Six Figures Is the New Minimum Wage
6-Figures is not what it used to be. I'm going to go over that in this post.
I crunched some numbers on this to help illustrate how income looks these days and how far your dollar goes.
First off: This is not financial advice nor am I trying to take the place of a professional. Please make your own decisions about what you want to do with your money. This is just educational to illustrate income, retirement accounts in relation to expenses. Consult a professional for personalized advice.
Also: All of the calculations made here are assuming a single filer, NOT married or filing jointly. I'm also assuming a non-income-state-tax state like Florida, Texas or Nevada.
Retirement Terminology
Let's define some terms before we begin so we're all on the same page here.
If you already know what these are, then you can skip to Scenario 1
401k
A 401k is an employer sponsored tax-deferred investment account. Usually your job will offer this as an option. They may also provide a "match" whereby they will contribute to your account up to a matching amount like 1-3%. I will say, it's not like it used to be where you'd get 20-50% match contributions.
Tax-deferred just means you don't pay taxes on this now. When you turn 59.5 years old, you are eligible for withdrawing from the account to pay for stuff as you go into retirement. At the time you start to withdraw from the account is where you will pay taxes on this.
Investment means your contributions will be invested in the market with the goal to grow over time. When your employer/retirement custodian give you those forms to fill out as far as electing where your contributions go, I wouldn't let the details paralyze you. The biggest return is going to be just the sheer fact that you're contributing to this account OVER TIME. You can always correct your selections and refine your choices as you learn more.
As of 2026, the max contribution limit to a 401k is $24,500. This means across any jobs you have you cannot contribute more than this without paying penalties for over contribution. This figure does not include employer matching contributions. So you can max this account out and whatever your employer matches in the job with is just an added bonus.
Keep in mind: When your role with the company terminates, you may receive notice of distribution. Don't make the same mistake I made and just accept this. There's ways in order to preserve the tax-deferred benefits I'll cover in just a moment.
IRA
An IRA is another tax-deferred vehicle you can leverage. It stands for "Individual Retirement Account". You typically get 2 options with this type of account: Roth and Traditional (sometimes referred as a "Rollover IRA").
You can have both a Roth and a Traditional IRA. However, you cannot contribute more than the annual maximum in sum to those accounts. So you can contribute $3500 to a Roth and $4000 to a Traditional, but not more than a total sum of the max contribution limit across accounts. An IRA is an IRA.
As of 2026, the max contribution limit for IRA accounts is $7,500.
There's also "catch-up contributions" that can be made where they permit an additional $1000 to be contributed to the account if you're over a certain age (as of 2026 that's 50, but could change in future).
This is the type of account you can use as the receptacle for your 401k funds after your job has terminated to avoid taking penalties and early distribution fees against your retirement and having to start all over again. Confirm the process with your financial institution, but you can basically rollover funds from a 401k into an IRA tax-free and maintain the benefit. What's more, you can have more directed control over your investments in an IRA moreso than you can from a 401k.
Something to keep in mind because I made the mistake of just accepting this is how it goes when I could have deferred my distributions and made a rollover instead.
Traditional IRA
The tax benefits namely come from the Traditional IRA in that you can claim a deduction on your Marginal Adjusted Gross Income (aka MAGI) up to a certain threshold, then it starts to taper down.
This means whatever you contribute to a Traditional IRA while you make less than a certain amount can be deducted from your taxable income when you go to file your taxes, thus reducing the amount of federal income tax you have to pay.
One caveat about the Traditional IRA is MRD or "Minimum Required Distributions". This means at a certain age, you are required to take distributions from the account. It seems that money is going to get taxed one way or another.
Roth IRA
A Roth IRA is another type of tax-benefiting account. The difference between this and a Traditional is how taxes work around it. In this account, you contribute post-tax money to this account and it can grow tax-free.
Another benefit of this kind of account is you can withdraw your contributions penalty free, but you may not withdraw any gains until you are 59.5 years old (without penalty).
HSA
An HSA is a "Health Savings Account". This is a tax-deferred account that can be used for qualifying medical related expenses. You can also direct your savings into investments as you wish.
One important caveat to this type of account is you can only contribute to this if you have a qualifying HDHP or a High Deductible Health Plan and covered by insurance for the entire 12 months of the year. Divide the max contribution limit by the number of months worked if less than a year unless you were covered on DEC01. There's an IRS "last month" rule that says if coverage ended on December 01, then you are able to claim the entire year. If you are not covered by an HDHP, then you technically cannot contribute to this account.
Now that we've covered the things you need to know, let's jump into the examples and samples I've put together!
Disclaimer: Please take these numbers with a grain of salt. While I did my best to calculate things down to the dollar, not everything may be exact. Please allow for a 1-3% margin of error in the numbers.
Scenario 1: Zero Income/Expenses
If you want to max these accounts out, it will require at least $36,400. Let's suppose you want to max your retirement accounts out and you have no expenses.
An example use case could be someone of legal working age, but not quite independent on their own yet and able to manage school and work and the job they have happens to offer a 401k account.
You can open an IRA at any age when you start earning income; there's no age limit to an IRA, but you must have earned income. Allowance and gifts are not counted as income as it must be W-2 or 1099 based income.
You would have to earn a minimum of $39,387 for the year of 2026 in order to max all these accounts out and that would leave you with nearly $0 in take-home pay after taxes and contributions. You may want to earn slightly more than this to ensure all taxes are properly paid as you max out your retirement accounts.
Since you're in the lowest tax brackets and because of the offsets from the tax-deferred accounts, that would potentially leave you with close to $0 in federal income taxes to be paid depending on your situation. It would be a really easy 1040 form to fill out as well. However, it would not exempt you from FICA or Medicare or Social Security tax, hence the amount slightly greater than the max contributions across retirement accounts.
I would personally be an advocate to open an IRA at the very least and do whatever you can to contribute what you can to this account until you get in the habit and financial ability to max it out and make your decisions from there. I would also be an advocate to stay out of debt as much as possible and operate from a place of savings as much as possible. The debt trap in America is really easy to fall into and terribly difficult to get out. However, you are in control of your future and you decide what you want to do with your life and your money. It's just my opinion that saving as best you can instead of taking on a bunch of debt just makes life a lot easier.
Scenario 2: The Renter's Dilemma
In this next example, let's assume the median rent of $1,800/month, an average $200/month in electric costs, $80/month in Internet, $75/month for a mobile line and an average $400/month in groceries in order to survive.
That brings monthly expenses to around $2,555 per month or $30,660 per year.
If you want to make the bills and still max out your accounts, you'll need to make at least $77,112 per year to ensure Federal income taxes, FICA, Medicare, Social Security taxes are paid.
This is also omitting a lot of things we take for granted. This is no ChatGPT $20/month, no Netflix, no Hulu, no vacations, no eating out at restaurants, and absolutely zero excess spending outside of pure survival.
This is also omitting having a car, which we'll cover in the next example. It's just to illustrate what it would cost to max out the retirement accounts and cover some essentials assuming maxing out your retirement is your ultimate priority.
Scenario 3: Renting with Travel
Let's assume the same apartment example, except we'll add a $750/month car payment expense and a $225/month auto insurance policy.
That would put your monthly expenses at $3,530 or $42,360 annually!
In order to have that kind of take-home pay and still max out your retirement accounts, you would need to make $90,573 before taxes to ensure all is well and good. That would leave you with a perfect $0 leftover when all the bills, taxes and retirement accounts are paid, depending on your tax situation.
Again, no entertainment nor discretionary spending whatsoever. You would need to make even more money just to have any kind of subscription or unexpected expense at all.
Scenario 4: Homeownership
I will first highlight an error I made in this calculation: I'm totally missing property taxes which absolutely need to be considered in this and the next scenario. However, the numbers will still highlight what is required in order to make this work at a bare minimum.
That would put your monthly expenses at $3,885 or $46,620 per year.
In order to make all that work you would need at least $95,945 per year before taxes in order to pay all the bills, taxes and still max out your retirement accounts.
Just to reiterate, this is missing any discretionary spending and property taxes. So this number is most likely going to be higher depending on where you live and what your property payments look like.
Scenario 5: Home plus Car
If we add a car to the previous example, let's assume the same $750/month in car payments and the same $225/month in auto insurance, this is where six figures is exceeded.
This would put your monthly expenses at $4,860 or $58,320 per year.
Before taxes, that means you have to make $112,605 in order to ensure bills, taxes and maxing out retirement accounts.
This definitely needs property taxes included and I also forgot to include things like vehicle registration, gas, maintenance on the vehicle, maintenance on the house and so on. It does not include vacations or any travel of any kind.
Conclusion
I hope you obtain from this:
- I'm advocating for a savings-first style of budgeting rather than a debt-first style of budgeting.
- To get you to think about your retirement before your retirement starts thinking about you.
- I'm not suggesting you're required to make these numbers work and income is no valuation of your self-worth; I only want you to have this in the back of mind rather than making it the definition of reality.
- I'm also not saying that retirement is the absolute priority or the only way to build wealth. There's plenty of ways to save up and you don't have to save the max to get the max benefit. You ultimately control what you contribute!
If you start early on earning income and getting into the habit of stashing that money away for later, preferably in a tax-deferred type of account so you're less likely to withdraw from it, avoid debt, and manage your money rather than letting money manage you, then you'll be in so much more of a better position than most people.
The best time to invest in the market was 15 years ago. The next best time to invest is today.
--Author Unknown
The truth is: most are not thinking about their future and its unusual for someone in their late teens or 20s to be thinking and talking about retirement. I know I was definitely an outlier.
It took a lot of work and shifting my habits around to get to where I am. By no means am I some millionaire (even at 37), but I'm also not completely broke and wondering if I'm going to make my next rent payment vs keeping my phone online. I'm also not suggesting you do what I do because your path is what you will walk.
For a long time, I've been living below my means as best as possible and only recently have I been able to feel what most people might consider "rich" (which really isn't even that rich, mind you):
- I'm able to pay ALL my bills on time.
- I've zeroed out my credit card debt and stay on top of that.
- I'm able to buy what I want in groceries and even enjoy occasional restaurant visits.
- I have money set aside for retirement.
- I rubber-band between 1 and 5 months in savings in cash.
- I'm not struggling by any means, but any small mistake with my money can be fatal to my finances.
You could say I'm comfortably floating just above survival.
Six figures is not what it used to be. It used to be a sign that you had "made it" and lots of people lived like that. I've been making six figures in income since I was 23, live like I still make $14.32/hr from my first job and still have yet to save up a million! (some of this is due to bad ex's with poor financial literacy, but that's another post).
Are you making any sacrifices in order to make retirement work?
Does this seem like something you're experiencing right now?
The ultimate key takeaway from this is to start thinking about your future. Don't give up on it just because its far away or you feel like it's impossible
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