Lifetime Earnings: The First Decade is Everything

The New York Fed recently released a landmark study on individual lifetime earnings, called “What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk?“.

The breadth and depth of the data analyzed – more than 200 million observations using Social Security data from 1978 to 2010 – makes the report worthy of your attention. And if you are in school or just starting out in your professional career, you’re about to feel a whole lot more pressure, due to what they found.

“For all lifetime earnings (LE) groups, the bulk of earnings growth happens during the first decade.”

Uh oh. Yeah, so you thought you’d have a few years to get your stuff together and think about what you want to be when you grow up, right? Well, the reality is that the first few years of your career magnify what you will earn for the rest of your career. No pressure.

But, wait a minute. “Bulk of earnings”? Sounds ambiguous. What exactly does that mean? Get ready for the hammer…

“For the median LE group, average earnings growth from ages 35 to 55 is zero. Second, with the exception of those in the top 10% of the LE distribution, all groups experience negative growth from ages 45 to 55.

OK, now that’s just downright depressing if you’re not in the top 10% of earners. If you are in the top few percent of earners, however, the news gets even better:

“The median individual by lifetime earnings experiences an earnings growth of 38% from ages 25 to 55, whereas for
individuals in the 95th percentile, this figure is 230%; for those in the 99th percentile,this figure is almost 1500%.”

Hot. Damn. No wonder we have such crazy income inequality in the US. The rich get richer and the poor stay poor.

lifetime earnings

These trends mirror what I’ve seen in corporate America. There is psychology behind it. As human beings, it is natural for us to want to categorize everything – particularly our co-workers. It’s part of our survival DNA. We don’t like grey areas, we like clear cut black and white and we like to make those definitive judgments and be done with it. It’s no different in the workplace. At the moments of judgment, workers are typically lumped in to one of two categories:

  1. “fast risers”
  2. “everyone else”

There’s a lot that can factor in to the personal opinions that end up determining which of those two buckets you are lumped in:

  • the perceived value of a piece of paper (where you went to school)
  • the reputation or brand of previous employers
  • your appearance
  • networking/politics
  • your perceived charisma
  • your perceived likability
  • opinion of influencers
  • age, gender, ethnicity, race and discrimination and biases
  • and maybe, just maybe the quality of our work

Guess who gets the promotions, biggest raises, and best opportunities – not just in the present, but for the rest of their careers.

Here’s where we go glass half full…

When you understand that this reality exists, you have a distinct advantage over those who don’t, because you can take the following actions to better your situation:

1. Work on What you CAN Control

For starters, know what you have some level of control over and can work on: where you work and go to school, networking, some aspects of your appearance, charisma, likeability, and quality of work. If your goal is more pay, you need to work on these things.

2. Remove Yourself from Situations where you Cannot Win

There are many things about you that are out of your control and you cannot change. Sometimes, no matter how good your work is, you will find that you just can’t win. And if you’re not careful, you could spin your wheels for years or decades and advance no further. Fortunately, you can control how you react. Do your homework and show some patience, and then if you are certain that you’ve done all you can and the biases of decision makers in your workplace are preventing you from getting desired opportunities and pay, you need to remove yourself from that situation. Don’t beat yourself up or waste energy trying to fight it. It happens to most of us in our lifetimes.

3. Take Calculated Leaps of Faith

Those who advance the fastest and earn the most are the ones who take calculated leaps of faith and embrace the unknown. In some sense, fake it til you make it. If you are totally comfortable moving in to another role, you might be limiting yourself.

Right or wrong, once you gain a reputation, it tends to stick. If you can build a reputation as someone who can handle new challenges, you will be a rapid ascender.

4. Don’t Stay in One Place Too Long Unless you Love it and Don’t Care About Pay

If you stay in the same place for a long time and it’s not a place that you love, you are being your own worst enemy. Fast risers don’t stay in any one place for too long. There’s no time for that! If you want to be a fast riser, you have to actively chase it and look for other opportunities and not let yourself become stagnant. General rule of thumb for a shelf-life per role: 2 years.

Final Thoughts

Based on the data of millions of Americans, how you start your career is vitally important and has a profound impact on your lifetime earnings. In a perfect world, earnings and opportunity would be based solely on the quality of your work and your loyalty. The reality is much different.

It’s up to you to determine how much energy and effort you want to put in to how much income you generate from your career. Anyone can be a late bloomer, but understand that the longer you wait, the steeper the uphill battle will be. If higher lifetime earnings is your goal, it’s best to start fast, move quick, and don’t look back. And always remember that work is a temporary transactional opportunity that can disappear at any time, so save as much as you can while you can.

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