How to tell if you’re richer than you think

How long does it take to be considered rich? According to an internal poll conducted by Charles Schwab, the average American believes they need a net worth of $2.5 million to be wealthy, while $778,000 is enough to be “financially comfortable.”

But there are many ways to measure wealth. Net worth and income are two measurements. Another is your degree of indebtedness. The other thing is how prepared you are for your future and the future of your family as you approach retirement.

The highest income groups in the United States

To be in the highest income brackets in the United States requires a six-figure annual income. According to the latest available figures, for tax year 2021, top earners had an adjusted gross income (AGI) of:

• Top 10%: $169,800 or higher
• Top 5%: $252,840 or higher
• Top 1%: $682,577 or higher

These amounts vary greatly by region. In 2021, residents of California, Connecticut, Massachusetts, New Jersey and Washington need to earn more than $1 million to be in the top 1% of earners in their states. Residents of Mississippi, New Mexico, and West Virginia can earn less than $500,000 and still be in the top 1% of earners in their state.

All of these income categories were well above the median annual income in the United States, which was $70,784 in 2021.

Other measures of wealth

Wealth and income are two different things.

Income is what you or your family earns each year. Wealth is the assets you own.

“When people think of rich people, they immediately think of a dollar number, or income, but it goes beyond that,” says Summer Brodhead, CPA, CFP, of Everthrive Financial Group.

net worth

Your net worth is the total value of all of your assets minus all of your liabilities. It’s a more complete picture of your financial health than income.

An individual’s assets can include a primary residence, savings, and a car. A person’s liabilities may be a mortgage, credit card balances, and student loans.

A high-income individual may have a low net worth if he or she has significant debt. People with lower incomes could have a higher net worth if they paid off their mortgages or started investing early in life.

To increase your net worth, Broadhead advises tackling debt, especially high-interest debt like credit card debt. She also finds that clients who invest early, even if only small amounts at first, build significant wealth over time. “Make sure you invest wisely,” Brodhead says. “If all your money is in cash, you won’t be able to keep up with inflation, which will be detrimental over your lifetime.”

Retirement savings

Retirement savings are another way to measure how “wealthy” you are, especially if you join the ranks of 401(k) millionaires. If you start setting aside money in a tax-free retirement account early in your career, you’ll have more time to grow because of compound interest.

“Even a small amount can make a big difference if you start early,” Brodhead said. “You can always increase your savings as your income grows.” There are even ways to save for retirement when you’re living paycheck to paycheck.

Part of getting rich through retirement savings is living within your means, Brodhead warns. “I have clients who have millions of dollars in their retirement accounts, but I look at them and think they’re going to have a problem because their expenses are too high,” she explains. “Then I have clients who have a few hundred thousand dollars, and I don’t worry about them at all because they know how to control their expenses.”

Living without debt

Consumer debt rose between 2023 and 2024, with the average American consumer owing $104,215 in 2023 and $105,056 in 2024, according to an internal Experian study. That year, the largest percentage increase was in home equity lines of credit (HELOCs), which grew 7.2% from $42,139 in 2023 to $45,157 in 2024. Credit card debt also increased significantly, growing 3.5% from $6,501 in 2023 to $6,730 in 2024.

Credit cards, in particular, carry high interest rates, which affects your ability to save. Living with low or no debt is a form of financial security that can make anyone feel wealthy, regardless of their income.

Financial flexibility

At the end of 2024, about a quarter of American households were living paycheck to paycheck, according to an internal Bank of America analysis of consumer deposit data. Even those with high incomes can live beyond or beyond their means: 20% of households earning more than $150,000 lived paycheck to paycheck at the end of 2024.

Regardless of income, few people feel wealthy if they live paycheck to paycheck. But if your living expenses are much lower than your income, you can increase your actual wealth and sense of living a wealthy life.

Bottom line

Being rich doesn’t require joining the top 1% of earners, or even the top 10%. Reducing debt, saving for retirement, and living within your means will increase your net worth and build a more secure financial future.