A $100,000 salary no longer buys you a -2-

It's debatable whether these numbers - which exceed the earnings of about 90% of American households - or this budgeting plan are relevant to most people. Yet they offer a glimpse into the cost of a life of comfort, ease and abundance that the vast majority of families will never experience and that remains reserved for a sliver of the U.S. population.

The most flexible part of the 50/30/20 budget is the large amount set aside for "wants." Plenty of families can limit their wants to less than 30% of their income, said Jonathan Swanburg, president of the Houston-based firm TSA Wealth Management.

The amount a family needs for savings - or financial security - is also flexible, but less so than for "wants," as personal savings have become a substitute for a strong social safety net.

'People need to not blame themselves when we feel caught in this way. It actually helps you to realize that this is why you're running in place.'Alissa Quart, author of 'Bootstrapped: Liberating Ourselves from the American Dream'

Let's start with a rainy-day account: If a family spending $117,500 annually aimed to set aside three to six months' worth of expenses in an emergency fund in case of unemployment or any other unexpected event, it would need to gradually put aside about $25,000 to $50,000.

As for retirement: If this couple set aside 10% of pretax income for their retirement, they would be saving a total of $23,500 per year, a commendable amount but one that is still well below the annual 401(k) contribution limit of $23,000 per person.

If the family wanted to save to buy a house, they would be looking at a median down payment of $51,250, according to the real-estate data company Attom. In many markets, prospective buyers would need to save much more: The median down payment was as high as $210,000 in Hawaii, $141,000 in California, $101,000 in Massachusetts and $100,000 in Washington.

If the parents wanted to pay one-third of the college expenses for their two children, as recommended by some college-savings plans, that would mean putting away another $7,200 each year, assuming the kids would attend an in-state public college.

For middle-income families, even if these goals are doable, they're not easy to achieve. Financial pressures stemming from unaffordable housing and education, inadequate safety nets for healthcare, unemployment and retirement, and years of economic volatility and rising consumer prices have left many Americans feeling financially insecure.

There is no "pure, individual solution for these things," said Alissa Quart, the author of "Bootstrapped: Liberating Ourselves from the American Dream" and executive director of the Economic Hardship Reporting Project. Rather, it's important to strengthen workers' influence through unions and to "vote for politicians who understand what it means to struggle" and who can implement systemic changes to tax policy and funding for expenses like healthcare and education, she said.

"People need to not blame themselves when we feel caught in this way," Quart said. "It actually helps you to realize that this is why you're running in place."

How are middle-income families actually doing?

A lingering sense of pessimism has defined the recovery from the COVID-19 pandemic, despite an improving U.S. economy and gains in household wealth.

In 2022, families generally had sufficient income to cover their required payments, but families of color in particular had "grown more pessimistic and uncertain about the current and future state of both their own finances and the economy," according to the Federal Reserve's most recent Survey of Household Economics and Decisionmaking. Overall, people's "self-reported financial well-being fell sharply and was among the lowest observed since 2016."

As the rate of inflation increased, the share of adults who said they could pay all their bills declined to levels last seen in 2018, although most people were getting by, with 86% of households that earn $50,000 to $99,999 and 94% of those that earn $100,000 or more saying that they were able to pay their bills in full.

Some higher earners, meanwhile, were hardly doing better. In a recent survey by Pymnts Intelligence, 48% of respondents earning more than $100,000 said they were living paycheck to paycheck, including 36% of those earning more than $200,000. The top reason for living paycheck to paycheck for those earning $100,000 to $200,000 was debt, while for those earning more than $200,000, it was financial support for relatives.

Even people who are making ends meet feel challenged by retirement and savings. Only 31% of nonretired respondents to the Fed survey thought their retirement savings were on track. Many of them weren't wrong: Among people ages 30 to 44, 28% said they didn't have any retirement savings; for people ages 45 to 59, the share was 19%; and for those 60 and older, it was 12%.

Facing these challenges will require middle-income families to carefully evaluate their priorities and what tradeoffs they are willing to make. "I know some people that make $1 million per year and are very financially nervous because they spend too much and will never be able to retire," Swanburg said. "I know other people that make very little, but they are perfectly content to live modestly and could easily retire early if that is what they want to do."

Earning more can make things easier, he said, but ultimately, "financial comfort is more a function of spending habits than it is of income."

We want to hear from readers who have stories to share about the effects of increasing costs and a changing economy. If you'd like to share your experience, write to readerstories@marketwatch.com. A reporter may be in touch.

-Venessa Wong

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04-27-24 1210ET

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