Political Calculations: Distributing Income by Age Group in the US: Ten Years Older

June 4, 2007

Distributing Income by Age Group in the US: Ten Years Older

Previously, we looked at the distribution of income-earners in the U.S. according to their annual inflation-adjusted incomes by age group for the years of 1995 and 2005 by comparing identical age divisions for both years. In other words, we compared the Age 15-24 group in 1995 to the Age 15-24 group in 2005, 1995's Age 25-34 group to 2005's Age 25-34 group, and so on.

But, since we're looking at data collected 10 years apart and since each age group covers a 10 year span, we can also directly compare each of the age groups in 1995 against their 10-year older counterparts in 2005! What's more, we not only can, we have (at least up until we reach the Age 65-74 group for 1995!)

The following charts show what happened to the distribution income-earners of 1995 as they got ten years older:

Graduating to a Paycheck

The main thing that distinguishes 1995's Age 15-24 group is that as this group covers the general ages at which Americans go to and graduate from high school and/or college and enter the workforce, they go from being extraordinarily low-paid to pretty reasonably paid! We see this as the average annual income for this group as they aged 10 years from 1995 to 2005 increased by a whopping 156.1%, from $11,320 to $28,990 (in constant 2004 U.S. dollars).

From Age 15-24 in 1995 to Age 25-34 in 2005: Distribution of Income-Earners by Inflation-Adjusted Annual Income

In addition, large numbers of individuals who weren't earning incomes in 1995 entered into the workforce by the time they reached the 25-34 age range, as the total number of income earners grew by 27.2%.

Hitting Their Stride

Meanwhile, a massive shift from the lower end of the income spectrum to the upper end occurred as 1995's Age 25-34 group became 2005's Age 35-44 group:

From Age 25-34 in 1995 to Age 35-44 in 2005: Distribution of Income-Earners by Inflation-Adjusted Annual Income

In this chart, we see that even though the total number of income earners declined by 3.6% in the 10 years from 1995 to 2005, their total aggregate income increased by 18.5% from $1,016.4 billion to $1,204.8 billion. That led to a 23.0% increase in average income for the income-earner in this group as this figure grew from $26,754 in 1995 to $32,911 in 2005.

Moving Into the Peak Earning Years

As 1995's Age 35-44 group moved into the peak individual earning years of the Age 45-54 range in 2005, we see once again that the individuals within this group continue to shift away from low incomes toward high incomes, although not as dramatically as in the younger age ranges:

From Age 35-44 in 1995 to Age 45-54 in 2005: Distribution of Income-Earners by Inflation-Adjusted Annual Income

Here, the numbers of the total workforce decreased by 5.2% while generating a 2.0% increase in aggregate income, rising from 1995's $1,193.8 billion to 2005's $1,217.7 billion. The average income of the income earners also shows the shift to higher incomes, rising 7.6% from $31,674 in 1995 to $34,088 in 2005.

Taking Early Retirement

Going from 1995's Age 45-54 group to 2005's Age 55-64 group shows a remarkable change in how income is distributed. Here, we find a massive shift away from the high end of the income spectrum toward the low end:

From Age 45-54 in 1995 to Age 45-54 in 2005: Distribution of Income-Earners by Inflation-Adjusted Annual Income

We believe we're seeing the effects of the highest income-earners opting for early retirement, which we base upon the average age of retirement of 62.5 in the U.S. as of 2000 (it had been at Age 65 back in 1960-1965).

As you might expect, individuals at the upper end of the income spectrum would very likely be in the best position to take early retirement, which we believe largely accounts for the dramatic shift toward lower incomes as 1995's Age 45-54 group became 10 years older.

We see this in the 13.3% decline in the average income per income-earner for 1995's Age 45-54 workforce ($33,556) in becomeing 2005's Age 55-64 workforce ($30,614). This decline coincides with a 5.0% reduction in total aggregate income and a 5.0% reduction in number of income-earners in going from 1995 to 2005.

Retirement En Masse

The distribution of income of 1995's Age 55-64 group shifted dramatically from the high end of the income spectrum to the low end as this age cohort became 2005's Age 65-74 group:

We see again that retirement defines the major changes in income distribution seen by 1995's Age 55-65 group. Here, average income per income-earner declined from $26,637 in 1995 to $19,787 in 2005, a 25.7% drop. We also see a 27.8% drop in total aggregate income, from $492.0 billion in 1995 to $355.3 billion in 2005. Finally, we note that the total number of income earning individuals in this range declined by 2.8%, from 18,468,644 in 1995 to 17,958,307 in 2005.