Tuesday, April 5, 2011

Are you on the 45 year plan?

Since college I've always heard that 95% of the people end of dead, broke or dead broke by their 65th birthday. I've also heard touted around that your income grows until your mid-thirties, then you flatline until 65 and then your income drops. Well, I decided to put it to the test.

I've used data from the United States Deparment of Labor's Median Weekly Household Earning (US wages by age), inflationdata.com's Historical Inflation data and my 2010 Social Security report (for my incomes).

In the chart to the right, I've graphed my income and the average income by age over the last ten years. The actual income numbers have been scaled, so the dollar amounts don't mean anything. I just wanted to see the shape of the graph. Sure enough, it looks pretty much like I've been told, ramp up to 40, flatline until 65, drop in income (about 75%-85% of what they were making before).

At first, I just graphed the numbers on my Social Security statement (you know, that two-page, fold-out, green-ink brochure they mail you every year). I thought, "This looks pretty good!" Then I remembered inflation.

Now inflation is a funny thing. The government keeps track of it. They use it to make sure certain government costs (government employees, tax exemptions, etc.) rise with inflation. So the government actually has an incentive to low-ball inflation numbers. You can read more about that, but I'll use the government numbers, and just understand that the situation is a lot worse.

After looking at the inflation adjusted graph, it looks like I hit my flatline at around 26. If you look closely at the "Everybody" on the first chart, you'll see there is a slight bump again around 40. While I might see that, inflation could eat all of that up.

It is interesting to look at the national wages by age. In the last decade, things have gotten a bit better for people nearing retirement, but the shape of the data is pretty much still the same.

The bottom line is, if you do what the average people do, you will get what the average people have. Don't just sit at home and watch Dancing With The Stars or American Idle (misspelling intended). Don't fritter your time away playing games. Take a risk. Venture out. Dare to dream of a way to beat the system. And the sooner, the better.

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