A new report from the Federal Reserve Bank of New York, has unveiled that most people establish their lifetime earning power within the first 10 years of their career. After age 35, income growth dips, so if you haven't gained your wealth by then, it's probably never going to happen.
"Across the board, the bulk of earnings growth happens during the first decade," authors Fatih Guvenen, Fatih Karahan, Serdar Ozkan and Jae Song wrote. "With the exception of those in the top 10 percent of the [life earnings] distribution, all groups experience negative growth from ages 45 to 55."
This conclusion came out of a bigger study that the authors undertook into the earnings of American men, analyzing data from approximately five million workers spread out over a period of 40 years. It seems, however, they did not include women in their study.
The authors found that results vary widely depending on how much money you make. In fact, wealth is an overwhelming determinate in how much you can expect to continue earning.
The wealthy
The rich are the exception to aging out at 35. Starting in the top 10 percent, those in this group continue to increase their average earning power past their mid-30's. After age 45, only the top 2 percent of earners can expect to make more money.
From age 25 to 55, workers in the top 90th percentile increase their earning power by 127 percent.
In the 95th percentile that number swells to 230 percent.
By the top 99th percentile (the epithetical 1 percent), a worker will generally increase his earning power 1,450 percent over a 30-year career, according to the study.
Others
An ordinary employee has an income growth of 38 percent over his career, virtually all of which will come before age 35. Starting at age 45, that will probably even slide a little.
The numbers are considerably worse for workers on the bottom 20 percent of the spectrum. Over a lifetime, they actually lose earning power and can retire making less than the day they started.
Being a middle-class worker is safe. Middle-class workers have a lot less to fear from sudden changes to income, or "shocks."
"Positive shocks," the authors wrote, "to high-earnings individuals are quite transitory, whereas negative shocks are very persistent; the opposite is true for low-earnings individuals. It seems that the higher an individual's current earnings, the more room he has to fall and the less room he has to move up," the authors wrote.
The scheme is "the bigger they are, the harder they fall." The wealthy experience more and worse income drops, since they have more to lose, while the poor and middle class have more to gain and less ground to recover in case things go badly.
Cold comfort sure, but it's better than nothing.
The researchers revealed that "the lower 95 percentiles and the top 5 percentiles display patterns with age and recent earnings that are the opposite of each other."
Why does is it so important? Understanding lifetime earnings is a major determinant for financial decisions, so take this research into account. A worker who has better times ahead will feel in a good position to take out a mortgage, while someone with more to fear might start to save.
