If you want to get rich, you might as well focus on joining industries that pay very well. But there’s more to just joining a well-paying industry to get you to a million dollar income. You’ve also got to perform at a high level, survive cutthroat competition, and receive lots of luck along the way.
Corporate politics can be brutal on your climb to the top of the pyramid. Oftentimes, it’s those who’ve been able to successfully sell themselves internally who achieve the greatest rewards.
During my career in investment banking, I was too defiant. Despite getting promoted quickly in my 20s, I stalled in my 30s because I didn’t want to relocate to grind cities like New York or Hong Kong. Nor could I pretend to like enough people who could push me forward. In the end, I decided to see what I could do entirely with my own fingers.
We know that an American top 1% income starts at around $450,000 today. We also know that a top 1% income varies by age as well. For those interested in making a top 0.1% income, let’s take a look at some career profiles.
The People Who Make $1 Million A Year Or More
Managing Director, Investment Banking – Achieving the title of Managing Director has always meant that you’d finally break seven figures a year, at least when I worked in the industry between 1999 – 2012. The typical MD base is around $400,000 – $500,000, and they would often earn a bonus of $500,000 or more.
But the bonus is often paid in deferred stock and cash. For example, out of the $500,000 bonus, only $200,000 might be paid in upfront cash. The remaining $300,000 is deferred over four years. If you quit before the four years is up, you lose your deferred compensation, which is why negotiating a severance is huge in any industry with deferred compensation.
General Partner, Private Equity – Private equity is one of the most coveted next step careers for investment bankers. The hours are much better, while the pay also tends to be higher as well. These folks earn salary, bonuses, and carried interest, which can often lead to huge bucks.
Some of the top private equity firms include: Blackstone Group, KKR, Warburg Pincus, TPG, and various sovereign wealth funds like Temasek, GIC, and Abu Dhabi Investment Authority. Another chart by efinancialcareers.com.
Portfolio Manager, Hedge Fund – Again, your compensation is based on performance, size of assets under management, and the number of employees. First-year associates out of business school can make $250,000 – $500,000 at the largest shops. By the time you become a general partner or portfolio manager, you should be making at least $1 million a year if your fund is over $500 million. Here are some great charts by efinancialcareers.com.
Portfolio Manager, Actively Managed Long Only Fund – Fund manager pay is based on tenure, performance, and assets under management. In order to earn $1 million a year, you will probably need to manage over $1 billion in assets under management and have a solid 5-year or longer track record of performance. A 1% fee on $1 billion generates $10 million a year in revenue to pay the portfolio manager, analysts, office rent, marketing, other operating expenses, and the overall company.
But most of these actively run funds are charging less now (~0.5%) due to the proliferation of index funds. Companies such as BlackRock, Fidelity, Wellington, T.Rowe. Price, Capital, PIMCO, Prudential, Nuveen, Invesco, Janus, AXA, Legg Mason, TIAA-CREF and many more all have portfolio managers and some analysts who earn over $1 million a year.
Principal/ General Partner, Venture Capital – Just like all the other money management industries, there are good venture capital firms and there are bucket shops. The largest VC firms like Benchmark, Sequoia, and Kleiner Perkins pay their General Partners multi-million dollars a year, especially if one of their investments has a huge exit such as when Whatsapp sold to Facebook for $19 billion in stock and cash.
I consider being a VC one of the best vacation jobs in the world because you don’t have to build anything, you get to earn a nice salary with carry, and you don’t have to prove your investment returns for years given the normal 5-10 year lockup periods for funds. By the time your limited partners discover you’ve made terrible investments, you’ll have earned a lot of money and moved on to a new VC or started a new fund within the firm.
- Analyst $ 80K – $ 150K
- Associate $ 130K – $ 250K
- Vice Presidents $ 200K – $ 250K + $ 0-1MM bonus
- Principal/Junior MD $ 500K – $ 700K + $ 1-2 MM bonus
- Managing Directors/Partners $ 1MM + $ 3-10MM bonus
Partner, Big Law – The starting salary for first-year associates is around $190,000. By their 8th year (34-35 years old), their salaries will have risen to around $330,000. The funny thing about big law is that everybody up to the 8th year all get paid pretty much the same across all firms.
Bonuses are nothing to write home about, often ranging between 0% – 20% of salary. Therefore, in order to make the big bucks in law, you need to become a partner where you’re bringing in business and earning a percentage of profits.
* Strategy Consulting, Partner – Firms like McKinsey, Bain, and BCG are some of the top strategy/management consulting firms. But to get to partner and $1,000,000+ generally takes about 10 years after business school, and only a few make it that far. Here’s the salary progression from the website: managementconsulted.com.
First-year out of undergrad:
- Base: ~$80k
- Signing Bonus: ~$5k
- Performance Bonus: up to ~$12k
First year out of MBA:
- Base: ~$150k
- Signing Bonus: ~$25k
- Performance Bonus: up to ~$44k
Manager/Project Leader (2-3 years out of MBA):
- Base: $190-210k
- Bonus: $80-120k
Associate Principal/Senior Project Leader (4-5 years out of MBA):
- Base: $230-300k
- Bonus: $110-200k
Junior Partner/Principal (6-8 years out of MBA):
- Base: $320-400k
- Bonus: $300-500k
Senior Partner/Director (10+ years out of MBA):
- Base: $400-600k
- Bonus: $500k+ (all-in, senior partners at top firms usually make $1M+; top partners can make $4-5M while ultra-performers can make more)
* Division I Football Coaches – The average salary of a Division I football coach is roughly $1.8 million. It is the football coach that is often the highest paid state employee. For example, Nick Saban took down $11,132,000 at Alabama in 2017. Not bad! Even Urban Meyer, a head coach full of controversy for covering things up makes over $6 million a year.
* Public Company C-Level Executive – Don’t let $1 salaries fool you. C-level executives are often paid mostly in stock compensation. The theory is to tie compensation to performance. They simply end up getting way more stock than anybody at the firm. For example, Dara Khosrowshahi reportedly got a $200+ million package to join Uber and pretend that the firm cares about its minimum wage earning drivers. Google CEO Sundar Pichai has a base salary of around $650,000, but got a stock grant worth $199 million in 2016. The median CEO pay for the top 100 largest companies reached a record $15.7 million in 2017.
* Self Help Gurus – The self-help industry is estimated to be worth more than $11 billion dollars and growing because we’re all jockeying to make more money and gain more prestige. The self-help industry is also considered recession-proof since even more people are looking to get out of the muck during downturns.
Folks like Tony Robbins make millions selling $10,000 self-help seminar tickets. His net worth is estimated at $500 million. TV personality Dr. Phil wrote a bestseller on how to lose weight and eat right, despite he himself being overweight. Then there are guys like James Altucher whose company generated over $11 million in sales selling himself as a cryptocurrency genius in order to sell his courses online.
Whether you succeed or fail, these people will always succeed because people are always feeling bad about themselves in this ultra-competitive world.
* Professional Athletes – They make great money, but their longevity isn’t very long. One estimate says that if you are able to finish every professional golf tournament at par, you will average $1 million a year in earnings. Did you know the NBA veteran’s minimum salary is $2.4 million if you’ve been in the league for 10+ years? Pretty good if you can survive that long.
The average NBA player will make ~$25 million during his career. This is based on an average annual salary of $5.2 million and a career length of 4.8 years. In comparison, the average NFL player will make only $6.5 million due to a lower average salary of around $2 million a year and a shorter average career length of just 3.3 years. Elsewhere, the average MLB player earns about $3.3 million annually, while the average NHL player earns about $2.5 million.
* Bloggers – Blogging is my favorite business in the world because you can simply write whatever is on your mind and advertisers will pay you, not your readers. Since you give away your product for free, there are no returns, no customer support, and no obligations to your customers, only freedom baby!
One of my favorite responses to an unhappy reader is, “I’ll gladly refund any money you’ve paid to read my work.” For some reason, they never respond. Whoo hoo! I’m telling ya, if you’re irreverent and don’t want to worry about your product spoiling or having a defect, blogging is the best.
Once you build a brand and can generate organic traffic of over one million pageviews a month, there’s a decent chance you could make $1 million in revenue a year. Here’s a sample income report from a personal finance blogger.
The Million Dollar A Year Dream
The easiest way to make $1 million a year or more is as a public company non-founding CEO. The compensation is outrageously high for what they do. CEOs have huge teams who do most of the work for them. A CEO is really just an ambassador of the firm who tries to drum up positive PR. They sign off on decisions that have already been carefully vetted. They neither invent new ideas or get in the weeds.
The hardest way to make $1 million a year or more is a profession that relies mostly on performance. As a fund manager, you’re either outperforming your respective index or you aren’t. As a professional tennis player, nobody is going to win a match for you. As a blogger, you’re either going to come up with interesting content that gets indexed and shared, or suffer in purgatory. The upside is professions that rely mostly on performance provide the most satisfaction.
I don’t have to tell you that earning $1 million a year is difficult. Even if you do get to such a milestone, it’s even harder to stay there over the long-term due to competitive forces that will eat away at your product or services.
Never assume you’ll make $1 million again the next year. Instead, save as much of it as you can. If possible, figure out a way to build a brand around yourself or your business to expand your earning power. Always work on improving your craft because eventually, you will become irrelevant. When that time comes, however, you already will have saved up a lovely nest egg to support you for the rest of your life in peace.
Remember, you only need to get rich once!
Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.
Reader, do you believe you have the ability to earn $1 million a year? How long do you think you can earn $1 million a year if you do? Did your happiness change at all once you hit the $1 million mark? What other types of people earn $1 million a year?
The post Who Makes A Million Dollars A Year? Exploring The Top 0.1% Income Earners appeared first on Financial Samurai.