It might come as a HUGE shock to you, but I was not in the top 1% of my high school.

We had 495 kids in my graduating class and so you’d have to be top five (technically, top four I suppose) in the class to be in the top 1%. I wasn’t in that rarified air.

I wasn’t even in the top 5%. My quarterly reports would almost mockingly tell me I was top 10%, second half so as to not give me the impression was just outside the top 5%!

I’ve never had a problem with it because I knew I wasn’t putting in the same amount of time and effort as the top students. They were smarter than me for sure but they also worked harder than I did. I’m glad they were rewarded for their hard work because now many of those kids are doctors and lawyers.

I want my doctor and my lawyer to have graduated in the top of their class! I’m fine with, and I’m sure many people are also fine with, a “top 10% second half” personal finance blogger.

That said, I have always wondered what it meant to be “in the top 1%” – it comes up in mainstream media all the time.

The portrayals of the 1% are often of incredible wealth. They don’t pay their “fair share” of taxes and they have politicians in their pockets. Is that accurate?

More to the point, can a regular person join the ranks of the 1%? Or is that impossible unless you were born with a silver spoon?

I dug into the numbers to find out!

What Does the Top 1% Mean?

There are a lot of different ways to measure the top 1%.

In school, it was all about your grade point average.

But in life, there are a lot of measures of success.

With the top 1%, do you mean 1% of income earners or 1% of net worth? For income, is it pre-tax or post-tax? For net worth, does it include home equity or not? If you’re married, should you divide your income in half to account for two people or just pick your own?

Since this is all hypothetical anyway and it doesn’t really matter, you can pick whatever you want!

There’s no leaderboard in life. It’s really you versus yourself so pick whatever you want.

Top 1% of Income Earners

If it’s the top 1% of income earners, we have several data sources we can use. My favorite source for this is the Social Security Administration’s Wage Statistics (202) because it’s based on Form W-2. It’s not all-encompassing because it’s only on Form W-2 but doesn’t include other items like capital gains and interest.

With the SSA Wage Statistics, we have 172,030,932 total wage earners so the top 1% equals the top 1,720,309 wage earners.

To be in the top 1% of wage earners, you need to make between $300,000 and $349,999.99. This includes wages.

Total income should include wages as well as interest, dividends, capital gains, etc. For a full picture, we need the help of the Internal Revenue Service and their tax stats. They processed 160,824,340 tax returns for the 2022 Tax Year and so the top 1% accounts for 1,608,243 tax returns.

When we sum up the total number of returns that made over $500,000 in adjusted gross income, we see 2,492,671 returns. The next group, which earned $200,000 – $500,000, has over nine million tax returns in it. And when you consider that many Americans don’t need to file a tax return, since they make less than the standard deduction, it’s probably safe to say that you need to make more than $500,000 to be in the top 1% of Americans by adjusted gross income.

To be in the top 1% of adjusted gross income, you need to make at least $500,000.

Top 1% of Net Worth

If it’s 1% of net worth, I first thought we could use the U.S. Census data for this but that data lags by a few years and doesn’t give us the top 1% – the best we can do is 10%. (I dig into average net worth statistics in this post if you want to see it sliced and diced a million ways)

And it turns out my next favorite source, the Federal Reserve and their report on Distributional Financial Accounts only has the data in aggregate. We know how much total wealth is concentrated in the top 1% but there’s no way to figure out how much you need to get into it.

As it turns out, the Survey of Consumer Finances is the source but to get what we wanted, you needed to dig into the raw data. Fortunately, someone has beaten me to the punch and it’s PK at Don’t Quit Your Day Job!

To be in the top 1% by net worth in 2023, you need at least $13,666,778.

How to Join the 1%

To be in the top 1% of wage earners, you need to make somewhere between $300,000 and $350,000.

To be in the top 1% of net worth, you need to accumulate at least $13,666,778 in assets.

Now that we have targets, how do we reach them?

For this, we can look towards the assets of the top 1% for clues (in this case, it’s net worth). The Federal Reserve has done the heavy lifting for us by slicing the net worth figures by asset class:

The chart is the percentage of an asset across the entire group, not a representative sample of someone within that group, but it’s good enough.

We can see a few striking trends:

• The bottom 50% has over half of their net worth in real estate – likely their primary residence
• The top 1% has 42.9% of their assets in corporate equities and mutual fund shares – investments!
• The top 1% has 18.7% of their assets in a private business
• The top 1% has just 12.1% of their assets in real estate, the lowest percentage of any group

You’ll also notice that the bottom 50% also has a large percentage of their net worth in “consumer durables” – almost 20%. Consumer durables are defined as items you buy that lasts more than three years, such as cars or large appliances (dishwashers, refrigerators, dryers). This makes sense – a $20,000 car is going to be a much larger percentage of your net worth if you have a lower net worth.

For example, if your net worth is $100,000 a $20,000 car is 20% of your net worth. But if you raise your net worth to $200,000 that same $20,000 car is only 10%.

Conclusion: The path to the 1% is paved with business(es)!

This pushes us towards the conclusion that one of the most reliable ways to build wealth in America is to do it with a business – either starting your own or investing in one. (Or more than one, as is the case with investing in the stock market.)

Income producing assets are what separate the rich from the wealthy.

This isn’t the only way to get wealthy but we can see that there are certainly trends as you move up the wealth ladder. There’s less invested in real estate (and consumer durables) and a greater amount in the stock market, private businesses, and “other assets.” (perhaps alternative assets?)

Are You Willing to Sacrifice?

Getting to the top 1% financially is like getting to the 1% of anything else – there are sacrifices.

If you want to become the CEO of a Fortune 500 company, you won’t be able to spend as much time with your family or on your hobbies. The demands of the job, for which you would be rewarded handsomely, will require you to not be as present in other areas. This is not a universal law but I can’t imagine the time demands of a Fortune 500 VP is higher than that of the CEO.

If you want to put more money into investments, you’ll have to sacrifice some discretionary spending. You may have to live in a smaller house so you can contribute more to your brokerage account. These are sacrifices that must be made if you want to accumulate more.

There’s always a healthy balance though – 1% sounds nice but in the end, does it matter? Does it align with your priorities? Are you chasing the wrong thing? What happens if you get it?

When I was in high school, I knew I needed good grades and to do well on the Advanced Placement tests. Good grades were important because they would help get me into a good college. High scores on AP exams meant I could place out of classes, which would save me time and money.

It was not clear to me whether the sacrifices required to get into the top 5% would result in better outcomes. I got into the school I wanted, into the program I wanted, and placed out of miserable a 7 AM calculus classes – so it was a win even though I wasn’t tops (or even near it) in my class.

The story of my life is “just good enough” and I’m OK with that.