Median Household Incomes by Age Bracket: 1967-2019
We have updated our commentary on household income distribution to include the Census Bureau's release of the 2019 annual data. Our focus was on arithmetic mean (average) household incomes by quintile (and the top 5%) over the 50+ 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 non-professional 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 (middle) household income the age brackets for the heads of household (see Table H.10 for all races).
Because this is a longitudinal analysis across nearly five decades, including the stagflation of the 1970s, we've used the Census Bureau's real (inflation-adjusted) series chained in 2019 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 how the peak earning age bracket, ages 45-54, has fared over time.
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 overall, and it has dramatically 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. Another key factor is the surprising growth in the labor force participation rate of this cohort, a topic we track in our monthly review of long-term trends in the workforce.
- In the third chart, we see in isolation the earnings decline and then rebound for the households in the peak ten-year bracket. They saw the largest decline in earnings out of all cohorts after the 1999 peak and as of 2019, has rebounded and reached a new high. The reason for the rebound over the last 5 years? Likely similar reasons that other cohorts have rebounded - a massive bull market and a seemingly excellent employment market. There are other reasons as well, which will be more apparent as time goes on.
- It seems that the decline in household income really began with the 2001 recession, was exacerbated by the Great Recession, and only began climbing back up around 2011, depending on the cohort.
We would like to point out that the Census Bureau cautions comparisons with historical data:
"This report provides historical estimates of income and poverty from 1959 to 2019. However, in making comparisons over long periods, it is important to be aware that the CPS ASEC is updated periodically to improve data quality. These improvements include changes to survey design such as sampling and survey instrument changes, as well as changes to data processing such as weighting and data imputation methods...."
"Given these changes over time, historical comparisons should be made with caution. In this report, 2019 income and poverty estimates are compared to published estimates for earlier years when the questionnaire and processing system changes did not result in statistically significant differences. When survey changes did have statistically significant impacts on income or poverty estimates, comparisons are made by adjusting historical published estimates to approximate the magnitude of these impacts. For more details on the adjustment used for these comparisons, see <www.census .gov/income2020>."
Below is a more precise quantification year-over-year household income changes from 2018 to 2019. All cohorts saw improvements in 2019 and are at their all-time highs. The cohort with the largest increase was the 15-24 year age bracket at 8.2%.
Here is a chart of the Michigan Consumer Sentiment, of which there is a general correlation to household incomes. It's clear that when household incomes are increasing, sentiment tends to be higher. Data for the Income and Poverty in the United States: 2019 report was collected between June 2019 and February 2020, when the global pandemic began. The pandemic had an impact on data collection, but because the data is for 2019, it did not have an impact on income earned before.
Here are links to the consumer and small business confidence indicators we track. They all have a conspicuous correlation with income data.
- Michigan Consumer Sentiment Index
- Conference Board Consumer Confidence Index
- Small Business Optimism Index
Implications for the Economy
In the 50+ year history of this data series, the Great Recession proved to be the worst contraction. It seems that the decline in household income really began with the 2001 recession, was exacerbated by the Great Recession, and only began climbing back up around 2011, depending on the cohort. Only time will tell how the COVID-19 global pandemic will impact household income. The CARES Act will likely show up in these figures, but will be a bridge or a bandaid?
For more information on the Census Bureau's Current Population Survey (CPS), visit the CPS Frequently Asked Questions page. A question we've often been asked over the years is what qualifies as income in CPS household survey. The CPS definitions page lists the following:
- Unemployment compensation
- Workers' compensation
- Social security
- Supplemental security income
- Public assistance
- Veterans' payments
- Survivor benefits
- Disability benefits
- Pension or retirement income
- Rents, royalties, and estates and trusts
- Educational assistance
- Child support
- Financial assistance from outside of the household
- Other income
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