Median Household Incomes By Age Bracket: 1967-2014

Earlier today we updated our commentary on household income distribution to include the Census Bureau’s release of the 2014 annual data. Our focus was on arithmetic mean (average) household incomes by quintile (and the top 5%) over the 47-year history of this data series. The analysis offered some fascinating insights into U.S. household incomes.

But the classification misses the implications of age for income. Households are by no means locked into the same quintile over time. Young educated households with professional skills and aspirations will typically move into the higher earning brackets during their financial life cycles. Households dependent on income from unskilled labor and service employment will not see the same financial progress over the years.

So let’s review the household income data another way, this time focusing on the incomes by the age bracket. The data we’re analyzing is the median household income the age brackets for the heads of household (see Table H.10).

Because this is a longitudinal analysis across nearly four decades, including the stagflation of the 1970s, we’ve used the Census Bureau’s real (inflation-adjusted) series chained in 2014 dollars based on a research variant of the Consumer Price Index, the CPI-U-RS. In other words, the incomes in earlier years have been adjusted upward to the purchasing power of the most recent year in the series.

The first chart shows real household incomes of the six age brackets.

But more revealing is a comparison of the cumulative real growth of median incomes for the six age brackets.

Let’s focus on the plight of the peak earning age bracket, ages 45-54.

There are some immediate observations we can make about these charts:

In the first chart we see clearly that the 45-54 age bracket lays claim to the peak earning years for U.S. households.

In the second chart we see that the two older age brackets have cumulative growth superior to the peak earnings bracket. In fact, the 65 and older has been the best performer over all, and it has especially outperformed since the recession of 2001. We can no doubt attribute the outperformance to the contribution of Social Security to the income stream. It’s a reliable source of income and carries a cost of living adjustment. Private and government pensions also contributed to the superior growth rate.

In the third chart we see in isolation the earnings decline for the households in the peak ten-year bracket. They have experienced a real decline of 15.6% in earnings over the 14-year period, although the 2014 data point is off the interim low set in 2011. The reasons, of course, can be widely varied — periods of unemployment, salary cuts, layoffs followed by a lower paying new job, a multiple-earner household in which one of the earners is a victim of unemployment, reduced employment, etc.

The 21st century has seen a remarkable decline in income for the first four age brackets, and with the onset of the Financial Crisis of 2008, incomes for the 55-64 bracket have joined the downward trend.

The age cohort with the grimmest history, of course, is the 15-24 bracket. In real terms, this cohort has the same income as in 1967. However, the 2014 data point is off the 21st century low in 2010, no doubt because it is the cheapest and a relatively abundant source of labor.