| Real Life Strategies for Building Wealth

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’.