Median Household Incomes by Age Bracket: 1967-2015

Yesterday we updated our commentary on household income distribution to include the Census Bureau's release of the 2015 annual data. Our focus was on arithmetic mean (average) household incomes by quintile (and the top 5%) over the 49-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 four decades, including the stagflation of the 1970s, we've used the Census Bureau's real (inflation-adjusted) series chained in 2015 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.

Median Real Income by Age Bracket

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

Median Real Income Growth

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

Peak Earning Years: 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 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 for the households in the peak ten-year bracket. They have experienced a real decline of 8.8% in earnings since the 1999 peak, although the 2015 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 virtually the same income as in 1967. However, the 2015 data point is off the 21st century low in 2010, no doubt because this cohort is the cheapest and a relatively abundant source of labor.

As we saw in the quintile analysis of household incomes, mean (average) household incomes are rebounding, and the top two are at record highs. However, when we slice the data by age cohorts and look at median incomes, the 20th century trends are far more distressing.

For more precise quantification of household income declines in recent years, here is a table showing the peak income year for each age bracket, the 2015 income, and the percentage change since the peak.

Table 1

How about the year-over-year changes from 2014 to 2015? The second chart above illustrates the decline incomes for five of the six cohorts. The good news is that 2015 has been a strong year for household income growth for all six.

Table 2

The lack of sustained growth in household incomes is no doubt a major factor in the general decline in consumer confidence since 2000, which was, after all, the peak year for three of the six cohorts, and two of the six peaked in 1999.

Michigan Consumer Sentiment

Here are links to the consumer and small business confidence indicators we track. They all have conspicuous correlation with income data.

Implications for the Economy

Of course the problem of weak incomes extends beyond the households to the economy as a whole. If households have less money for consumption, businesses suffer, which in turn leads to layoff and further declines in household incomes. Governments receive less in tax revenues, and the financial burden of social programs increases.

The 2015 data gives renewed hope that this cycle of contracting household income has bottomed out and is on the mend at a sustainable pace. But in the 49-year history of this data series, there has never been such an ugly period of contraction for most of the age cohorts since their 1999-2000 peaks. Only the 65 and older households have respectable slopes in the snapshots above, and that, as mentioned above, is largely the result of Social Security with its history of Cost-of-Living Adjustments and, for some in that cohort, private and government pensions.

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 definitons page lists the following:

  1. Earnings
  2. Unemployment compensation
  3. Workers' compensation
  4. Social security
  5. Supplemental security income
  6. Public assistance
  7. Veterans' payments
  8. Survivor benefits
  9. Disability benefits
  10. Pension or retirement income
  11. Interest
  12. Dividends
  13. Rents, royalties, and estates and trusts
  14. Educational assistance
  15. Alimony
  16. Child support
  17. Financial assistance from outside of the household
  18. Other income