Are you rich? Well it depends on the context of your question. Are you asking with respect to wealth, health, relationships, talents, time, spirituality? Today, I am asking you about your wealth. How rich are you? There is no objective measure that can provide that answer, like answering the question of how tall you are. The answer is a combination of many things and each one of us has a different "measuring stick" as it were. Some look at how much money they make, or how much money they have, or how much they are in debt. But oftentimes it all boils down to whether or not we "feel" like we are rich.
The Federal Government also wants to know if you are rich, and they don't care how you feel. Their measuring stick is what the Social Security Administration calls "net compensation", essentially how much money you make.
In 2017, the average net compensation in the United States was $48,251.57*. In contrast, the median net compensation was estimated to be $31,561.49. As you recall, the median number is the number that is the "middle" number in a list of all of the numbers in the sample. So what this means is that there were AS MANY PEOPLE who made LESS than $31,561.49 as made MORE. The sample size was the entire universe of wage earners which is over 165 million people! So there were nearly 83 million of us who made less than $31,561.49 in 2017.
Although to much of the world, a wage of $31,000 would indeed make you rich, not many of us would consider ourselves rich in this country at that wage level.
Without looking at the numbers, we might consider someone in the top 10% of wage earners to be rich. If so, then you are rich if you make over $100,000!
Are you rich?
The current tax rates are some of the lowest in the history of our country. As a result of the Tax Cut and Jobs Act, signed in December of 2017, the top tax bracket is now 37% for income over $500,000 (single) or $600,000 (married filing joint). The highest tax bracket in history was In 1945 and 1946 when it was 94% for income above $200,000 (single or married) which is the equivalent of nearly $3 million today. Income above $600,000 today is the equivalent to income above $40,000 in 1945. In 1945 income above $40,000 was subject to a tax rate of 75%!!! Relatively speaking, that's TWICE the current tax rate!
There are many reasons why tax rates have to go up in the future, not the least of which is the National Debt which at this writing is OVER $22 TRILLION!!! Some economists project that we will owe more in interest on the debt than revenues collected in taxes by the year 2030! Many believe that the only solution to this problem is to raise taxes or cut spending or both.
Where will the U.S. government get this additional tax revenue? By "taxing the rich". Are you rich?
What are you doing to plan for higher future taxes? Are you continuing to save money in tax-deferred qualified plans such as 401(k) and IRA accounts? If you are in the top 10%, why are you? Do you know what your tax bill will be when you retire? Of course not, but why would you defer taxes you could pay today at 22% (for example), only to pay taxes at some unknown future higher rate? Probably because you don't know of a way to pay taxes today on money that you can save for retirement and live on tax free.
There are proven ways to do this apart from "Roth" accounts that you may or may not be eligible for and that limit the amount contributed.
The tax man is coming and he's coming for the rich. Are you rich?
Contact me if you want to learn more.
* Figures used come from the Social Security Administration website wage statistics for 2017. https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2017