We often talk of the middle-class or the one percent as if they were the same group of people from year to year. But most Americans move up and down the income ladder across the lifespan: mostly up during the peak earning years of 25-54 and then slowly down as they ease into retirement. Many experience a few years of poverty when young but then eventually reach the middle-class and beyond as they get older. This chart tell the story:
(Note: The US Census.Bureau defines householder as “the person (or one of the people) in whose name the housing unit is owned or rented (maintained) or, if there is no such person, any adult member, excluding roomers, boarders, or paid employees”).
So what does it mean that the “middle-class is shrinking” in the US? Only that fewer Americans are being classified as middle-class* based on their annual income in a particular year. But those who leave the middle-class are just as likely to move up the income ladder as down, especially as they approach middle-age. Income does fall rather precipitously with retirement - but that’s what retirement planning is for.
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* Definitions of middle-class vary. A recent Pew Research study defined the middle-class as households with a disposable income (post-income tax) “of roughly $35,000 to $106,000 a year for a household of three”. That particular study found that the US middle-class was 4% smaller in 2017 than in 1991, with the lost 4% going equally to the lower and upper income tiers. Study author Rakesh Kochhar notes in the report, “In part, the shift out of the middle class is a sign of economic progress, irrespective of changes in household incomes overall.… This is because the outward shift is accompanied by a move up the income ladder, into the upper-income tier, in all countries with a shrinking middle class… At the same time, there is movement down the income ladder in most countries with a shrinking middle class.”