So how rich are you compared to others? There are different ways to look at this and different sources of financial information that are collected. You can have a high income but no money in the bank or can have a low income and a large investment portfolio. Even if we just focus on income there is wage income and then there is investment income.
A recent study from the Economic Policy Institute pulled wage income reported to the Social Security Administration and looked at numbers both nationally and state by state. In the US, you’d need household wage income of at least $421,926 to be in the top 1% of the population. The average income of the other 99% comes in at $50,107. In Michigan, though, the cost of living is lower and so are the income figures. The top 1% earn at least $328,649 per year with the others earning an average of $42,825.
Didn’t make the top 1%? Nationally, to make it into the top 5% you’d need to earn $195,070 and the cutoff for the top 10% comes in at $118,400.
Taxes can eat up a good share of income and these vary by state, too. The average taxpayer in the US pays about 20% of their income, over $11,000 per year, in federal, state and local taxes. Depending on your state, that rate can be as low as 13.4% or as high as 33.6% according to 24/7 Wall Street that used data from the IRS.
Michigan’s tax burden was in the middle of the pack nationally. After paying the 24th highest overall tax rate of 19.8%, Michiganders took home an average of $38,171. That included an average of $5,337 in federal income taxes and $4,075 in state and local taxes, including property taxes.
Taxes can easily be the biggest expense for our clients, who typically are among the top 10% in income and wealth. At Vintage we focus extensively on multi-year tax planning in addition to investment management and other financial planning. We won’t help them all into the top 1%, but by optimizing their finances, we can try to help them retire comfortably.