographic. Its about perspective sometimes.
I am 28, my wife is going to be 28 soon. As entrepreneurs we know we save almost or probably double than what a high earner makes. when an entrepreneur makes 250k a year through a business it would be safe to assume that (eg. a doctor) has to make probably more than 350 in order to make the same amount of money as an entrepreneur.
why? simple you can spend 6k to 10k a year in a car and it could be a company expense, orher extras gas, insurances repairs etc. You can technically add a lot of personal buys into a company card like short trips, food etc… you can go an meet propects and that spenditure goes through your company cc. and so on… those are things that a regular employee cant compare vs an entrepreneur.
Also, tax benefits that business owner have, that you can make a lot and only pay 20% tax overall.
i see a lot of blogs but, i cant find any that are truly from start to finish business owners. maybe because business owners dont want attention, and pay less taxes than they should? anyways, if anyone knows of good blogs that is from an entrepreneur perspective and not online based ,share please.
also, i may sell my business soon.
Thanks for putting it in this perspective Sam. Looking at these numbers, becoming a 1%-er doesn’t seem very far from where most people start in life. 1% is actually around 3.2Mill people. That’s a lot of millionaires. You could have an entire state(even a small country) only with millionaires.
I am nowhere in the top5% , but now i am taking steps to see i can move up the ladder.I do save money in good ratio.Lets see where we land up.
32-36 here, roughly $300k a year combined income as a software consultant in the D.C metro. I will say it’s easier to make this much as an employee if you work smart..for me anyway.
I have a software business that I started with my friend 7 years ago, but we were only able to make around $100k in combined sales such far and that’s with 10 times the work that I have invested into my day jobs. Did not work smart for sure.
“This is why the federal income tax system should be adjusted for cost of living.”
Lol wut? If one chooses to live in a high cost of living area, that is his/her prerogative, but other people who choose to forgo more “desirable” areas shouldn’t be penalized for it.