If older workers are wondering why it's so hard to save for retirement—particularly as they age—the answer may lie at least partly in their paychecks.
The blog for the Center for Retirement Research at Boston College pointed out a study that tracked the inflation-adjusted earnings of some 5 million workers over their lifetimes. The study, from the Michigan Retirement Research Center at the University of Michigan, not only found that "earnings risk varies significantly across the population," but uncovered four trends within that risk that have to be disturbing for almost anyone who ever wants to retire.
So what are these disturbing trends? First, while the size of income risk falls between the ages of 25 and 50, it increases from 50 on. Second, the older people get, the more likely it is that income shocks will be either very small or very large—no middle ground here. Third, the older people get, relative to the average change in income, a large fall is more likely than a large rise. And fourth, which perhaps will come as no surprise, people whose lifetime earnings are in the top 5 percent will have a growth rate between the ages of 25 to 55 that's 10 times larger than people who only have average lifetime earnings.
Recommended For You
So the news isn't cheery as workers age, unless you're in that top 5 percent. All is well enough during a person's first 10 years in the labor force, when those between the ages of 25 and 35 have the most wage gains—around 33 percent, in fact. Between the ages of 35 and 45, the rate of gain falls to around 16 percent, less than half the growth of the earlier decade.
At some point between the ages of 45–55, real (inflation-adjusted) earnings hit a plateau— earlier than expected, based on other income studies that found such a plateau occurring later in life—and around age 50, the trend starts to go the other way. So by the time people are in the 45–55 decade, it's all over for most of them, because their earnings are on the way down, dropping 17 percent.
Other disturbing findings included the fact that the typical person sees a total increase in income of about 38 percent over his lifetime. However, if you'll consider that top 5 percent again for a minute, their inflation-adjusted earnings will more than triple over their lifetime. For those in the bottom 20 percent, however, they don't rise at all.
The researchers concluded that it's important to understand the patterns of earnings changes because they are a "strong determinant" of how much people can borrow or save.
If you're wondering where the researchers got their data, it came from the Social Security Administration's earnings records for workers from the 1970s through 2011.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
