In Chicago, you really ought to be able to manage on $250k. There are nice houses in just about any neighborhood you want to live in on sale for less than $600k. That's $3000/mo monthly payments, plus say $15k of taxes, for $50k/y of housing costs. Food is, say, $20k, and transport another $10k. So you have $80k spent on necessities. If we assume a 40% average tax rate and an income of exactly $250k, you have $70k/y of slack. (To be clear, I understand people have other expenses, but I also think $600k is a pretty generous housing allowance in Chicago. However, the parents in question inexplicably spent $1.2M.)

Sure, it'll be expensive to send four kids to private school . . . so, don't do that? Or pay only part and use loans for the rest? But in reality the financial situation is probably even rosier than this, but they're probably squandering the money.

You left out retirement. Assuming a two income household, that’s near $40k for 401k contributions. Assume Roth for sake of convince for tax calculations.) Healthcare likely costs 6-12k/year for a family too. (Premium plus deductibles, and contributions to HSA account.). If any kids are in daycare, that’s 12k per kid, probably closer to $24k near major cities.

If those requirements are stretching a $250k income, how exactly are people making $50k supposed to afford a family and retirement?

I think you know the answer. They aren’t.

$250k/year puts someone into the upper 5%.