In decades past, the magic 6-figure salary was (…and still is) a monumental accomplishment. Individuals and families with earnings over $100k per year often had two nice cars, a nice home, took good vacations and still had plenty left over to save for the kid’s college and retirement.
But inflation (…or rising prices) has eaten away at that milestone according to an article we recently came across on Yahoo! Finance.
With the ever rising costs of health insurance, college tuition and housing coupled with much higher prices for necessities like food and energy, a six-figure salary can quickly become a six-figure “mediocrity.”
Workers earning over $100k per year – which accounts for less than 20% of U.S. households – often find that their higher incomes don’t go as far as they once did. In 2011 alone, food prices rose 3.7% for the year and energy costs were up an astounding 15.2% on an annual basis.
To compare, a $100,000 per year salary in 1990 would need to be just over $172,000 today to account for the declining value of the dollar.
Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., comments “What would have cost you $100,000 in 1976 would cost you $381,000 today. That’s just the inflation, and there are so many other things that have grown very expensive.”
For example, Adam cites the cost of healthcare and the fact that costs have risen over twice as fast as the standard inflation rate. The Kaiser Family Foundation, a group that tracks healthcare costs, estimates that since 2000, insurance costs have skyrocketed over 134%!
Another cost that’s drained the purchasing power of a $100k+ salary……housing.
In many areas of the country, prices for housing have far outpaced wage growth in the last decade. According to the Housing Affordability Index, the median family income in 2000 was $50,732 while the median home price was $139,000. By 2007, the median home price had jumped to almost $230k while the median income had only risen to just over $60k.
Even though the bust in housing did bring down median home prices, they still leveled off at around $166k in 2011.
Of course, location has a lot to do with how far your income will go. A $100k+ salary per year in Houston, Texas will certainly go a lot farther than it will in New York City.
Even though inflation has eaten a considerable amount of purchasing power away, an income’s real power is all about perspective and choices says Bryce Dunley, a certified financial planner with Ameriprise Financial. Many of those who find their six-figure income not going so far are those who have too much house, too many automobiles and too much credit card debt. Danley gives the example of a family making $100k who owns a $375,000 house, leases 2 cars at $450 per month and pays $250 per month on credit cards.
After taking out for taxes and all these expenses, the family has spent 75% of its income!
Despite location and lifestyle choices, the reality of inflation affects everyone.
According to Adam, “There is only a small percentage of people making this income. It points out that for your average person in your average job, this is becoming an increasingly hard country to live in.”
Monitoring precious metals like gold and silver every day, we see the effects of this inflation in the gold price. Since 2001, gold has gone from $275 per ounce to its present day $1600.
Stories like these further reinforce our view that individuals and families have to take measures to preserve the value of their wealth. We work hard for our money. Nothing could be more devastating than losing all you’ve worked for to massive inflation.
Inflation is why gold coins and silver coins have been increasingly popular investments in the last few years. With continued inflationary policies, we expect this trend to continue.
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