About twenty years ago I went to one of these ‘do as I do and you will get rich by selling crap to suckers like you who want to get rich’ seminars. Don’t misunderstand me; I am all for proper wealth building seminars that openly admit that the only place where success is before work is in the dictionary and that not everyone in the room will end up wealthy. You know you have paid for a good one when you hear that statistically only a fifth of the attendees will take action and even a smaller proportion will do it smart!
This is not what I wanted to talk to you about though; what I remember very clearly from the really useless in any other way seminar I attended is the following:
‘You have reached your peak earning potential by the time you get in your 40s. After that, it is all over the hill!’
Although I was in my late 20s then, I remember my analytical nature objecting. Surely, this is far too young! Or is it?
Apparently, at the time of the seminar this was almost correct: twenty years ago, statistically, the peak earning years were 35 to 44. Today, however, this margin has moved by about ten years and it is 45-55. Now, you will understand that for obvious reasons I was very pleased to get my hands on this statistic. One, it means that I am half a decade away from my earning acme – much can happen in five years you know, particularly if one has a good plan and is taking action (my estimate is that if we achieve about 40% of what is on our plan we are doing spectacularly well). And two, this is a good one to pitch into any even remotely ageist debate – it is not only that I have better insurance because I am older; I also earn more now that I am older. Ha, ha!
Now these are cheap shots, though, and you know me better than thinking I’ll take advantage! What I like doing most is asking the next question: OK, this is the statistic and it is not very helpful till we ask other questions. One of these is whether the earning peak is at the same time for everybody; another one is what does this depend on (a modification of why, really).
Is the earning peak the same for all?
No, certainly not. Different groups of people reach their earning peak at different times; if you wish to see an informative but hard to read graph of this (also referred to as ‘visual vomit’) you can find one here.
What do differences depend on?
Seeking to answer this question I came across a really informative report published by the University of Georgetown. Looking carefully at what these peeps found it is clear that groups of people with different earning educational levels peak at different times (these variables are nested though; in other words, the level of earning and the educational level are correlated, as we shall see). I would add that it also can be expected to depend on a number of demographic and personal characteristics some of which are difficult to quantify.
Low earners peak early
Apparently, if people don’t start earning a salary that is above the median for the country by the age of 35 they hardly ever do. Hence, how much you earn by 35 is a good predictor of whether you will continue increasing your income; without changing anything else this is, but we shall get back to this later.
Who earns most?
It seems to me that lately posts vilifying universities and university education have been proliferating in the blogosphere. I can understand that: rising costs of education and increased competition between people with degrees can make us question the wisdom of getting university education.
But be warned: educational level is still the best predictor for earning capacity. According to the Georgetown University report I mentioned above earnings over a life time increase with each higher degree with the exception of ‘professional’ degrees which are a bit of an outlier. People with Masters, PhDs and Professional degrees are by far statistically the highest earners. Which doesn’t mean that there are no PhDs who are complete failures in career and earning terms – this is the problem with statistics, you know. But overall, getting some degrees under one’s belt still seems to pay off.
What about this earning peak, then?
This is where it gets really interesting. Research shows that:
People without university degree and people with professional degrees peak at a very similar time: around the age of 35. Obviously the peek is much steeper for the people with professional degrees; for the others it is more a molehill than a peak.
People with Masters degree reach their earning peak at around 45.
People with PhDs have a profile resembling a mountain range: there is a clear earning peak between the ages of 45-49 followed by a dip till mid 50s. After that a gradual increase of income can be expected; and it continues to grow till after retirement age.
Women earn less at any age and education attainment level. For instance, a woman needs a PhD to make as much as a man with BA.
Ethnicity matters as well but I am not even going to get there – not because it is not important but because there is not much we can do about it at individual level. Changing the societal and economic structures, as well as deeply ingrained prejudice, needs a collective approach and a very long time scale.
Apart from that whether or not you have reached your earning peak would depend on your flexibility and openness, your ability to learn and your readiness to experiment and change. It also depends on how you see yourself: I have met older people who are younger in both spirit and body (like in being fit) than some 30 year olds I know.
Have you reached your earning peak?
First, you have to recognise that there is no such thing as ‘absolute’ earning peak: there are many earning peaks that link to specific and identifiable conditions.
To decide whether you have reached your earning peak within your current conditions:
- Look at your payslips. Has your income increased in the last two years? If not, you need to get thinking how to move to the next hill.
- Look at your tax return? Has your income from other stream increased in the last year? If the answer is no you need start thinking about doing something about this one.
- Look at the conditions for earning and compare your income with the average for these conditions. In other words if you are earning less than the average for your educational level, gender and ethnicity start paying attention: you don’t need to move to a new hill, you haven’t climbed the current one yet.
- If on the other hand, you are at the top of your current hill, move to a new one.
- An obvious way to do that is to increase your educational level.
Have you reached your earning peak and what are you going to do about it?
As for myself, I am a social scientist, have a PhD and work in academia. I haven’t peaked yet and ‘there ain’t no mountain high enough’.
I do think earnings and commitments need to be balanced as well. We need money for bringing up our children over 18 or so years; for a mortgage over 20 – 25 years.
We are likely to ‘invest’ in furniture and appliances early in our home building lives.
All these ‘needs’ or ‘wants’ fall away sometime between 50 and retirement resulting in a fall in needed income. This is often the stage where folk get a mid life crisis and want to try something new.
Their needed income is down, their motivation to compromise earnings for life satisfaction is high so they may well take decisions which are contrary to the norm.
Because income has not increased (whether from main job or other sources) is not necessarily a sign that things are off course.
@Pat: Agreed. The point I was trying to make though, is that our earning is like a mountain range rather than a single peak. We climb one peak and we can look for another one.
I haven’t peaked yet either, which is comforting. I have to say though the traditional models of employment are changing so much, which makes me wonder how long will the “old” models be instructive.
@Roshawn: I have been puzzling over a similar issue recently – the changes we are witnessing in the structure of the economy and society a profound and these are bound to change the way we look at things. The notion of peak earning years is base on assumptions of a ‘standard’ career or job; it doesn’t allow for ‘patchwork’ incomes.
I’m definitely going to make less this year than last year simply because I know my overtime hours will decrease. Hopefully, I’ll get a nice bump in the salary to compensate. Eventually I hope to peak when I retire. going backwards would really suck.
@Charles: Hope you do, my friend. But how are you going to peak when you retire? Are you counting the passive income?
I sincerely hope I haven’t hit my peak earning years!Haha, I could see it happening at around 40 or so in my field. Is this job earnings, or earnings overall (including investments, etc)?
@Daisy: My feeling is that it is mainly about earning from main job; this is why I think there are many peaks – to allow for other possibilities.
Cool Stats! I don’t plan on having an income peak, but that’s not to say it couldn’t happen. I wonder if the peak is because people tend to be satisfied with their income at that age bracket?
@Shaun: I think the peak has more to do with ‘traditional’ career structures. When these played people usually got as far as they would go by their early forties (allowing for variations by type of employment, education etc.).
I’m just getting started, sure hope that peak is a while away yet and it just keeps going up from here 🙂
@Andrea: Sure it is in the distant future; or better yet you continue growing your earning capacity!
I certainly hope I haven’t peaked! I was making more a couple of years ago, but that was more a function of my traveling for work, and having a travel premium for doing so. Financial Armageddon certainly didn’t help since I was working on for a company providing services to Washington Mutual when they went down. I feel my peak earning years are still in front of me, and I plan to return to my peak earnings within 5 years, and without the travel.
@CultofMoney: Sorry to hear Financial Armageddon affected you directly. As to the five years time span – you may be surprised. Something tells me that you will get there before that if you think beyond your salary.
As a physician my income peaked 10 years ago, as reimbursements from insurance and government programs has been going down for years.
My entrepreneurial efforts hopefully have far from peaked.
@Dr Dean: There, there. May the income from entrepreneurial efforts continue to grow.
I found this really interesting – I’d never considered reaching a “peak” wage. My husband works in law enforcement, and by the intrinsic, seniority-geared nature of the job, he’ll hit his peak earnings right before retirement – roughly 25 years from now (early 50s). I have given thought to my peak wages, which is why I’m considering an offer to head back to the workforce full time to build up my financial base while I’m a desirable employee!
@Elizabeth: Wish you all the luck with getting back to full time employment.
Great post. I learned a lot from this. As someone who just published a post semi-villifying higher education, this does provide a counterpoint for those who are focused on earning potential.
@John: Thanks for stopping by, John. Yeah, education is one of the main factors affecting earning potential. Lack of education is also one of the main reasons for poverty (in trinity with being a single parent, and diverce, I believe).Also very interesting that the educational attainment of children correlates with the age of the mother (the older the better) and whether there are books in the house – reading them doesn’t matter that much.A good way to break and cysle!
I’m a serial entrepreneur and self-employed, so my income earning level is always based on the “next big thing I do!”
That said, these are cool, motivational statistics that people working in the “paycheck” world should heed.
@AverageJoe: Well, this is an example of the ‘earning mountain range’ I mentioned. My feeling is that similar factors will define the earning level but there will be also variable at play that are different to measure (the personal attributes ones).
A good article and true in my case. My earnings peaked at age 47 (professional, male, Masters degree), then dropped to a third through my choice.
Crazy life where there was no work/life balance; just work. I was working away from home all week and never saw my family. I worked long hours and my health was suffering. All my colleagues were in the same situation, so it was “normal”.
I’m still well paid, but I do have a life now. As others have said, money isn’t everything.
Tony, UK
@Tony: Thanks for stopping by and sharing. I do agree that we all get too much into the ‘work all hours of the day and night’ thing and neglect other aspects of life. Well done for taking the decision to forego some income but to have more life – I did write a post on life-work balance stating that it is not a problem in may cases and work has become our life. We ought to be reclaiming life!