Cost of achieving the American Dream outpaces earnings by more than $1M

(TND) Achieving the American Dream is getting harder to reach as prices have outpaced increases in wages for most Americans that are struggling to keep up with bills and preventing them from saving for a house or retirement, fueling concerns that they may never get to achieve some of the core life milestones that

Achieving the “American Dream” is getting harder to reach as prices have outpaced increases in wages for most Americans that are struggling to keep up with bills and preventing them from saving for a house or retirement, fueling concerns that they may never get to achieve some of the core life milestones that are expected for a person living in the U.S.

The cost of achieving common milestones like buying a house, raising children and going to college have skyrocketed over the last several years after the coronavirus pandemic uprooted the economy and accelerated prices once people returned to pre-pandemic habits.

The American Dream now costs over $3.4 million, well beyond the $2.3 million that the average American makes in a lifetime of earnings, according to Investopedia. Included in the costs are things like buying a home, paying for an engagement ring and wedding, raising two children to the age of 18, buying cars and going to college.

What income is required to be considered middle class has also gone up over the last decade. In 2012, a household income of $35,364 was considered to be a middle-class lifestyle, but that figure has increased to $50,099 as of 2022, according to GOBankingRates. The upper end of middle-class has also shifted, increasing over 41% since 2012 up to $150,298.

Altogether, personal finances and achieving common life milestones have become an increasingly stressful problem for Americans trying to get by.

Homeownership is one of the most expensive pieces of the puzzle and has shown few signs of getting easier for people to afford. Recent data from Clever Real Estate found first-time homebuyers need a household income of nearly $120,000 to afford the median-priced home in America, and nearly all the 50 largest metros have prices that are too high to be considered affordable for median-earning households.

Home values exploded during the pandemic when interest rates for a mortgage were 3% or less, expanding the purchasing power for people looking to buy a house and making the pool of buyers larger, which increased competition for a limited number of homes that sent prices upward. While mortgage rates have gone up since then, the cost of homes isn’t falling despite less activity in the market.

According to Redfin, the median U.S. home sale price hit the highest level on record in April, jumping 6.2% from the year prior to $433,558. The lifetime costs of a home are even higher when factoring in interest, insurance, repairs and other required spending that comes with homeownership. Investopedia’s analysis found the all-in cost of owning a home approaches $800,000.

Homeownership is the most common piece of what Americans consider to be a part of the American Dream. A Bankrate survey from April found 78% of Americans still consider to be part of the dream, higher than 65% who cited being able to retire and having a successful career, 54% that said owning a vehicle and less than half that said having children.

“Owning a home is still the centerpiece of the American Dream but affordability is the main obstacle to making that a reality," said Bankrate chief financial analyst Greg McBride. “Aspiring homeowners point to the combination of insufficient income, high home prices, and not having saved enough for the down payment and closing costs as the dominant pain points.”

Beyond buying a home, it has also gotten more expensive for couples to get married and have children with the costs of insurance, education and childcare moving upward. Marriage and two children are a commonly used benchmark for the American Dream, which added up cost a family hundreds of thousands of dollars.

The cost of raising two children to age 18 was nearly $577,000 as of 2022, according to Investopedia. Sending those children to college is also a tremendously expensive endeavor for most families, with one year of college costing $42,070 for both kids at a public, in-state four-year school.

Childcare costs can be prohibitive in some areas for people to start families and has been a growing issue for lawmakers in Congress trying to figure out how to help ordinary Americans continue to achieve the American Dream.

Student debt is also a drag on many young couples’ finances with high tuition costs setting people back years on achieving financial milestones. While a college degree expands lifetime earnings potential for most graduates, Americans have also frequently been found to experience some regret over their loan balances and have delayed making other financial decisions like investing for retirement or saving for a home.

Struggles to save for retirement are also driving concerns about being unable to achieve the American Dream. According to Investopedia’s analysis, the typical American needs to save nearly $716,000 to retire, which only covers the 12 years a 65-year-old retiree has between the average life expectancy in the U.S. of 77.

Younger workers are increasingly concerned about whether they will be able to retire, an issue that is amplified by the looming financial cliff Social Security and Medicare are facing without intervention from Congress. Research earlier this year by the TIAA Institute found 21% of younger Americans don’t believe they will ever be able to retire. Less than half of people still working were confident they would retire someday.

That anxiety is also felt by older Americans approaching or at retirement age. A survey released earlier this year by AARP found about 20% of Americans who are 50 or older and not yet retired have no retirement savings and are concerned about prices rising faster than their income.

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