Here’s how much money you need to make to be wealthy in Connecticut

Back • Publication Date: May 21, 2024 • Fiscal & Economics

By ,Staff writer

As some Connecticut earners see their financial assets rocket up in a booming stock market while others struggle ahead of their next paycheck, a new study showcases the extreme differentials in household earnings in major metropolitan areas including in Connecticut.

How much does any one household need to make annually to feel wealthy with confidence for a lifetime of financial security? Many studies use the 90th percentile of income as the marker for that threshold, with a recent survey citing the 98th percentile of earners feeling downright rich compared to others in their cities.

That 90th percentile dollar figure can swing wildly depending on where one lives, according to data published by the finance website DQYDJ.

The Greenwich-Bridgeport corridor ranks among the top dozen U.S. regions for the highest earnings among the 90th percentile of households, at $312,000. But that figure can provide a misleading sense of security depending on where one lives – $312,000 does not go as far in Greenwich’s Cos Cob neighborhood where houses often sell for $1.7 million or more, compared to Bridgeport’s Black Rock district 25 miles east where that $312,000 would cover the purchase of the median home, with enough left over for few year’s worth of property taxes.

And even within Greenwich and some other affluent Connecticut towns, wealth gaps exist that put financial strains on some households struggling to afford rent or a mortgage among other expenses.

The New Haven-Milford region likewise ranks in the top 20 for metropolitan areas with the highest 90th percentile of earners, at a little over $282,000. The Hartford area ranks 45th nationally with the topmost earners making nearly $242,000, with the New London regional threshold at $217,000, ranked 80th among about 260 U.S. population centers included in the study.

The U.S. Federal Reserve tracks the distribution of household wealth nationally dating back to 1989. As of the end of last year, home values accounted for half of the assets of the bottom half of U.S. households, and 38 percent of the assets for the next group up through the 90th percentile of all households ranked by wealth.

Three decades ago for those whose wealth put them at the 90th percentile, real estate likewise accounted for the biggest chunk of asset value. Traditional pensions became the largest asset class for that group starting in 1994, and later in the decade stocks and investment funds as 401(k) plans grew to become a dominant feature of employer retirement packages.

Ballooning values in 401(k) plans have widened the wealth gap, according to a new study by researchers at the University of Wisconsin-Madison’s Center for Financial Security, particularly if analyzed across racial demographics for households.

“The racial wealth accumulation disparity widens with the initial wealth level,” Center for Financial Security authors wrote in their study. “The greater their wealth, the harder it is for older Black households to climb the wealth ladder at the same rate as their White peers.”

A Connecticut Voices for Children analyst described a similar dynamic, speaking in April in a CT Insider interview.

“To give you a sense of the scale of income inequality in Connecticut, we estimated that the average of the top 1 percent of tax filers in Connecticut had income of $3.4 million,” said Patrick O’Brien, research and policy director for Connecticut Voices for Children. “Compare that to the 10th percentile in Connecticut where households made $18,800.

“You see a very stark difference even comparing the 10th percentile to the 50th percentile, because the distribution of income increases exponentially,” O’Brien added. “You get to the 90th or 95th percentile and it goes up a lot.”

In an effort to help more people reach adulthood with assets to invest toward life needs and retirement, Connecticut established the CT Baby Bonds program that invests up to $3,200 in a trust on behalf of each newborn child enrolled in the Husky Health state Medicaid insurance program. The pot can be tapped between ages 18 and 30 to help pay for a home, invest in a business or education, or sock the money away in a retirement account.

At the full $3,200 investable limit, a online calculator returns an $8,000 value over 18 years assuming a 5.2 percent rate of return, or about $14,600 over 30 years.

If not the kind of money that will make one rich, the CT Baby Bonds program is intended to provide a little extra boost toward financial stability in adulthood. Rolling the money into a retirement account at the same annual interest rate, that CT Baby Bonds nest egg would exceed $95,000 by age 67.

“We know that here in Connecticut and across the country, there is a wealth gap that has continued to widen,” said Erick Russell, Connecticut state treasurer, speaking last week in Hartford at a press conference. “This is a piece to the puzzle, as we look to end cycles of generational poverty.”

May 21, 2024
Authors: Alexander Soule •  Source: CT Insider • View