How to Tell If You’re Wealthier Than You Think

How much does it take to be considered rich? According to an internal survey from Charles Schwab, the average American believes it takes 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 affluence. Net worth and income are two measurements. Another is your degree of indebtedness. Yet another is how well you’re preparing for your future and that of your family as you approach retirement.

Top Income Brackets In the United States

To be in the top income brackets in the United States requires an annual income in six figures. According to the latest figures available, for the 2021 tax year, the 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 state needed 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 could earn less than $500,000 and still be in the top 1% of earners in their state.

All of these income brackets were much higher than the average annual income in the U.S., which was $70,784 in 2021.

Other Measures of Wealth

Wealth and income are two different things.

Income is what you, or your household, earn each year. Wealth is the assets you hold.

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

Net Worth

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

An individual’s assets could include a primary residence, savings, and a car. The person’s liabilities might be a mortgage, credit card balances, and student loans.

An individual with a high income could still have a low net worth if they are carrying significant debt. People with a lower income could have a higher net worth if they have paid off their mortgages or started investing early in life.

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

Retirement Savings

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

“Even just a small amount can make a big difference if you start early,” Broadhead 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 becoming rich through retirement savings, Broadhead warns, is living within your means. “I have clients with millions of dollars in their retirement accounts, but I look at them and think they’re going to be in trouble because their expenses are so high,” she explains. “And 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 increased 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. In that year, the biggest 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 eat into your ability to save. Living with low or no debt is a form of financial security that can make anyone feel rich, no matter their income.

Financial Flexibility

At the end of 2024, around a quarter of U.S. households lived paycheck to paycheck, according to an internal Bank of America analysis of consumer deposit data. Even those with high incomes can live at or beyond their means: 20% of households making over $150,000 lived paycheck to paycheck at the end of 2024.

Regardless of income, few people feel rich if they are living paycheck to paycheck. But if your living expenses are well below your income, you can increase both your actual wealth and your sense of living a rich life.

The Bottom Line

Being rich doesn’t require joining the top 1% of income 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.