|Sad Cayenne doesn't think she's in the middle class.|
Nonetheless, the middle class exists, even if we can't agree on how to define it, and, somehow, everyone thinks they're middle class. While I like the idea of defining the middle class in terms of household income quintiles, most of us can agree that the middle class is a relative term, not an absolute one. To be in the middle, you need something on either side.
A conflating factor with defining the middle class is location. Certain cities are a lot more expensive than others. Six figures don't go as far in northeastern cities of Boston, D.C., and New York as they do in the Rust Belt.
And because rent is higher in those locales (not just for your apartment, but for every brick and mortar merchant in your area, too) the cost of everything gets inflated in high cost of living areas. The groceries cost more. The gasoline costs more. It all filters down to your personal budget.
So it's not surprising when someone in Los Angeles might not consider himself middle class despite earning sixty thousand a year, while someone in Cincinnati might consider herself middle class while earning forty thousand.
As with everything, we're talking in relative terms. So it's hard to know exactly what constitutes a middle class income in your locale.
Luckily, the New York Times has a fantastic interactive that shows where your household income places you relative to the nation at large, your own state, or city. It's pretty cool. (Note, the interactive is using 2012 data. Given that incomes haven't increased that much in the past few years, it's still fairly representative.) And since I am obsessed with learning with who reads the blog, I've added a couple surveys asking which income quintile your household fits into nationwide and in your own city. (Update, the Toluna surveys, again, have been deleted from their site from some reason.)
I love the tool, since it illustrates how different average incomes are across the nation. A family earning $50,742 was right at the 50th percentile nationwide in 2012. But that same family would be in the bottom 38% of all families in Seattle, and the top 29% of income earners in Flint, Michigan.
In case you were wondering where the Done by Forty household falls, we're solidly in the top quintile nationwide, as well as within the Phoenix metro area (which seems to be about as close to the national average as you could hope for).
As a liberal, this is a tough pill to swallow, since (like everyone, apparently) we want to considers ourselves working class or, at least, middle class. But the numbers don't lie. We're earning more than most people in our city, and in the nation, which probably explains why we can approach financial independence at the rate we are. We'd like to think it's all about frugality and savvy investments, but the fact of the matter is that above average incomes seem to be a pretty common theme in the FIRE community. Just calling it like I see it.
Some final thoughts:
- Though the way your local government collects taxes can have a material impact for early retirees, the federal government makes no such distinction based on location. A family earning $100k is subject to the same taxes in New York as they would be in Indiana. While this is inherently unfair, it's also the system we all work under, so why fight it? Workers should consider geographic arbitrage as an option: trying to keep your high paying job, while moving to a lower cost area and telecommuting. Or, absent that, leveraging your big city pay when moving to a cheaper city, insisting that you need to keep the same level of compensation.
- If such a move isn't possible or desirable, at least try to calculate your net pay when considering job offers from other locales. $80k in Ohio may net you more money for investments and leisure than $100k in California, when the relative costs of living and taxes are considered. If you want to stay in, or move to, a higher cost of living area, apply the same analysis, aiming to understand the total cost of a locale.
- Any real discussion of what we mean by "the middle class" has to consider the impact of location. Using a single salary range to define the middle class for the entire nation ignores the wide variance in costs and taxes that similar-earning families pay in our nation.
But that's enough blathering for an early Monday. What do you think, readers? Do you consider yourself middle class? Do you feel like an average family in your own city or neighborhood?