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Net Income Ranking Analysis – United States
SAN FRANCISCO – DECEMBER 2013
Are you rich? To answer this question Onyx Rsearch analyzed United States Federal Reserve data collected from hundreds of US households. Two key metrics give you a solid idea of where you stand relative to other American households. The first is net household income (annual income from salary, wages, retirement, and investment income) The second is household net worth (your assets minus your liabilities).
>> Calculate Your Net Annual Income Ranking
>> Calculate Your Net Worth Ranking
This article analyzes how net annual income is distributed across US households. Net worth statistics are analyzed in the following article.
( View net worth analysis article )
Income Statistics
A great way to visually understand how incomes are distributed is to plot net income probability vs. net household income. As you would expect there are many households with moderate income and a few households with very high incomes as plotted in the figure 1 probability disbtribution. This graph shows what percentage of US households fall into each bin defining a $20k spread (income span). For example, just over 6% of American households earn between $90k-$110k. Click on the image to open a larger display.
Figure 1. US household net annual income probability distribution. Each bin shows the probabilty you are in a specific income range (Each bin spans $20,000 - $20k).
The green line is an exponential decay curve fit. In simple terms, an exponential decay indicates that there is non-linear falloff as income increases. It tells you that it is a big leap to earn twice as much. This is also evident if we add the first three bins (26% + 19% + 15% = 60%) – You have a sixty percent chance that your household earns between $0 and $60k per year.
Cumulative Distribution of Net Annual Income
While it is interesting to see how individual bin probabilities are spread out, a more convenient way to look at net annual income data is to accumulate the bin probabilities. By plotting the cumulative probability you can quickly see where you rank when compared to other American households using figure 2.
Figure 2. Cumulative net annual income probability. Use this graph to see where you rank relative to other US households. Click on the image to open a larger display.
Figure 2 plots the US net annual household income cumulative probability distribution. To determine your rank, find your net annual income on the x-axis and move vertically along the y-axis until you touch the yellow curve. Match this intersection point to the cumulative probability value on the y-axis label. This probability is your net annual income ranking.
As an example, let's say that you earn $100,000 ($100k) per year. You would be in the 75th percentile. That means that your net income is higher than approximately 75 out of every
100 people that you see on the street.
The cumulative probability graph in figure 2 has dotted lines in three different colors (red, green, and blue). Dotted lines define thresholds. The first (green) defines the 50% threshold. If you achieve a net annual income of ~$45,000, then you are in the top 50% of wage earners. If you make $200k per year, then you're in the top 10%. Now for the Big Question. How much does it take to become a member of the infamous 1%? That number is marked by the blue dotted lines. In order to be in the rarefied air, you must make ~$811k per year.
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