$190,000 a year is rich

By Felix Salmon
December 15, 2010
Zero-Sum Game, her account of the CBOT-CME merger. Her introduction of the CBOT's CEO, Bernie Dan, includes this passage about his college days:

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I just started reading Erika Olson’s Zero-Sum Game, her account of the CBOT-CME merger. Her introduction of the CBOT’s CEO, Bernie Dan, includes this passage about his college days:

He’d often tell classmates his future goal was “to pay more in taxes than most people make.” They thought he was joking, but he wasn’t.

That seems to me to be a good baseline for what it means to be rich; it certainly felt that way to the young Bernie. And so I wondered what income that amounts to.

The national median income is $52,029; in New York state it’s $55,980; and in Manhattan (New York county) it’s $68,295. Playing around with a paycheck calculator, I reckon that in order to pay $68,295 in annual income and payroll taxes, a NYC resident with one standard allowance would have to earn about $192,000 per year. And of course if you start taking further deductions for things like children and mortgages, that number rises significantly.

It’s harder to work things out nationally, since taxes vary from state to state. But an Illinois resident with the same single deduction would have to earn about $186,500 in order to pay $52,000 a year in taxes.

In other words, using Bernie Dan’s definition, it’s reasonable to conclude that “rich” is about $190,000 a year. Which seems reasonable to me.


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Is it? That barely gets you to the minimum income requirement to rent a 1,000-ish sq ft two-bed apartment in Manhattan (~5,000 x 35).

Who would say someone barely able to afford a two-bed apartment is rich?

Anywhere else, though? Yeah, that’s loaded.

Posted by davew | Report as abusive

The $52,000 is median household income, not individual. The median household has significantly more than one earner, therefore has more than one deduction.

Posted by Philadelphian | Report as abusive

The median personal income for those older than 25 in 2009 was $35,285 (http://www.census.gov/hhes/www/cpstable s/032010/perinc/new03_001.htm). Just a reality check.

Posted by Philadelphian | Report as abusive

“Rich” refers to wealth, not income.

For the x-thousandth time.

Posted by right | Report as abusive

Dare I say it? right is right.

Posted by Curmudgeon | Report as abusive

No you are wrong. $250,000/yr is rich because you can express your income in fractions of a million. I bet that’s why Obama chose it as his definition.

Posted by Mr.Do | Report as abusive

A definition of “rich” based on annual income seems fairly ridiculous to me as a general matter. General wealth, and consumption (which is hugely influenced by cost of living) would seem like requisite inputs for a useful definition.

Posted by Gimlet | Report as abusive

Please keep in mind that there are many tax breaks that vanish between the 60k to 160k levels and also AMT kicks in.

Also, for families that have kids going to college, financial aid grants essentially vanish over $100k income. As a result, a family making $160k pays the full cost for college with no tax breaks while at $60k it can be virtually free. For families of 2 to 4 kids, there can be a decade or more of $40k per year or more of college expenses after tax. That is a fast way of not being “rich” any more.

Posted by ErnieD | Report as abusive

My definition of rich includes being able to hire full time help.

Posted by DanHess | Report as abusive

I am with Mr Hess.
I am not sure what they would help me with though.
Probably I would have them focus on making onanism less lonely.
So I might have to pay them more than minimum wage.

$190k each in a DINKY household makes you loaded.
As soon as your better half starts dropping sprogs you will be poor for a couple of decades at least.

Posted by TinyTim1 | Report as abusive

There is no reasonable amount of money that you can’t spend if you put your mind to it. This is why so many lottery winners end up bankrupt.

You can be reasonably well off with $60K household income if you spend very carefully. Or you can be reasonably well off with $250K household income after paying for the nanny, the gardener, the maid, and some very nice Caribbean vacations twice a year. Whether or not you are happy with the lifestyle depends more on who you are than on how much you are spending.

Posted by TFF | Report as abusive

DH, TT, TFF, and ErnieD are all on the mark here.

For DH… I would settle for partime help. If my wife (who also works) and I did not have to play paper rock sissors to see who cleans the bathroom (the “winner” gets to clean out the fridge) I’d consider myself a made man. (But I’d still continue working.)

For TT… ahmen on kids = poverty relitive to pre-kids. After university I was a high roller… 401k contributions maxed out, IRA contributions maxed out, savings on the side… and I was living well to boot. Fast forward 10 years and my income has grown 100% and I’m waiting until I get paid tomorrow to top of my heating oil tank.

TFF is the most right of all. Those who think money can buy happyness need to talk to Allen Iverson, Scottie Pippen or about a million other people who have run through vast sums of money and come out on the other side as broke and miserable as when they started.

It’s imporntant to have some decent food to eat and a warm dry place to sleep… beyond that who your eating and sleeping with is much more imporntant than if your eating cheese burgers or stake.

Posted by y2kurtus | Report as abusive

This what is ‘rich’ debate is stupid. Why do we need to define the term. Absolutely no reason to do so other than class envy.

But just because some guy said its his goal doesn’t mean its the definition. Also, the tax code is so progressive right now (Between losts benefits and higher taxes) that the difference between making 190k a year and 80k a year really isn’t that much. To get an actually lifestyle improvement you really need to consistantly make over 500k a year to have a different lifestyle than lower incomes.

Posted by sditulli | Report as abusive

I am very nearly ready to curse your readership, Felix. I mean damn them to hell.

I exempt DaveW and Philadelphian.

Let’s leave Manhattan out of our calculations. For the 300 million people in my country, the median family income is $52,000/year. Health care employee premiums and out of pockets for a family of 4 is $5-7,000+ per year. Rent on a 2 bedroom house, with utilities, is over $15,000/year in most localities, and up to $35,000 in some. Car expenses for a two car, two earner family, including acquisition of two cheapo Hyundai Accents, insurance, licensing, gas and maintenance, is over $7,000 per year. Saving for college for two kids and for a retirement fund that would match Social Security payments totals about $12,000 per year. Life and disability insurance are about $2,000 per year. Clothes, groceries, toys, sports stuff for kids? Perhaps $8,000 per year.

If you live in Nebraska ($15,000 housing cost), you have about $1,000 left over. Everywhere outside of the rural Midwest and South, you’ve had to drop the saving for college and retirement. You have no resources if you lose your job, your second earning becomes disabled or has an extended illness – or has to care for an aging parent, or if you have a child with a learning disability or emotional problem. No private school option, no airplane travel to see relatives, no Disney World.

Now, how about $100,000? Add that to the $52,000, and you have doubled your college and retirement savings. You can live anywhere except Boston, NY, LA and SFO. Except in those top tier urban areas, you can afford travel and private schools for your children, or a tutor for your dyslexic child (they happen, you know). That’s well off.

Now, how about $150,000? You can live anywhere except Manhattan. You can afford private schools anywhere except the expensive urban areas. Travel anytime. Retirement saving is easy. Hockey camp? No problem.

So now $190,000? That’s not rich? If you don’t think so, you have never had to make any of the choices that the MEDIAN AMERICAN FAMILY has to make EVERY DAY.

I have a very specific curse for you. May you lose your job tomorrow, and may you have twins by accident. May one of them be dyslexic, and the other a gymnastics prodigy. You will learn very, very quickly what is rich and poor. And the rich are any family earning over $150,000/year.

Posted by Dollared | Report as abusive

Dollared, you need to take a deep breath.

As I quickly said above, I believe the fundamental disagreement over this word is that many people such as Felix want to focus on an income-based definition of “rich” in order to shape tax policy, when in fact the word “rich” by almost any definition you can find refers to wealth, not income.

Clearly there is a relationship between high-income and wealth but it’s not exact–hence all the examples of the family in Manhattan with a mortgage and three kids, etc. To get from high income to wealth you need to know (a) what kind of expenses (children, healthcare, student loans, cost of living) does the household have, (b) how likely is the household to continue earning at the current high level, and (c) how long have they been high-earners / how much of a cushion have they been able to save?

So to tie this in to Dollared’s furious comment. If I have a guaranteed income of $150K per year for the rest of my life, then yes I’m rich because that’s essentially equal to having a multi-million dollar annuity in the bank. If I’ve earned $150K for thirty years, lived a modest lifestyle, bought a house, and saved a million dollars? Sure, that’s rich too. But if, according to the wishes of Dollared’s curse, I lose my job tomorrow and can’t pay my bills or my debts, well then how can you say I was rich in the first place? Defining rich based on income just doesn’t tell the full story.

Posted by right | Report as abusive

Right, I think the annuity view of income is a really great insight. It is the proper measure of a person’s lifetime earnings.

Your example is a good one- I’m actually doing planning for a 52 year old “millionaire” in exactly that position right now.

What would help that “millionaire?” A Canadian or European style employment, retirement, taxation, education and health care regime. Putting the cost of health care on a government, rather than an employer, makes that older worker much more likely to get hired. And the single biggest risk to that million dollar nest egg? Health care costs. Finally, affordable, high quality public education, subsidized by the government and available based on merit ensures a strong supply of well-educated adults to support future income for the society.

And our millionaire is not so concerned about income taxes. That’s really an issue for the very rich to worrry about, not the simply well off.

Posted by Dollared | Report as abusive

If we’re talking wealth, then a million is still a decent rule of thumb. If you earn 3.6 percent per year, you could retire and have more income than the median American. I think most Americans would agree that that is wealthy. For a household with children, I believe the median runs to about $70,000, so $2 million would cover you.

Posted by Philadelphian | Report as abusive

Close, but no (of course, Cuban) cigar. In fact, rich is =>$7.5M in income producing assets, which, if you assume you will enjoy income at the 4% safe withdrawal rate (a number likely to provoke response) will leave you at/above $300K Gross.

Rich may also mean not having to work if you don’t want to. My pension is a ‘under’ $300K, but I don’t work and I don’t want to. That, also, is as good as rich; think about that the next time you push your bike through the snow on the way to Times Sq. to punch the clock, if you have any doubts.

How do I arrive at $7.5M? There is a divorce lawyer in Calif. that has started advancing money to her (principally female) clients to encourage and support them in pursuit of larger settlements. Her upper combined asset threshold is $15M. Above that it seems couples are far more likely to arrive at a non-adversarial settlement. With splits of assets below $15M, lifestyles get threatened and the prospect of billable hours increases. Somewhere in this there’s a lesson on Efficient Markets.

Posted by ARJTurgot2 | Report as abusive

Using the wealthy to define wealthy is silly. By that standard, if Bill Gates felt he wasn’t wealthy, then there aren’t any wealthy people on the face of the earth. The English language is used by 250 million Americans and about 1 billion people in the world. My sense is that the world “wealthy” is used by them in a fashion much closer to how I use than how you use it. You can make your own reality however you’d like. The rest of us have to deal with the real world.

Posted by Philadelphian | Report as abusive

Dollared, your figures are WAY off base. First, that “median household income” would be for a “median household”. One wage earner. Your median two-income family of four has a substantially higher income than that.

Second, that $35k housing cost is more than I’m paying on a *four* bedroom house in a nice suburb of one of the more expensive metropolitan areas. There are small two-bedroom apartments that can be rented for $15k just a mile from my house, with easy access to public transportation. Now your two-parent household can shed one of those overpriced cars and spend less than $5k on transportation. And $2k for life insurance? Try term life, at a tenth the cost. Groceries and household supplies costing $8k? Cook your own food, shop the sales, and you can squeeze that down to $4k-$6k.

Budgeting requires CHOICES, but it isn’t nearly as dire a situation as you pretend. And even at higher income levels, it STILL requires choices. At the one end of the income scale (well below that median income you cite), the choices start to cut into basic needs. At the other end of the income scale, the choices involve things that don’t significantly improve life anyways. But there are literally hundreds of thousands of dollars separating those two points, and a comfortable lifestyle is possible at every point in between IF you make careful choices.

Posted by TFF | Report as abusive

Income very so wildly that the definition of rich your using is a very louse one.

Posted by seano1 | Report as abusive