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Why Income Stops Growing After Age 40

Kimberly Palmer

The fact that many of us will hit a glass ceiling for pay increases around age 40 (37 for women, 45 for men) is disturbing, to say the least. In general, expenses keep growing throughout mid-life, given mortgages, children attending college, and if we're lucky, the pursuit of travel dreams. So how are we supposed to make ends meet if our salaries top out so early?

The good news is that the finding by masks some of the more complicated behind-the-scenes factors. First of all, we are all individuals and don't fit neatly into statistical curves based on the aggregation of 1.5 million surveys. Anyone in management, for example, can reasonably expect their income to continue to rise as they manage more employees and manage more senior people, says lead economist Katie Bardaro. The same kind of salary growth applies to jobs with constant growth and increased responsibilities, such as lawyers and engineers.

Government data also paints a slightly different picture, at least partly because it includes a wider array of people. The data used to generate the income-flattening effect looked only at Americans working full-time who hold bachelor's degrees. Data on earnings published by the Bureau of Labor Statistics, which includes full-time workers of all educational backgrounds, shows that men experience a slow and steady increase in income until they hit their retirement years around age 65. Men between the ages of 25 to 34 earn $705 median weekly earnings; between the ages of 35 to 44, they earn $909, and between 45 and 54, they earn $941. The top earners are men between the ages of 55 and 64, who earn $983 a week. (All figures are for "median usual weekly earnings" of full-time workers from 2010.)

For women, the numbers are much flatter, which is likely explained by the different fields women choose, breaks they took to care for children that halted their earning path, and discrimination they face in the hiring and promotions process. Among women, median earnings were virtually unchanged between ages 35 and 64, hovering around $730 per week for all three decades.

For both genders, there are also ways to increase the chances of bucking the trend, such as getting more education, earning additional money through a side job, and choosing your field carefully. (A nurse is much more likely to face a flat income after age 40 than an engineer or lawyer, for example.)

If you're curious just what explains this income stagnation in the first place, attributes it to the fact that most of us learn a lot on the job during the first decade of employment and then our learning curve abruptly drops off. A 45-year-old teacher might not be much more effective than a 40-year-old teacher, but both are likely to be far more effective than a 22-year-old teacher.

On the other hand, the person who has the best chance growing their income well into their golden years works in a high-demand field that constantly increases one's responsibilities and skills and also consults on the side. Does that sound like it could be you?

Twitter: @alphaconsumer

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