How much money do you need? The old adage is “Just a little bit more than I currently have.” For millennials, however, make that 480% more.
In a 2023 study by financial services company Empower, millennials reported needing to earn $525,000 a year to be happy. Notably, this is significantly more than the national median income of that age group, which is approximately $81,000 a year, according to a study by Scholaroo.
It’s also significantly more than any other age group cited. Gen Z, Gen X, and Boomers all reported needing far less - $128,000, $130,000, and $124,000, respectively. In fact, $525,000 is wildly out of step with the median income for any generation, in any state.
In Massachusetts, the state with the highest median income for millennials, median income is $108,000. Still a far cry away from $525,000.
In general, the amount that people think other people make is significantly higher than reality. A report by the World Economic Forum found that Americans think that a full 20% of earners make over $500,000, but this is starkly different from reality. The actual percentage of the U.S. population who earn more than $500,000 per year is less than 1%.
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Running the Numbers
I want to make it clear that I am not attempting to disparage individuals with high incomes. Achieving an income of $525,000 is commendable, and there are certainly millennials in the U.S. who have achieved this financial milestone. However, blindly pursuing such a lofty goal, especially one that is realistically unattainable for most (e.g. 99%), could quickly become disempowering. A better approach would be to consider your own personal financial situation and run the numbers to determine what you really need to earn to achieve your personal financial goals.
Let’s contextualize the lifestyle that a $525,000 income enables.
At an income of $525,000, a married filing jointly taxpayer would land in the highest marginal tax rate of 35%, with an effective tax rate of 23% (for simplicity, let’s ignore state and local taxes). After tax, the net take home is $404,250 annually, or $33,688 per month.
Housing
In a healthy budget, housing expenses should consume no more than 28% of gross (pre-tax) income. A $525,000 annual income would allow for a monthly housing spend of $12,250. Payments on a 30-year $1,000,000 mortgage at today’s mortgage rate of 6.7% run a little under $6,500 per month, leaving more than enough room for all other housing expenses such as property taxes, HOA, PMI insurance, maintenance expenses, and homeowner’s insurance.
The average home sales price in the Northeast (the most expensive housing in the U.S.) recently reached its highest value ever in Q3 2023, at $1,044,000. Assuming you put even 5% down on the purchase, an income of $525,000 would comfortably afford an above-average home in the most expensive housing market in the country, and a high-end home in most other locations.
Student Loans
It’s no secret that the Millennial generation is bogged down by excessive levels of student loan debt, having the unenviable distinction as the age cohort with the highest average student loan debt (this Forbes.com article has a lot of great information about recent student loan data).
The state with the highest average student loan balance is Washington, D.C., at just under $55,000. At a 6% interest rate and 10-year term, monthly payments equate to just under $1,100 per month.
Childcare
Millennials who have young children will also need to add childcare costs to the mix, which can equal a mortgage payment all on their own. Those in Washington, D.C. pay the highest average rate for daycare, at $419 per week ($1,815 per month), according to recent data by Care.com. Daycares in expensive and/or heavily-populated areas, however, can exceed $3,000 per month for one child (speaking from personal experience, sadly).
Savings
Adding in the requisite 20% of gross income for long-term retirement savings and 10% of after-tax income for short-term savings (vacations, gifting, etc.) reduces cash flow by another $12,118 each month.
Miscellaneous Expenses
Putting it all together, a household with an annual income of $525,000, student loan payments, one child in an expensive daycare, living in a high cost of living area is left with a generous $5,200 (or 15% of after-tax monthly income) for groceries, hobbies, eating out, entertainment, clothing and transportation each month.
And by the way, this assumes that $525,000 is the total household income, whereas the Empower study reflects what Millennials stated they would need to earn individually. Substituting it as household income still makes the point, which is that $525,000 is a lot of money.
Know Your Numbers
Inevitably, exact details will vary from household to household. However, while an income of $525,000 could be a genuine necessity for some, it’s certainly not needed for most. The survey underscores the importance of knowing your own numbers and having a firm handle on what you are aiming for financially.
The survey authors support this idea, noting that “Americans with a more detailed financial plan are about three times as likely to report greater happiness in money matters”.
While there are certainly good reasons for Millennials’ general sense of financial malaise – soaring student loans and housing prices chief among them – it’s critical to dig into the numbers and take control of your personal financial situation. Run your numbers to find out what you truly do need and aim for that.
