Revising the $100K Illusion

Not long ago in an economy not so far away, a six-figure annual wage spelled arrival, success and wealth – not to mention future financial freedom and security. Times and prices change. Here’s how to restore a punch to those six figures.

How quaint that $100,000 a year once seemed like millionaire status for wage earners. When I was a kid, my parents said things like, “He can certainly afford it – he makes six figures!”

Earning a $100,000 salary remains special and rewarding. In researching my new book, I find the happiest retirees had annual income peaking at more than $100,000 while they still worked. (The least happy group’s pre-retirement wages averaged about $73,000.) Other research shows higher income correlates with increased happiness – to a point.

But $100,000 ain’t easy street any more. Inflation ravages this once-status salary. In 2010, $100,000 bought what $109,291 buys today; in 2000, what $138,384 buys today; in 1990, $182,338; in 1980, $289,218.

The 1970s runaway inflation did the worst recent damage: To match the purchasing power of $100,000 in 1970 takes more than $600,000 today.

Prices for essentials like housing and medical care increase at many times the rate of inflation.

Driving? Hitting the books? Gasoline prices almost tripled between 1969 and 1980 and tripled again between 1998 and 2008. Overall costs of even community colleges outpace inflation by 24% over the past five years, according to the College Board.

Taxes? Count on losing about 30% of your gross to federal, state and local taxes. If you earn $100,000 yearly, after taxes you bring through the front door about $5,800 per month or $69,600 annually.

That amount provides a cushy lifestyle for a single, childless apartment dweller. It’s no abundance of money for a married parent, especially in an urban area. A mortgage, a couple of car payments, an orthodontist bill and an annual vacation today guts even a six-figure income.

Retirement savings also depend now, not on reasonably solid company and municipal pensions, but on accounts linked to temperamental stock markets. Even a $1 million retirement fund, once another Holy Grail of financial accomplishment, guarantees little security.

Now more than ever, you never feel financially free if you spend beyond your means, no matter how much you make. If you make six figures, you still must live by the same rules as someone earning $29,500.

  • Pay yourself first, setting aside money for savings and investment before you even see it. Payroll savings plans and auto-deposits are a good way to do this.
  • Create a spending budget and track your spending – this enlightens you about your situation, to say the least.
  • Set your goals. Determine what you save for and how much you need. Retirement? College? A home in the mountains?
  • Make a plan. Decide how much you need to save and how to maximize your return.

Let’s hope your salary climbs and climbs, as long as you never forget: What you keep and not just what you make determines your financial security.

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Wes Moss, CFP, is the chief investment strategist for Capital Investment Advisors and a partner at Wela Strategies, both in Atlanta. He hosts “Money Matters,” a live financial advice show on Atlanta’s 95.5 FM and AM 750 News/Talk WSB Radio. His two books are Make More, Worry Less and Starting From Scratch. He has appeared frequently on CNBC, Fox Business Network and on Atlanta-area television. He also writes weekly about personal finance in the “Bargain Hunter Section” for AJC.com, the site of The Atlanta Journal-Constitution. Connect with Wes on Twitter at @WesMossWSB and on Facebook at Wes Moss Money Matters

This article appeared originally, in different form, on AJC.com.

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