Many American families feel like they can’t get ahead financially – and they’re right – Center for Retirement Research
3 persistent myths about employees and income.
The Census Bureau’s annual report on trends in household income always provides an opportunity to compare facts and opinions. Misconceptions relate to what it means to be in the top 50%, income and salary growth over time, and inequality in income distribution.
Idea: Upper Class Families Earn Hundreds of Thousands Each Year.
Truth: If you’re a social media type and others are concerned about retirement income, it’s easy to fall into the trap of thinking that most wealthy people — households in the upper half of the income distribution — have hundreds of thousands in annual income. That’s not the case. The 2024 data also shows how small most American households are and how much these numbers have increased over time.
Table 1 shows the values associated with being in different segments of the income distribution. A family with $83,730 is 50th percentile, the middle of the income distribution. Those with $175,700 fall to 80th percentile, placing them in the top 20% of all households. Only 90th percentiles and above have an income of more than $250,000. Although the boundaries should be interpreted carefully – they include old and young, rural and urban, coastal and inland, and young and old – the data suggest that many households do not have a large income. Combining these income levels with high prices makes it easy to understand why affordability is such a big deal.
Hypothesis: Economic Growth Means Wages and Incomes Increase Faster.
Fact: In reality, long-term trends are not encouraging. Although median household income has increased somewhat over the past 35 years, the 2024 figure was almost identical to that of 2019 – after adjusting for inflation (see Table 2). Families, understandably, feel like they’re treading water, and rightly so.
The main reason why household income has not increased is that income – adjusted for inflation – has remained stagnant (see Table 3). Real wages for all male workers in 2024 were only 23% higher than in 1989; the profit for men working full-time, throughout the year was even smaller – 13%.
Perspective: Growing Income Inequality Is Our Biggest Problem
Fact: Accumulation of wealth goes far beyond income distribution. In 2024, the top 5 percent of households receive 22.9% of all income. In contrast, the top 1% of households owned 30.9% of the wealth. Obviously if comparable data were readily available for income and wealth holdings, the top 5% on the wealth side would be much larger. So, the first point is that wealth is more concentrated than income. The second point is that inequality on the wealth side has grown much faster than on the income side. Specifically, between 1989 and 2024, the share of wealth held by the top 1% increased by 35%, and the share of income earned by the top 5% increased by 22%.
The bottom line is that those who work for wages and salaries have less money than people often think, and have enjoyed less progress than many think. And while much attention is focused on income inequality, that trend is mitigated by the high and growing amount of wealth. And our tax system allows and perpetuates this wealth situation, because while the top earners pay income tax and taxes, the rich can avoid taxes almost entirely.
