The median household income for a family of four was $114,425 annually last year. For an individual, it’s about $60,000.
Yet there are some people with special skills that can earn far in excess of those averages. I’m not talking about doctors or lawyers, but rather executives at companies with specialized knowledge and talent who earn as much in one year as do 10 families.
This was brought to mind by a Redditor who posted a copy of his W-2 showing how much he made on the r/Salary subreddit. My initial reaction was why was he paying more in federal taxes than he was making in a year, until I realized it wasn’t $135,000 a year he made, but $1.35 million.
No hate for him and I congratulate him on his success, particularly when it came to me that his federal tax burden was the equivalent of the household income for three families. Including Social Security and Medicare taxes, and his taxes were equivalent to four families.
As the rapper The Notorious B.I.G. once sang, “mo’ money, mo problems.” Yet as Mae West is also reported to have said, “I’ve been rich and I’ve been poor, and rich is better.”
Climbing the corporate ladder
The Redditor is a highly senior L7 software engineer at one of the FAANG companies. FAANG stands for Facebook (now Meta Platforms (NASDAQ:META | META Price Prediction)), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Google (now Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL)), all explosive growth tech stocks.
His L7 designation suggests he possesses extensive experience, technical expertise, and not only does he set policy for his company, but is influential across the industry, too. So he’s earned his way to that salary.
It also opens up a wide doorway for him to save and invest for his future and that of his family, and quite possibly his heirs, too.
Save and invest for the future
With such a large income, he has multiple avenues to pursue. Assuming a federal and state tax rate of 37% (common for high earners, plus possible state taxes), his after-tax income for 2024 would be about $855,609 (salary minus taxes at a 37% rate).
If he saves or invests 20% of this, he could set aside $171,122 annually. It’s quite possible that at that level of income, he could save as much as 30% of his salary, or $256,683. For retirement, he could maximize a 401(k) contribution of $23,000 (or $30,500 if over 50, including catch-up contributions) and an IRA contribution of $7,000 (or $8,000 if over 50), totaling $30,500 to $38,500. For 2025, those figures are bumped up to 23,500 and $7,500, respectively, totalling $31,000.
That leaves plenty for other investments, like brokerage accounts or real estate, potentially adding $132,622 to$226,183 annually at a 20% to 30% savings rate. High-yield savings accounts are also an opportunity.
It also means he should be using a good portion of those funds to set up an emergency fund with at least three months of expenses, but better at six months. That would account for roughly $285,203 to $570,405 based on his after tax income.
If his money was invested in just an S&P 500 index fund like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) or the Vanguard S&P 500 ETF (NYSEARCA:VOO), and earn 7% annually (the index’s historical returns minus inflation), their savings could grow exponentially, securing a robust and largely carefree financial future if managed wisely.
Key takeaway
It’s clear the Redditor’s financial position is enviable. He has a unique ability to build significant wealth through disciplined saving and investing. Still, he must navigate high taxes, lifestyle inflation, and economic risks.
Although he works for one of the FAANG stocks, he still needs to guard against a potential job loss, injury and illness, or even an economic downturn. No one’s job is secure, and even if he can likely find another similar position relatively quickly, it is always best to prepare for the worst and hope for the best.
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