How Much Do The Top 5% And 1% Earn In The US?

Matt | Personal Finance

In this video, we look at recent IRS data on income and salary figures to reveal how much the top 5% and top 1% are earning across the US. The data tells us an interesting story about age, sector and location based earnings   I also share 3 tips to help you increase your income to move into a higher earnings bracket and most importantly so you can save and invest more money.   Plus, we explore the question of what it means to be wealthy and why being a top earner doesn’t always equate to being “rich”.

Transcript

00:00Have you ever wondered just how much you need to earn to be considered a top earner?

00:04I've done the research and on this video I'm going to share with you what it would take to

00:07be in the top 5% and that all-important top 1% of earners if you live and work in the US.

00:13If you're new to this channel, I'm Matt, I'm a finance consultant. I've spent over

00:17eight years working for one of the top consulting companies in London.

00:21I now run my own company and on this channel I talk all things personal finance.

00:25So let's get going. According to the US Bureau of Labor Statistics, the annual median income

00:30for employed people in the US is now around $59,000. But how does that compare to the top

00:365% and the top 1%? Well, Smart Assets has done some helpful analysis of IRS data this year in 2024

00:43and it revealed to get into the top 5%, you would need to have an annual income of over $290,000.

00:50And to get into the top 1% of earners, you would need to have an annual income of over $787,000.

00:58That's around a 20% increase from last year according to Smart Assets.

01:02One thing to note is that these figures are based on data for across the US.

01:07However, the thresholds to get into the top 5% and the top 1% varies by state.

01:12For example, Connecticut has the highest threshold to reach to be in the top 1%

01:17at over $1.15 million. And California residents are not far behind needing just over $1 million

01:24to be considered in the top 1% of earners for bare state. By comparison to be in the top 1%

01:30of earners for states such as West Virginia and Mississippi, it requires an annual income

01:35of over $420,000 and $440,000 respectively. If you want to see the income data for your state,

01:43you can see this on Smart Assets' website. Post the COVID pandemic, we've seen wage increases

01:48driven up over the last couple of years, along with inflation and the cost of goods going up too.

01:53However, according to the US Bureau of Labor Statistics, over the last 12 months,

01:58wages have increased on average by 4% to 5% across private sector jobs and also local and state

02:04government jobs, which is quite a lot lower than the 20% increase for the top 1% of earners.

02:09So one thing this data definitely shows us is that it's getting harder to get into the top

02:14earning categories. If you want to try to improve your earnings to move into a higher earnings

02:19category and importantly to allow you to save and invest more money, then there are a few ways that

02:24you can do this. In my view, the number one thing is to focus on building your skills and increasing

02:29your value on the job market, either to be able to negotiate a higher salary or to be able to find a

02:35higher paying job. For example, if you're currently a waiter in a restaurant and you manage to save up

02:40$500 and you take that money and you pay for a sales course, which enables you to get a sales job

02:46paying you more money. If you're then able to add the ability to do marketing on top while you're doing

02:51your sales job, then you're now able to run an ad campaign, get customer leads in and close sales.

02:58Your earning potential has just gone up tenfold compared to the pay you were getting as a waiter.

03:02The second point is to understand your market worth and to arm yourself with that information

03:07before you go into any discussions on paying compensation with your employer or potential

03:11employer. There are lots of tools out there which can help you do this research, such as websites

03:16like Glassdoor, or you can look at job adverts on platforms such as LinkedIn, where you can see

03:22indicative pay ranges for the type of work that you do. I think probably the best way is to connect

03:27with recruiters to understand opportunities for a similar job at another company and what the pay

03:32will be like. The key is to get robust data which is comparable to your current job or the job that

03:38you're going for. For example, it's in the same industry, the same location and at the same job

03:43grade. By doing this and arming myself with the right information, it's one of the things that's helped

03:48me to double my income over the last 12 months. And I think if you can get in the habit of periodically

03:53doing this, it will put you in a much stronger position to be able to negotiate your pay and get

03:58your true market worth. And the third potential way to increase your income is to start a side hustle

04:04business. There are lots of videos on YouTube and online giving ideas on what you can start from

04:09scratch. And many of these, you don't need to have lots of startup money to get going with yourself.

04:14For example, it could be teaching a short course online on how to edit photos, which you can do on

04:19platforms such as Udemy. Have a think of what strengths and skills you already have that could

04:24help you to earn some additional money on the side. The final point I'll finish this video on

04:28is that by having a high earned income doesn't necessarily mean that you're rich. An individual

04:34could be in the top 5% or even in the top 1% of earners. But if they have a high cost of living and

04:39lifestyle to maintain, the amount of money that they're able to save and invest could actually be

04:44quite small. For example, although you might live and work in New York City or LA and have an above

04:50average salary, the high cost of living means that your disposable income could be lower than someone

04:55doing a similar job earning less per month outside of these cities. The key to growing wealth is using

05:01earned income to be able to save and invest and over time to compound your investments to become

05:06wealthier and wealthier. So as well as trying to increase your income, you also need to manage your

05:11expenses and avoid lifestyle inflation, which is where as you earn more money, you spend more money

05:16and then at the end of the month, you don't actually have anything additional to save.

05:20So if you can combine income growth and do your best to keep your expenses at a similar level or

05:25within your means while your income goes up, you'll find you're able to grow your wealth at a much

05:30faster rate. I hope this video has been helpful. Feel free to leave any questions in the comments and

05:35give the video a like and a subscribe and I'll see you on the next video.

Category

Transcript

Recommended