What income do you need to be in the top 50% of Americans? Here's the magic number

The Census Bureau's Current Population Survey (CPS) collects data from roughly 60,000 U.S. households each month, representing about 110,000 individuals aged 15 and older. The surveys are administered monthly to provide continuity, but the results are published annually.

In 2023, those U.S. households reported a median income of $80,610, up 4% from $77,540 in 2022. That means half of households reported less income, and half reported more. In other words, any household that made more than $80,610 ranks among the top 50% nationally.

However, age is an important variable where income is concerned, simply because older people have had more time to accumulate assets and advance in their careers. For that reason, anyone interested in benchmarking their financial status should use age-based data so that they are comparing themselves to their peers.

The median income across U.S. households by age

The Census Bureau defines income as including wages from employment, Social Security benefits, welfare payments, interest on savings or bonds, dividends, unemployment and workmen's compensation and private and government pensions.

The chart below shows median before-tax incomes by age demographics among the respondents to the Current Population Survey.

As shown, the median income across all households was $80,610 in 2023. Households represented by people aged 45 to 54 had the highest median income at $110,700, while those aged 65 and older had the lowest median income at $54,710.

The 2023 Current Population Survey also provides information on income distribution. The chart below shows household income at selected percentiles.

The percentile distribution above details what shares of the population had income above and below specific thresholds. For instance, income at the 10th percentile was $18,980 in 2023. That means 10% of American households reported less income last year, and 90% of American households reported more.

Similarly, income at the 70th percentile was $127,300 in 2023. That means 70% of American households had less income last year, while 30% of American households had more.

How workers with median incomes can build $1 million portfolios

Many financial advisors recommend the 50-30-20 budgeting framework, which divides after-tax income into three spending categories:

• Needs: 50% of a household\'s after-tax income should be dedicated to non-discretionary expenses like groceries, rent or mortgage and utilities. Minimum interest payments are also grouped into this category.
• Wants: 30% of after-tax income should be dedicated to discretionary expenses like dining out, hobbies, luxury items and travel.
• Savings: 20% of after-tax income should dedicated to retirement savings. Interest payments above the minimum are also grouped into this category.

The 2023 Current Population Survey reported a median after-tax income of $77,790 for households represented by those 64 and younger. I selected that age group because many people have stopped saving for retirement once they reach 65, and are instead drawing down on their retirement account balances.

With that in mind, the 50-30-20 framework stipulates the median worker under 65 should save about $15,550 per year, which is about $1,295 per month. One smart place to invest that money would be an index fund that tracks the S&P 500 (SNPINDEX: ^GSPC) like the Vanguard S&P 500 ETF (NYSEMKT: VOO).

The S&P 500 is widely regarded as the best barometer for the U.S. stock market. It outperformed almost every other asset class over the last two decades, and it has never produced a negative return over any 20-year period in history. That means investors are essentially guaranteed to profit if they put money into an S&P 500 index fund and leave it there for at least two decades.

Moreover, the S&P 500 has typically produced robust returns. The index's total return level (with dividends reinvested) has been about 2,000% over the last 30 years, which equates to 10.6% annually. At that rate of return, if a person invested $650 monthly in an S&P 500 index fund -- that is, about half the amount the median household should save each month under the 50-30-20 framework -- their portfolio would be worth $127,900 after one decade, $478,300 after two decades and $1.4 million after three decades.

In short, the median U.S. household income is more than sufficient for an investor to build a $1 million portfolio, provided they invest consistently over the long haul.

Trevor Jennewine has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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