Who is in the "Top 1% and 10%"?

At the Financial Gym, we focus on helping clients reach financial fitness no matter where they start out. Previously, I worked in wealth management, meaning I worked primarily with “high net-worth individuals.” Ever heard of the phrase “rich people problems”? Well, my job was to help solve them.

To be considered a high net-worth person, you need to have $1 million in liquid financial assets, meaning the total value of your stocks, bonds, ETFs, mutual funds, and cash equivalents. 

So what have I learned about what it means to be in the 10% of income earners and wealth owners in the US? What about the top 1%?

To answer this, let’s dig into the numbers and the strategies that wealthy people use for their money.

The numbers

According to the Economic Policy Institute, to be considered in the top 10% of wage earners, you would need an annual salary of $122,595 in 2018. For the top 1%, it would be $737,697.

But that is just income. What about if we consider the 10% or 1% based on wealth?

Someone in the top 10% has a net worth of $1,219,126, while someone in the top 1% has a net worth of $11,099,166, according to the Federal Reserve Survey of Consumer Finances from 2019.

The strategies

Some strategies people in the Top 10% and 1% use to stay financially fit are investing, tax planning, and estate planning. Through working with a Financial Trainer at the Financial Gym, tools like this can be available to everyone. However, once you are a high net worth individual, it can get complicated. In this case, it is a good idea to work with a Level 3 Trainer.  

For investing, it can look like moving beyond investing in assets available through public markets. While publicly traded stocks and bonds are a part of anyone’s financial fitness goals, the top percent of people will often also invest in private equity, hedge funds, or venture capital. To engage with these investments, you need to be an accredited investor, meaning that you have an income of at least $200,000 for the last two years, along with a net worth of at least $1 million dollars. 

The purpose of tax planning is to help someone pay as little taxes as legally possible. This can be done by strategically leveraging market losses through tax loss harvesting, or through donating highly appreciated assets, rather than cash, to get a tax break and avoid capital gains taxes. Timing your income through deferred compensation is another way to lower your tax liability. 

Estate planning involves considering how a person’s assets will be distributed after they die. Often, this included establishing Trusts, which is a method of asset transfer that avoids probate. This mean your assets won’t be tied up in courts in a potentially long and expensive legal process. There are a variety of different Trusts that can be created, including a Charitable Remainder Unitrust, Grantor Remainder Annuity Trusts, Revocable Trusts, and Irrevocable Trusts. 

Estate planning also considers whether your estate will be subject to estate taxes. The Federal Estate Tax Exemption is currently at $11.7 million for individuals. This means that unless your estate is worth more than that, your estate will not have to pay estate tax. While not a concern for those in the top 10%, this is definitely top of mind for people in the top 1%.

How the Financial Gym can help

Wherever you fall on the wealth spectrum, we believe everyone should have access to financial planning. Whether you are ready to tackle rich people problems, or if you need assistance getting out of the paycheck to paycheck cycle, a Financial Trainer is here to help. Schedule your free warm up call today!