Wallet Hacks

Average Income in America: What salary in the United States puts you in the top 50%, top 10%, and top 1%?

You've probably heard of “the 1%.” They're the absurdly wealthy who have more wealth than the remaining 99% (based on data from Credit Suisse).

But what does it take to be in the 10%? 20%?

Is it still stunningly wealthy? Or does the line drop quickly?

We know that the average net worth of Americans is lower than you'd guess, but what about income? Is it the same?

So many questions!

Fortunately for us, we have a couple of data sources for this type of information.

First, we have the Social Security Administration. Everyone who earns a paycheck will make payments to Social Security and Medicare, so they have that information as wage statistics. (last refreshed with 2016 data)

Next, the U.S. Census Bureau does surveys collecting this information too. The latest is the 2016 Current Population Survey (CPS) and we're looking at the Annual Social and Economic Supplement (ASEC). Whereas the SSA collects actual wage data, the Census Bureau conducts surveys and estimates values. Another difference is that the SSA collects individual wage information and the Census is estimating household income.

(we used U.S. Census data when looking at average net worth of Americans)

We're going to look at the Social Security Administration data first and then the U.S. Census Bureau's estimates.

Quick Summary: According to U.S. Census Bureau data from 2015, the latest release, the median household income is $56,516. U.S. Census Bureau data takes a sample and extrapolates to the population as a whole, but is accurate enough.

Average Wage Index (SSA)

First, a definition – the national average wage index is calculated using compensation that's subject to Federal income taxes as reported on W-2 Forms. This includes wages, tips, etc.

It doesn't capture a household's entire income throughout the year. This is strictly a measure of how much they earn.

For example, dividends and capital gains aren't included because they're not wages. There's also a little complexity involved with deferred compensation plans but for the purposes of our discussion, this level of specificity isn't necessary.

Top 1%

This may surprise you but to be in the top 1% of wage earners in the United States in 2016, you need to earn over $250,000 a year. A quarter million is a ton of money to earn in a year, that's for sure, but I bet you thought 1% would require a much higher number.

The Middle – 50%

Here's another number that may surprise you – to be in the top half (50%) of all earners you need to earn more than $29,999.99 a year. The number of people earning less than $30,000 accounts for 49.33% of the population.

The 2018 Poverty Guidelines for a family of four is $25,100 ($31,380 in Alaska and $28,870 in Hawaii).

Mull that one over for a minute…

Deciles (and more)

The deciles won't be too clean cut because the table is set up as salary ranges, but you can read this table as “how much do I need to earn to be considered top X% of salary earners.”

(A range means the decile falls somewhere in that range)

Median income increases almost linearly until you reach the top deciles.

The Wealthy Are Absurdly Wealthy

These two (and a half) facts will boggle the mind:

Those are just wages. If someone made over $50,000,000 in a year, how much you want to be they have other sources of revenue (dividend, capital gains, etc.)?

I would bet they pull in more than $50 million!

Another little “oddity:” (which holds true for 2016, but this is 2015 data in the chart)

Source Data: Social Security Administration Wage Statistics for 2015

On the X axis you have the ranges of wages and on the Y axis you have the count of households. You'd expect the chart to just slope downwards, as there are fewer and fewer households included in higher incomes.

But there are two hitches, indicated with the red 1 and green 2. Red 1 is the $200,000 – $250,000 range and Green 2 is $500,000 — $999,999.

At first, I was trying to understand why this might exist. Could there be tax implications? Perhaps there is some rule somewhere else that had folks trying to pull their income down?

No – the rows of the table aren't equal. That range is just wider!

Up until the Red 1 range, the rows had a range of $5,000. With Red 1, the range jumped to $50,000. The same is true for Green 2, the range jumped to $500,000. There are more hitches but they're not visible in the chart, but it's the same reason.

For a second though I thought maybe something fun was happening like people shifting around their income to avoid tax law changes at different tiers… sadly no.

Average (Median) Household Income (Census)

The data is from 2015 and it's organized slightly differently than the data from the Social Security Administration. Since the SSA has real data and the Census surveys households (~125,000), the Census uses more ranges and tries to reach statistically significant results (since it's based on a sample).

You cannot compare the two datasets. I presented the SSA data first since it's real data (somewhat incomplete) but the Census information is useful too.

The median household income was $56,516. The mean household income was $79,263.

Median Income for Households by Age

Age of Householder Median Income
Under 65: $63,344
15 – 24 $36,108
25 – 34: $57,366
35 – 44: $71,417
45 – 54: $73,857
55 – 64: $62,802
65+: $38,515

Income Distribution

Income Range Percent Distribution
Under $15,000 11.6%
$15,000 – $24,999 10.5%
$25,000 – $34,999 10.0%
$35,000 – $49,999 12.7%
$50,000 – $74,999 16.7%
$75,000 – $99,999 12.1%
$100,000 – $149,999 14.1%
$150,000 – $199,999 6.2%
$200,000+ 6.1%

When you couple this data with the average net worth data, it can be very sobering.

Average Income by Education

With student loan debt topping $1.4 trillion (HOLY CRAP), you might be wondering if there's a relationship between average income and education.

There is:

The sexes are combined and separated into four categories – less than high school, high school graduates, some college/associate degree, and bachelor's degree or higher. These are 2014 dollars:

What you study matters, but overall the more education you have the better off you're likely to be. There is a huge difference between those who start college and those who finish.

Income doesn't tell the whole picture (for example, it's hard to know what is wage income and what is cashflow investments) but these numbers do open your eyes.

What do you think?