Who is the Middle Class Now?

The definition of middle class can vary depending on who you ask. 

A young college graduate with a $22,000 entry-level job may consider herself middle class because her parents were, she graduated from college and she’s just starting her white-collar career. 

A married blue-collar worker with two children making $41,000 a year may consider himself middle class because the family owns a lovely three-bedroom home in the Midwest and their kids attend a good public school. 

According to standards followed by Pew Research, these people would be considered “lower income.” Pew categorizes middle-class household incomes as ranging from $42,000 to $125,000, and upper-income households as having incomes of $125,000 and above (measured with assumptions regarding household size and geographic cost of living).1 

Unfortunately, even those who truly fall under the “middle-class” category aren’t always in an optimal financial position. In a recent survey, people across all income thresholds responded that they would have a difficult time coming up with just $1,000 to pay for an emergency expense. This is how the numbers broke down:2 

·         75% of people in households earning less than $50,000

·         67% of people in households earning between $50,000 and $100,000

·         38% of people in households earning more than $100,000 

It’s worth repeating that more than one-third of households earning more than $100,000 a year don’t have $1,000 set aside in an emergency fund. 

The thing about emergencies is that we don’t adequately plan for them. We happily auto-transfer money from our paychecks to our 401(k) plans each month, but pay for out-of-pocket car repairs with a credit card. Which, incidentally, is how many people overburdened with credit card debt get started down that path. 

We believe that insurance takes many forms, and one of them is emergency funds. If you don’t have a liquid cash account for unexpected expenses, we encourage you to start saving. 

While money is typically the biggest factor in determining class, the St. Louis Federal Reserve Bank looked at three demographic characteristics — age, education and race — to assess middle class status. By and large, most people who fall into its middle class statistics are those who finished college, regardless of their age or race.3 

One reason for this is because even in low-wage industries, such as retail or food and beverage, employers appear more likely to hire a college graduate over applicants who did not finish college. In fact, this may account for why Americans with a bachelor’s degree have a 2.4 percent unemployment rate compared to the 5.9 percent of those with a high school diploma or less.4 

Just how much money does it take to live in a middle class household in this day and age? According to the Economic Policy Institute, the basic family budget for a two-parent, two-child family ranges from $49,114 in Morristown, Tennessee, to $106,493 in Washington, D.C. Geographic variations are primarily due to housing and child care costs.5 

We keep seeing headlines claiming that there are Americans who work full time and yet still live in poverty. For example, a full-time, full-year worker paid $7.25 per hour (the federal minimum wage) will earn about $15,080 a year before taxes, based on 2,080 annual hours. This is below the federal poverty line of $16,317 for a single parent with one child. Of course, that applies only to workers who make the federal minimum wage, but states can set their own laws.6 

For example, if you live in Montana and work for a business not covered by the Fair Labor Standards Act with gross annual sales of $110,000 or less, the minimum wage can be as low as $4 an hour.7 A full-timer in that scenario would earn about $8,320 a year, which makes it easy to see how coming up with $1,000 for an emergency expense could be difficult. 

Content prepared by Kara Stefan Communications 

1 Richard Fry and Rakesh Kochhar. Pew Research Center. May 11, 2016. “Are you in the American middle class? Find out with our income calculator.” http://www.pewresearch.org/fact-tank/2016/05/11/are-you-in-the-american-middle-class/. Accessed May 20, 2016.
2 Ken Sweet and Emily Watson. The Associated Press. May 19, 2016. “Poll: Two-thirds of US would struggle to cover $1,000 crisis.” http://bigstory.ap.org/article/965e48ed609245539ed315f83e01b6a2. Accessed May 20, 2016.
3 Tami Luhby and Tiffany Baker. CNNMoney. 2016. “What is middle class, anyway?” http://money.cnn.com/infographic/economy/what-is-middle-class-anyway/. Accessed May 20, 2016.
4 Josh Boak and Emily Swanson. The Associated Press. May 18, 2016. “Poll: Americans more upbeat about own finances than economy.” http://bigstory.ap.org/article/e8923ac9e5a64dba9117c8fc25e5789b/poll-americans-more-upbeat-about-own-finances-economy. Accessed May 20, 2016.
5 Elise Gould, Tanyell Cooke and Will Kimball. Economic Policy Institute. Aug. 26, 2015. “What Families Need to Get By.” http://www.epi.org/publication/what-families-need-to-get-by-epis-2015-family-budget-calculator/. Accessed May 20, 2016.
6 Ibid.
7 United States Department of Labor. Jan. 1, 2016. “Minimum Wage Laws in the States – January 1, 2016.” https://www.dol.gov/whd/minwage/america.htm. Accessed May 20, 2016. 

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 



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