While many of today’s workers may ultimately be in the workforce for 40 years or more, several recent studies have revealed that income growth does not occur steadily throughout that working career. Instead, the majority of our raises actually come in our 20s and 30s. By our 40s, income growth slows dramatically, and in our 50s income growth typically turns negative (at least on an inflation-adjusted basis)!
Accordingly, the reality is that for those in their 40s and 50s who are behind on retirement, there really is little to be done aside from working longer, or cutting lifestyle spending. In other words, there’s not much room for raises and future income growth to bridge the gap.
On the other hand, for those in their 20s and 30s, the fact that the biggest raises come early in our career means it’s especially important to control the pace of spending increases in the first place. Otherwise, the steady creep towards an increasingly expensive lifestyle as our income rises may not only crowd out the ability to save now, but leave little room to save in the future as earnings growth slows. Fortunately, though, the magnitude of earnings increases in our early years means that good spending habits established early on can make an astounding difference over a lifetime!