Costs eat away at benchmark
According to the U.S. Census Bureau, only 6.03 percent of individual over 18 and only 19.9 percent of households had incomes of $100,000 or more in 2010. In fact, the median annual household income for 2010 was $50,046, just more than half of the six-figure benchmark. The overwhelming majority of Americans still look up to a $100,000 income, but the expectations of what comes with that income are rapidly slumping.
According to Labor Department statistics, the average inflation rate for 2011 was the worst since 2008, with consumer prices rising 3.1 percent, compared to an average of 1.6 percent in 2010. Much of this was fueled by energy costs (up 15.2 percent for the year) and food costs (up 3.7 percent for the year). Just to keep up with standard inflation, a $100,000 salary in 1990 would have to be $172,103.29 in 2011.
"What would have cost you $100,000 in 1976 would cost you $381,000 today. That's just the inflation, and there are so many other things that have grown very expensive," says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.
Adam points to health care as a major expense that has grown almost twice the rate of inflation. The Kaiser Family Foundation, which tracks the costs of health insurance, found in 2011 that insurance costs had increased by a whopping 134 percent since 2000. The total cost of health insurance now averages $5,429 per year for individuals and $15,079 for families. Adam says college costs have also grown tremendously in recent years. According to the College Board's annual "Trends in College Pricing" report from last year, published tuitions at four-year public universities are up 42 percent in five years, the largest increase of any five-year period since the 2007-09 school year.
"These are things that everyone spent money on 30 years ago, but the percentage of what was going out of their paycheck is a lot higher now. More of the income is being taken away to pay for a lot of these things," says Adam.
The cost of housing has also played a major role in diminishing the power of a six-figure income. In many parts of the country housing prices have outpaced wage growth for almost a decade. The Housing Affordability Index, which compares the cost of housing against median family income, dropped considerably between 2000 and 2007. In 2000, the median family income was $50,732, and the median home price was $139,000. While median income grew to $60,831 in 2011, median home prices skyrocketed to $229,299 in 2007 before leveling off at $166,200 in 2011. In those 11 years, median home prices had risen 19.6 percent while median incomes had risen 16.6 percent.
"Without a doubt, the housing situation is the biggest thing that eats into our income," says Brian Neale, an investment manager from Westminster, Md.
Money doesn't go far
Neale, 33, says he surpassed the $100,000 mark last year but says that between mortgage payments, the high price of heating fuel, gas, food and everyday items in life, his salary doesn't go as far as he thought it would. Neale is married with three children and says that his extracurricular real estate and investment activities help them buy the extras in life.
"Now that I've made (a $100,000 salary), it's not all it's cracked up to be. We make sacrifices. It's not like I tell my kids we're going to have to eat peanut butter and jelly every night. We live well, but I wouldn't consider it anything extravagant," says Neale.
Many now consider $250,000 the new $100,000 income. Adam says that level of income is typically required to provide what many have before expected of a six-figure salary. Adam also points to other expenses that are not necessities but are considered part of a middle class lifestyle -- things like cellphones, high-speed internet access, vacations, karate lessons, iPods, laptops and digital cameras.
"What you might think people deserve for a person that has a reasonable income is excessively high. Add in all the other expenses, and there just isn't anything left and that's part of the reason why a $100,000 income isn't going that far," says Adam.