US household income breakdowns, article I found interesting

[bigdaddybus]

http://www.mybudget360.com/how-much-does-the-average-american-make-breaking-down-the-us-household-income-numbers/

I am not associated with the website linked, I just found this article and several others on the site very eye opening.

"The fact that only 34% make more than $65,000 is astounding given how expensive other cost of living items have gotten over the past decade. That is why the middle class is feeling squeezed from all different sides."


Here are some shocking graphs representing food stamp growth over the pay decade and it is astounding as well. I hear the numbers on the news and it sounds like alot, I guess I am just a visual person as the graphs really seem to sink in with me.

[Barclay]

This is mind-blowing to me. How in the world do people live on $68k a year. It's no wonder that people are 16k in credit card debt. How do you pay the bills??? I know there really aren't a lot of income taxes on that amount of income, but there is still sales and real estate taxes.

crazy.

[Blessed]

This is mind-blowing to me. How in the world do people live on $68k a year. It's no wonder that people are 16k in credit card debt. How do you pay the bills??? I know there really aren't a lot of income taxes on that amount of income, but there is still sales and real estate taxes.

crazy.

I think it depends on where one lives lives and the types of decisions one has made over the years. Hubby is the bread winner and we live great on $65,000 with no debt, a nice home and maxed out retirement funds and substantial savings. Our state is in the top 5 for real estate taxes but other than that the cost of living is good. Our biggest two expenses are taxes and food. One of the biggies for us when we were young was separating needs from wants and doing what made sense to us not what impressed others.

Your right on the taxes after hubby maxed out his 401k and we each do the IRA.

That is very interesting bigdaddybus.

[bigdaddybus]

I agree that where you live has a huge impact on your lifestyle.

I have family that live in the North Atlanta burbs, Boston, Orlando, Nashville, and Central Illinois (where I am) The cost of living and salaries for similar jobs vary tremendously by location. I could not stretch a dollar as far in most of those locations compared to what I can here (except maybe Nashville)

Where I live we are just starting to see an increase in armed robberies, theft, etc. Honestly, I'm surprised crime as a whole isnt higher right now in the US.

[MonkeyMama]

I don't know. We live in California and have done quite well on a traditionally lower than average household income (for the area). Living on $68k per year sounds might fine to me.

The thing is that anywhere there is probably some advantage to exploit. I was just commenting how college is so inexpensive in our state, so offsets somewhat the cost of housing. I am surprised after years of talking about retiring in cheaper areas, that both our parents have decided to retire in one of the most expensive cities in the U.S. Well, their homes are paid off and property taxes are extraordinarily low for them. SO, it makes sense. They no longer are paying for any of the high cost amenities in the region, really. (When they retire in to a nursing home will be another story - they might move at that point).

I've met several people in the cheaper city we live in now who say its impossible to survive on less than $120k per year. I suspect they pay a *lot* more taxes than we do, and have a lot more waste in their budget. A lot of entire second incomes get applied to taxes, daycare, and convenience purchases. I've had several conversations with these types who can't wrap their brain around our own finances. I tell them it's not apples to apples. I Am not literally living on half as much as them - because if I Was that would be absurd. I suspect our take-homes are probably similar (post tax, and considering our lack of work expenses and daycare expenses, plus they may be putting a heck of a lot more into their 401ks - let's be fair both ways), plus I have a spouse home whose full-time job is to eliminate waste from the budget. So in the short run we appear to fare much better. The long run remains to be seen, but we seem to hold our own and be well on track for retirement. When you are used to not making that much, you don't need near as much to live on. So as long as I am saving the same percentage of income, as someone saving well on much more income, its probably more than ample. Maybe on $68k you only need $680k to retire; on $120k maybe you need $1.2 mil to retire. Not real numbers, but just to illustrate a point.

It helps to not have any debt payments.

[Barclay]

That's a good point regarding how much people are saving. We have higher than average salaries (according to this, top 2%) and it's hard to fathom less because I know how much we pay in taxes....it's a lot more than the average salary. We also have to put $35k in our 401k's just for the tax advantages. We also save another $40k or so in backdoor Roths and other investments for retirement. People don't save that much for retirement on lower salaries. So, just retirement and taxes alone, forces our expendable income down pretty far and makes our household incomes much closer to that $68k.

[MonkeyMama]

Barclay - On a very simple level, my dad told me as he neared retirement that he saved 1/3 to retirement, 1/3 to to taxes, and lived on 1/3 of his income. Maybe more along the lines of your experience??? (I am a tax accountant so am WELL AWARE of the taxes).

If 10% of my income goes to taxes (mostly social security) and 30% goes to savings (what we personally strive for), then we are living on 60% of our own income. Which might be living off the same disposable income as someone like my dad (who last made about 50% more than I do). He will have a lot more in retirement, yes, as maybe our basic financial needs are on the same plane. But, I would hope you would have some advantage with a bigger income.

[Barclay]

I think that's probably pretty close...the 1/3 rule I guess.

I doubt that people with lower salaries are saving 1/3 of their income for retirement. They are probably living on closer to 85% of their income and saving about 5% for retirement. A lower percentage of their income is also going towards taxes so maybe 10% to taxes.

[Barclay]

Also, some of the expenses for lower income families are quite a bit lower. Take for instance, college tuition. I have a daughter in college (actually, I have twins but one got a full ride). My best friend's daughter goes to the same college as my daughter, a local state university. She is a SAHM and her husband makes a modest salary. Let's break down our expenses.

Tuition and books $10,000. My out of pocket expense $10,000.

Her daughter got a pell grant that is basically free money. It does not have to be paid back. The amount was $2600 PER year. So, every year the govt just gives her 2600 bucks towards her college. She also qualifies for $2500 in tuition tax credits. We don't qualify for any of that. The government did send us a letter that my daughter could get an unsubsidized loan for about $7500 or something close to that. I can't remember, I just tossed it in the trash.

At the end of the day, her daughter's college is only $4,900.

So our disposable incomes are getting much closer.....

[Joan.of.the.Arch]

Barclay, I went to the IRS site to see what $2500 tax credit exists. I see that it is an expansion on the Hope Credits program, created throught the American Recovery and Reinvestment Act. With two kids in college, you are probably keeping up with these things, but some people of fairly high income may be eligible for the tuition tax credits. Per the IRS,

The American Opportunity Tax Credit modifies the existing Hope Credit. The AOTC makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

http://www.irs.gov/uac/American-Opportunity-Tax-Credit

I also want to mention that what you choose to spend on your children's tuition IS from disposable income as most people understand the term.

As regards savings at lower incomes, my own situation is that in the last several years before retirement, we were putting 13% into a pension fund (this is NOT counting the employer contribution) then we were putting an additional 15% into 403-B, plus taxable savings. So a total of 28% was going to savings. Our income has usually been close to the median national income, though in our highest years it was about $63,000. Now, we have less than the median reported in the 360blog. Actually even out of our pension income we are still saving 14%, but some of it will no longer be long term savings, but will be used for things like replacing major appliances as they break down.

If you are curious as to how we do it, stick around and keep reading here. There is plenty said about nitty gritty ways to save pennies. Yes, pennies because at much lower incomes you have to do that.

Oh, and do you know that some people, low ncome or not pay 10% in sales taxes alone? I know my family in Tennessee does. I'm not sure if they have ever exempted food and medicine from that amount of tax either. When I lived there, the sales tax applied to everything.

Where I live we pay about 8% on non-food items, about 6% on food, 1% city income tax, 6% state income, a real estate tax that I think is just shy of average, and of course all the car related state and local fees and taxes. Oops, there is a personal property tax as well. Everyone pays the same for water as there are no meters. I consider us fortunate to have had federal income tax of about 8.2% in our highest year.

I kind of thought, Barclay, that you were thinking your top 2% income is not really effectively very different from that of a family which qualifies for Pell grants. I think it would be quite different.

People at $68K of income can live well and save if all goes well (health, ability to find stable or consistent work, no legal troubles, etc) and they have control over themselves. We've been able to do it on less, and doubtless others have as well. It does require restraint, thoughtfulness, planning, and a certain amount of inner dignity.

[Barclay]

I kind of thought, Barclay, that you were thinking your top 2% income is not really effectively very different from that of a family which qualifies for Pell grants. I think it would be quite different.

Yep, that's exactly what I was saying. At the end of the day, a household with $250K income versus a household with $68K income is not THAT different. Certainly not as far apart as the numbers make it seem, once everything is considered.

I would even bet that my budget is tighter on family "wants" than most American budgets.

[riverwed070707]

This is mind-blowing to me. How in the world do people live on $68k a year. It's no wonder that people are 16k in credit card debt. How do you pay the bills??? I know there really aren't a lot of income taxes on that amount of income, but there is still sales and real estate taxes.

crazy.

That's a good point regarding how much people are saving. We have higher than average salaries (according to this, top 2%) and it's hard to fathom less because I know how much we pay in taxes....it's a lot more than the average salary. We also have to put $35k in our 401k's just for the tax advantages. We also save another $40k or so in backdoor Roths and other investments for retirement. People don't save that much for retirement on lower salaries. So, just retirement and taxes alone, forces our expendable income down pretty far and makes our household incomes much closer to that $68k.

Also, some of the expenses for lower income families are quite a bit lower. Take for instance, college tuition. I have a daughter in college (actually, I have twins but one got a full ride). My best friend's daughter goes to the same college as my daughter, a local state university. She is a SAHM and her husband makes a modest salary. Let's break down our expenses.

Tuition and books $10,000. My out of pocket expense $10,000.

Her daughter got a pell grant that is basically free money. It does not have to be paid back. The amount was $2600 PER year. So, every year the govt just gives her 2600 bucks towards her college. She also qualifies for $2500 in tuition tax credits. We don't qualify for any of that. The government did send us a letter that my daughter could get an unsubsidized loan for about $7500 or something close to that. I can't remember, I just tossed it in the trash.

At the end of the day, her daughter's college is only $4,900.

So our disposable incomes are getting much closer.....

So to answer your original question, people with a $68k salary have to sacrifice some of the luxuries you consider necessities. People living on $68k can't always afford to spend $10k/year on college tuition. People living on $68k don't put $38k in retirement every year. People living on $68k also don't buy $60,000 cars or own 7 of them. Of course everyone would LIKE to save that much but the fact that you are *saving* every year (in tax free accounts no less) almost half of the average american salary is pretty great in itself. Not everyone living on that amount has debt (we live on less and have no debt aside from a meager amount of student loans...becuase my parents didn't pay my college), they just have to sacrifice in areas you don't. Frankly, I think its a little offensive for someone making in the top 2% to look at that number and think a family couldn't possibly live on that amount when the reality is that half the population lives on much, much less than that. Good opportunity for you to be thankful for what you have and the fact that you do have the financial freedom to do the things you do but still understand that your life isn't full of obligations, theres plenty of fluff in there as well. Living on $250k is NOT almost the same as living on $68k -- you just have the abillity to prioritize where you'd like that excess to go and the family living on $68k has far fewer options.

[disneysteve]

So to answer your original question, people with a $68k salary have to sacrifice some of the luxuries you consider necessities. People living on $68k can't always afford to spend $10k/year on college tuition. People living on $68k don't put $38k in retirement every year. People living on $68k also don't buy $60,000 cars or own 7 of them. Of course everyone would LIKE to save that much but the fact that you are *saving* every year (in tax free accounts no less) almost half of the average american salary is pretty great in itself. Not everyone living on that amount has debt (we live on less and have no debt aside from a meager amount of student loans...becuase my parents didn't pay my college), they just have to sacrifice in areas you don't. Frankly, I think its a little offensive for someone making in the top 2% to look at that number and think a family couldn't possibly live on that amount when the reality is that half the population lives on much, much less than that. Good opportunity for you to be thankful for what you have and the fact that you do have the financial freedom to do the things you do but still understand that your life isn't full of obligations, theres plenty of fluff in there as well. Living on $250k is NOT almost the same as living on $68k -- you just have the abillity to prioritize where you'd like that excess to go and the family living on $68k has far fewer options.

Great post! I agree that suggesting 250K and 68K are somehow comparable is ridiculous.

Remember, the median income in this country is about 50K so lots and lots of people live on 68K or less - more than half of Americans in fact. How do they do it? They buy used cars. They don't have 200 cable channels. Their kids go to public school. They shop at thrift shops, clip coupons, buy store brand groceries, and may only take a family vacation once every 3 or 4 years. They cook most meals at home, eating out only for special occasions. They mow their own lawn, clean their own house, babysit each other's kids. They probably have cell phones but with limited plans or pay as you go plans. There are very few things that are truly needs - food, shelter, clothing. Beyond that, most of what people have come to call a necessity (cell phone, internet, car, etc.) is really a luxury. It's great if you can afford them but if you can't, you don't.

[JoeP]

This is mind-blowing to me. How in the world do people live on $68k a year. It's no wonder that people are 16k in credit card debt. How do you pay the bills??? I know there really aren't a lot of income taxes on that amount of income, but there is still sales and real estate taxes.

crazy.

People who earn $68k a year make it by living well within their means, seeking grants and scholarships, living in an area that has low taxes, and avoiding debt.

The subtle association of high credit card debt with people in this income range is irresponsible. I personally know several high earners who lean on their credit cards and have home equity loans, so financial responsibility isn't exclusive to high earners; they might not feel the need to address perpetual debt because maybe they feel "budgeting" is a poor person concept.

[bigdaddybus]

Not so happy with the direction the comments are going, but I guess I should have expected it somewhat.

I have been married for 19 years this week with 4 kids 12 and under. In 1994, my first year married we grossed about 27K for the two of us. I remember what it was like (being young and not managing our money well) to run out of meals/money on Wed and eat whatever we could scrounge up (crackers and pb, or cereal with no milk, etc) just to make it till payday Friday.
That's back when things were a heck of alot CHEAPER! When I started driving gas was still under $1 a gallon in 1990. It just feels to me that costs have gotten so out of hand the last 15 years or so.

I feel very, very fortunate my wife and I are both smarter financially, and making significantly more than the median income now, than when we started out. I really feel for families making it on stagnant salaries. My wife and I have both been very fortunate both to be hard workers, and to be in the right place at the right time to be in the financial position we are in today.