How to Get Into the Upper Middle Class

Is entering the upper middle class attainable in 2020's America? Welcome to analyzing finance with Nick. Today we're going to be talking about something I get asked a lot, especially after I did the how you get rich video. And that question is, how do I get into the upper middle class? But it's not usually worded that way. It's like, "Look, Nick, I'm not trying to swing for the fences and start a business to get me to $20 million in counter elite territory. I just want to make enough money to live a good life and have about $3 to $5 million so I can have a six-figure retirement." Is that attainable? And if it is attainable, how much work is it? Is it going to require the same amount of intense sacrifice as the entrepreneurship path does? I'm going to answer that question in this video.

First, we got to define what upper middle class is because that's a very subjective term. I don't even really use it in my own class hierarchy. In my class hierarchy, I consider that to be either middle class or professional class depending on what the source of your income is and what your connections are to institutional power. If you want to learn more about that, watch my video, the American class hierarchy. But generally, people are either in the upper income part of the middle class or professional class to $125,000 a year. High-end about $500,000 a year. It also varies heavily depending on where you live. When it comes to this analysis, I'm going to compare it to three major cost of living type regions. In a lower cost of living city, the break income for an upper middle class lifestyle is less than half of that in a high cost of living city. So, we have to keep that in mind when doing this analysis.

Speaking of cities across the country, I am going to be doing my analyzing finance Nick tour across the country next year with several different cities with both a mix of standard meetups and curated experiences. You'll see as this video progresses some of the tour cards of some of the places we're going and I would love to see you guys there. But back to the point of this video, if you have a lower cost of living place, the main difference is housing. And the assumptions, let's go to the key assumptions here. The first assumption is that you're going to live in a 2500 square foot home in a nice neighborhood that your peers are in similar income levels, like an upper middle class or above type neighborhood. Second is college education. You're going to be able to send at least two kids to college and they'll be able to graduate without taking on student loan debt. Assumption number three is retirement. You'll have a six-figure retirement income once you are finished with working and you're going to finish work before you turn 70, preferably actually in your early to mid-60s. I'm assuming you have a career life of 40 years, but depending on whether you go to graduate school or have other things happen in life. Whether that 40 years starts at 21 or 28 affects your retirement timing. SUV or the equivalent quality of a car that's about $60,000 new and you replace it every 10 years. You're going to go on a vacation every year. Let's say you go international every 3 to 5 years and for other years you go on domestic vacations. I'm assuming you buy higher-end food and have a healthy diet, a premium gym membership, have a good health insurance plan and other nice lifestyle things so you're not just grinding the whole time. I'm going to assume that you have a sustainable withdrawal rate from your retirement of 4 to 5% and that you can get in your retirement returns about 6 to 8%. And with that, we're going to now go into the numbers.

In a low-cost living city like in the south of the Midwest, you would need about after-tax income of about $170,000 a year to live the upper middle class lifestyle. If pre-tax income, it's depending on which state you live in in this part of the country, it's going to be $220,000 to $250,000 gross. If you have dual income household, that means each of you need to have a job that pays about $125,000 a year. In a middle cost of living city where housing costs are a little bit higher, you're going to also need to have a save or higher retirement based on this too. The gross income you're going to need is probably closer to $300 to $350,000 a year. And in the higher income city, a place with like San Francisco, LA, New York, Boston, and like some of these really high cost of living cities, the housing cost and high taxes in most of these states make a huge leap compared to even the middle cost of living level city. So for that assumption, I'm going to put it at about $500,000 to $600,000 USD. In many high cost of living cities, particularly in California, the rent to home buying income ratio is so out of whack, that your rent for the same property as buying something can be as little as half of what your mortgage payment would be for the same property. And for those who opt to rent a house and then use about a third of the saved money to add to their retirement accounts can still have the upper middle class lifestyle, but at about 20% less than it would be in terms of income needed to do it. So instead of a $500,000 to $600,000 a year income you need for the upper middle class lifestyle I mentioned, you could probably now do it on $375,000 to $500,000 a year. That's another angle at this. But overall, I'm giving you the benchmarks of what it's going to be like. On the low end for an upper middle class lifestyle is $200,000 a year. On the high end, it's about $600,000 USD a year. So, that's kind of the benchmark we're trying to hit. And I explained what you're going to be spending and saving to do that. If you want to learn more about the retirement side of it, I'm actually going to make a second video that's a follow-up to this called, is it possible to save for retirement in the modern era. A lot of people feel increasingly discouraged about that, and the numbers are actually probably a little more optimistic than you think.

Now that we have what money income levels you need to get there and we have what you're going to be spending on, how realistic is it to get to these income levels? That's what we're going to do next. And if you look at the distribution of people in these tax brackets, it will provide some color on this. In the United States, the percentage of individuals who make over $100,000 a year is 23.1% as of 2024. Households that make above $100,000 a year is about 36% of households. For $150,000, that number drops to about 13%. And for households, it drops to about 25%. For $200,000, it is now 7% of individuals and 15% of households. For $250k, it's about 3 to 4% of households. And it's for house for individuals, sorry, 3 to 3.5 to 4% for individuals and 9% for households. For $300,000 a year, it's about 6 to 7% of households and 2 to 2.5% of individuals. And for $500,000 plus, it's about 1% of individuals and about 2 to 2.5% of households. So that kind of provides some context. What I consider the middle class or households that make anywhere from, if you live in a really low-cost living place, maybe the bottom of that would be $100,000 and the higher end would be about $300,000 per year. And so that puts it about, depending on what metric you use and what your floor is, is anywhere from about 15 to 35% of American households are in the true middle class as I like to call it, not the one that politicians like to think it's the 25th to 75th percentile, but the fifth to 35th percentile or really what is the middle class in the United States. And if you want to have that upper middle class lifestyle in a low-cost of living place, you're going to need to be in about the top 15% of American incomes. In a medium cost of living place, your family is going to have to be in the top 10% of incomes. And if you want it in a highly expensive place, your family income is going to have to be in the top 2 to 2.5% of incomes.

Is this harder than it was in the 1990s? Definitely, it is. We have a problem in our society where it's a lot easier to get by now because the floor wage has gone up and certain social factors have just made it easier to stay afloat as a single person. But it is harder now to get to this upper middle class level that I'm talking about. And therefore the motivation to achieve to get there, given the big delta between relatively how comfortable it is to get a basic standard of living and how difficult it is to get to the upper middle class level, is causing a lot of people to get discouraged. But the point being for this video is that if I want to get to that upper middle class level, what do I need to do? There's a few things. One, you need to see what the realistic ceiling of your income is and adjust where you live based off of that. If you have a ceiling of your income under $200,000, you need to move to a low-cost of living city, particularly in the Midwest or the Southeast US. If your job is in one of these more expensive cities, try to figure out a way to make it remote or create a consulting practice or something that you can do remote so you can get out of the high cost of living. Because if you are just breaking even living in a place that you can't afford to maintain the lifestyle you want or be able to save the amount you want to be able to retire with that comfortable lifestyle, you're going to have major problems. If I had an income potential peak of sub $200k, I would have moved out of California a long time ago. Given my optimism and my career trajectory and my nature as an entrepreneur, which provides a little bit more upside than a standard career path, I have decided to stay in California. I think I can reach the levels needed to provide a similar lifestyle or above where if your income potential is considerably higher, you don't need to be as concerned about this.

Let's rewind back. Let's say you're still in college or early in your career and you're thinking, what kind of careers or jobs in the economy can get me to this level that I want to have? That's the next question. There are several. Like if you want to get into the upper middle professional tier, like your salary is anywhere from like $100,000 to $200,000, there's actually a lot of job opportunities. Like that's a lot of corporate level jobs within the very high cost of living cities. And the less higher cost of living cities, it's a little bit, it's like the next level's up, like level instead of like maybe level two or three, that's maybe level four or five in the corporate ladder. And there's several directions you can go. You could go into medicine, whether you're a physician or a physician's assistant. Some of the higher end like nursing jobs, pediatrics, psychiatry, psychologists, etc. are all within this income range. Even in low-cost of living cities, in fact, with medicine, it's kind of inverse. The lower cost of living city doctors often get paid more because a lot of doctors don't want to live in rural areas or low-cost of living areas. So the demand is higher. Engineering is another example. Mechanical engineers, senior level software engineers, and hardware engineers can get their comp into the $100,000 to $200,000 range. Even in higher cost of living cities, the income can go even above that. Middle-level managers in general in corporate America, whether it's operations, finance, marketing, management, training, etc., most mid-level corporate salaries are anywhere between $100,000 to $250,000 at major companies. If you're an associate at a big law firm early in your career or a less prestigious firm, maybe years three through five, you're going to hit this mark. Finance, like commercial banking analyst level for most financial roles, whether on the buy side or the sales side, you're going to hit this level actually pretty early in your career. The trades, like there are certain trades that have this level, whether it's specialty engineers for things such as power plants in the age of AI and robotics, people who have to repair and fix these robots, nuclear power plants, which is probably a little more advanced than a typical handyman type job, or airline pilots are another category of this, or just very specialty trades, electricians, you will get to this level too. And then also sales, like if you are a good salesperson or even a decent salesperson. It's their quota, you'll probably get into the $100,000 to $250,000 level, but it is very variable and depending on how good you are at your job. If you're very good at sales, especially selling a higher-end product like certain tech platforms or SAS, you can get well above this and into the next tier we're going to talk about. And if you have a dual-income household, you only need two people making $110,000 a year at one of these lower cost of living places. You can balance it, but it has to average that and you can hit the upper middle class lifestyle. As I said before, $100,000 is a lot more attainable. It used to be 36% of households make that much. And in terms of individuals, it's over 20%, almost a quarter of all individuals in America. You just got to be in the top 25%. You can make it. And that sounds hard just on the raw of averages, but what are the percentage of people who either complete their degree or their equivalent training and have the diligence to persist and work hard and try to make something of their lives? Especially in the era of easy distractions we have with the world, it's probably about that number. So like when people scare you with low percentage of success rates, it doesn't mean that you're doomed.

The next rule level, let's just say, is in the $200,000 to $350,000 range. This is the amount of money that at least one of you will need to make in a dual income household in a medium cost of living or high cost living city, or individually in a low-cost living city. Again, medicine is in this category. The more advanced forms of medicine like doctors and things like radiology, anesthesiology, cardiologists, orthopedics are in the $300,000 to $600,000 range. Especially if you have your own practice. Law, like if you're at bigger law firms or you've hit partner at smaller law firms, you're going to get above $250,000 and maybe as high as $500,000. Directors, VPs of midsize companies or just like, I don't know, like level four, level five above in like major corporations. And this includes stock comp as well. You're going to get into that $250,000 plus $250,000 to $400,000 range. Finance, investment banking, buy side, private equity, and wealth management. If you're good at your job, you'll get into this. There's wide variances because of bonus pools are determined on how well your fund does or how well your brokerage practice does, or if or investment banking, how many deals you close on a given year. But you can hit that target. Tech jobs too, like if you're in the management, whether project management or product management or managing a team of engineers, you'll get to this level. Or if you live in a high-cost living city or work for like an AI company or in a very in-demand technology, even as a software engineer, you'll get to this level. And then entrepreneurs, like small businesses of lifestyle businesses that have limited scale, you're going to get to this level if you make it.

Now, if you want to get to the $500,000 plus level of income, that's a little bit harder. If you want to be the top 1 to 2% of working earners, like these are the kind of professions, there's still a lot of things you can do. One, you got to move up a little bit higher to the corporate level, like senior vice president level or above. At midsize firms, smaller firms, this is C-suite. Bigger firms, it's VPs and above, depending on the titles on your ladder. This can get to the $350,000 plus range. But really, if you don't make it to like senior vice pro, like basically one or two levels under the CEO, like the other members of the C-suite or maybe one level below that, you're going to have a hard time breaking the $400,000 level in corporate America. Most corporate people have a hard time breaking the $250,000 level. That's why there's the appeal of entrepreneurship. If you want significant upside, finance, like if you are a portfolio manager at a buy-side asset management firm like a hedge fund or mutual fund, you're a principal at a VC or a private equity firm, you can get well over $400,000 into the millions. If you're a wealth manager with a large book of business, you get that, but then you're also kind of entering entrepreneurial territory. In medicine, this is people who own their own practices, surgeons as well. Those are kind of the two lines of medicine if you want to get to the $400,000 plus level. You're either a surgeon, whether it's plastic surgeon, cardiac surgeon, orthopedic surgeon, or you own a practice. The second one is like partner level at top law firms. You're going to get to the $500,000 level plus, or if you run your own law firm and specialty practice and have a good solid set of clients, you will get to this level, which is probably more in the entrepreneurial territory. Salespeople, you're very good at your jobs, whether you have national accounts, you're a senior vice president of sales, you're one of the better realtors in your city, you are just in general really good at sales. If you can bring in revenue and make rain for a business or yourself, you're going to make good money. However, it's going to be very volatile because of economic cycles and your salary mainly being based on commission. And then tech executives, you're like director level, VP tier or above at the FAANG type companies or other tech companies, you're a senior director or C-suite level. You're going to get to this level too. You're going to break the $400,000 level. And then, as I talked about in my video, how to get rich, entrepreneurs, like if you have a mature business that has more scalability beyond a basic lifestyle business that doesn't have too much capex, could be in the medical, could be in real estate, it could be a contractor, it could be an agency, it can be a financial firm, could be a tech firm, it could be a lot of different things. And it's more business profits than salaries at that level.

So, those are jobs you get. How do you get them? You usually need to have a good education. Some require professional school like an MD, JD, or MBA. And the scarcity of people getting these degrees and difficulties of the bar exam and other regulatory things keep competition out, which allows salaries to be relatively high. You can develop a set of technical expertise, whether in a technology or having a niche skill that is in demand but hard to find, is going to get you paid well in whatever you're doing. Entrepreneurship, willing to take the risk to start a business. Finance or investing is just being able to use the operating leverage of managing other people's money. And the corporate ladder, being good enough at office politics to move up high in the ranks. But that usually takes the longest to get to this level. It's going to take you anywhere from like the mid-six figure level. Anywhere from five to 15 years on a job. Corporate America, it's probably a decade or two. And entrepreneurship, it could take, it's very variable. Can depend how long your business takes to take off. But the upside's a lot higher. The payout is also not guaranteed and it often takes longer than a lot of these other paths. So that's kind of the take. And so as a result, there's a lot of jobs that fit in this category. That's kind of the bright side. Is it going to be easy? No. If you want something that is designed for the top 5 to 10% people, you're going to need to be one of the top 5 to 10%. You're going to need to have skills that can get you a 5 to 10% income. And that's just a reality of it. You need to be good enough at your profession that you can command a wage better than somebody that is average at your profession. That's a fact of life, but that doesn't mean that it's not attainable. But overall, that's kind of your plan. It's a combination of having a career that can generate enough income and then once you have that income, being able to save at least 15 to 20% of your after-tax income.

Do you feel now that attaining the upper middle class is more attainable or less attainable than you believed in the past? Let me know your thoughts on this and thank you for watching.