Why a middle-class lifestyle now costs you over $300,000 a year. via CNBCMakeIt
Let me tell you a sad story: In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you've got to make at least $300,000 a year. You can certainly raise a family earning less as many do, but it won't be easy if your goal is to save for retirement, save for your child's education, own your own home instead of rent and actually retire by a reasonable age.
Before we look at the income statement, I'd like to go through a list of various workers who will eventually make ~$300,000 on their own or in household income if they find someone who also works. They have a marginal federal income tax rate of 24 percent, a marginal California income tax rate of 9 percent, and most of their income facing a 7.65 percent FICA tax since both work. Their combined effective tax rate is roughly 32 percent, for a tax bill of ~$76,480. Yes, their total tax bill is ~$17,000 more a year than today's median household income, so hopefully folks who earn less can give them some slack.
Of course, if you have a second kid, childcare expenses will increase, but probably not double due to synergies. The $10,000 SALT cap deduction for individuals and married couples really hurts homeowners in expensive real estate markets. Property tax on a $1.5M assessed house alone is roughly $19,200. Then the couple is paying ~$18,000 in state income taxes.
Entertainment : Date night can easily cost $200+ an outing for two once you include tickets to a ball game or a show and transportation. Entertainment also includes the cost of sporting equipment, memberships, Netflix, cable, internet, and more. If your friends invite you to a weekend getaway, a bachelor or bachelorette party, or a function or two, your entertainment budget will be blown to smithereens.
After 22 years of work with no change in income or expenses, this household will likely amass a net worth of over $2,000,000 and the ability for at least one spouse to retire since their son will have graduated college. However, based on my recommended net worth goal for financial freedomequal to 20X annual expenses, this couple needs to accumulate closer to $3,500,000 to really feel comfortable for both to retire.
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