Living paycheck to paycheck is an uncomfortable financial reality for many Americans. According to a 2016 GoBankingRates survey, 69% of Americans have less than 1.000 US dollars in savings. While adults making less than $25.000 per year earning, most struggle with keeping money in the bank, a surprising number of higher income earners are also crawling to make ends meet.
Who is paycheck to paycheck?
For example, according to a 2015 study by Nielsen, 25% of U.S. families living on 150 per year.Earning USD 000 or more, from paychecks to paychecks. One in three households earning between 50.000 and 100.000 dollars earned is in the same situation. As household debt increases and the cost of living skyrockets in some parts of the country, higher income does not always mean financial security. New research sheds light on how far a six-figure salary really goes.
Getting by in the middle class
According to Northwestern Mutual's planning and progress study, 70% of Americans identify as middle class. Sixty-eight percent of those who claimed middle-class status had household incomes of 50.000 to under 200.000 dollars per year. Fifty percent had incomes in the 50 range.000 to 125.000 dollars. By comparison, the median household income in 2015, according to the Federal Reserve Bank of St. Louis 56.516 $. Interestingly, the study showed that middle-class Americans tend to be more optimistic about their finances. 55% said they believed the American Dream was achievable compared to 48% of the overall population, and 58% said they felt financially secure compared to 47% of the overall population. The question is whether their expectations and beliefs accurately reflect their situation.
For example, if more financial resources are available, it stands to reason that higher-income groups would realize significantly more savings. but this is not always the case. According to the GoBankingRates survey, 23% of respondents with incomes of 150 had.000 USD or more less than 1.USD 000 in an emergency fund. Six percent in this income range had absolutely nothing in reserves.
Another survey, also from GoBankingRates, found that one in three Americans saved nothing for retirement. Many Gen-Xers and baby boomers, who are more likely to be in their peak years, have poor long-term prospects. More than half of Generation X has less than 10.000 saved for retirement, and fewer than one in four people over 55 have more than 300.000 US dollars saved.
To provide perspective, the top 1% of Americans have $1.08. million or more stashed away for retirement, according to the Economic Policy Institute. High-income families are 10 times more likely to have retirement savings than low-income families. Based on the numbers, it would make sense that those at the high and low ends of the income scale are the extremes when it comes to savings. However, it doesn't explain why those who end up in the middle with six-figure incomes are so far behind in terms of saving and financial security in general.
What's behind the cash crunch?
Understanding why so many high earners are struggling starts with uncovering potential causes of their financial problems. Debt could be a culprit. According to the Federal Reserve Bank of New York, total U.S. household debt was $12.73 trillion in the first quarter of 2017. This figure exceeds the previous peak in 2008. The majority of debt is related to mortgages. Increasing share of what Americans owe. Credit card debt accounted for $1 trillion alone.
That doesn't necessarily mean high earners are incurring debt because of poor spending habits. For some Americans earning six figures or higher, the root cause may be a cost of living that is too high.
Housing prices, for example, have increased by about a third since 2012, according to Zillow. In certain markets, housing demand has driven both purchase and rental prices through the roof, eating into a larger portion of earners' salaries. A Magnify Money study, for example, found that Washington, D.C., is the worst city to live in with an annual income of 100.000 dollars to live. After deducting housing and other monthly expenses, residents end up with a deficit of $315 per month. These monthly expenses include payments on student loans and other debt, health care, transportation, and child care. As children get older and prepare for college, the burden increases for some high-income families when students may qualify for limited financial aid. For the 2016/17 academic year, the average cost of tuition, fees, and room and board at a public four-year university was 35.370 for foreign students, which can help high earners feel like they are making ends meet.