By Bernard Salt, Demographer MELBOURNE (The Australian, Sydney - Business), November 15, 2007
Come with me on a daring search for figures rarely discussed and even more rarely published. I am in search of the "average Aussie income". But the average Aussie income I seek is not the bland aggregate derived by dividing the nation's total individual income by total population. That would be too easy.
No, the average Aussie income I seek is a far more exciting species: I am in search of the average income that applies to each individual year in the life-cycle. At what time in life are you richest? Or, more accurately, in what year of life do you earn most income?
I have accessed and manipulated unpublished data from the 2006 census to show average income from all sources (wages, dividends, benefits) per person for each year of life from 15 to 100.
Average income levels rise steeply in line with workforce participation and career progression throughout the 20s. By the age of 29, the average Australian earns $40,000 a year but then the rate of growth slows. Remember this is the average "income per person" and is comprised of the weighted average of people in and out of the workforce in any given year.
Women leaving the workforce in their 30s to have children slows the rate of income growth for this whole decade.
The peak income-earning time in life lies between 45 and 49. At the 2001 census, this peak was between 44 and 48, and in 1986 it was between 39 and 43. The peak income-earning time in the life cycle has been pushing back for 20 years.
The entry point to the peak income-earning time in life has receded six years in the past 20. This suggests that by 2026 the peak income-earning time in life could be between 50 and 54.
Generation Y, now in their 20s, may not peak in their income-earning capacity in their 40s, but in their 50s, and this means they don't have to start their careers until closer to 30.
The income curve suggests that if you're on the left-hand side of 45 you have income-growth to look forward to. On the other hand, it suggests that if you're on the right-hand side of 49, it's "down hill all the way" to a much-reduced income.
Average income levels plummet throughout the 50s as workers leave the workforce to fully retire or, increasingly, semi-retire.
By the age of 60, the average income per person is about the same as it is for someone aged 25.
There are fewer than 35 prime working years available to the average Australian and during this time, the average person must pay off HECS (Gen X and Y only), save for a deposit for a house, raise a family and make provision for perhaps up to 25 years in retirement.
The other option, of course, is to blow the lot during the working years and then conveniently drop dead just after 60. That way you don't have to save during your working years or live in poverty in old age.
Average income levels continue to scale back through the 60s as more and more workers leave the workforce. By the age of 70, the age pension fully kicks in and thereafter average income levels more or less plateau for the next 25 years. But then there is an odd "income kick" at the age of 97 when the average income per person suddenly rises.
There are two possible explanations for this. Either death takes poor people first, just leaving rich old people, or by the time you get to 97 you completely lose it and when you fill out the census form you think you're really rich.
The real explanation is that this "income kick" is a statistical aberration stemming from the fact that the sample size in this and subsequent years is very small.
Let me reassure you there is nothing to look forward to at 97.
A generational overlay applied to the income chart shows it is Gen Y experiencing the 20-something "income upswing" at present. No wonder it's all about the Ys at the moment.
Their uncommitted aggregate annual income of $89 billion is sloshing around the economy not so much looking for a good home as it is on the hunt for a good time. Generation X on the other hand have every right to be feeling a little peeved.
Here they are in the thick of household formation, generating a combined annual income of $189 billion, and their prospects for income growth are modest at best.
And not only that, but Generation X has to also put up with rich young single childless Gen Ys nipping at their heels, ever reminding them of the economic freedom they had before the most recent baby boom. I reckon that explains why Xers are especially narky at present.
Then we come to the baby boomers, who may be on the slide in income but very much "on the up" in terms of asset accumulation, as a result of the odd property boom or two. The combined annual income of the boomers is a very tidy $169billion.
Beyond the boomers lie the retiring pre-boomers who account for barely $58 billion in annual income. The frugals aged 75 to 90, as well as the frail federationists aged 90-plus, jointly account for another $23 billion in annual spending, but I have no idea what it is that these frugals and federationists (jointly known as "Generation F") spend their money on.
No wonder the retirement industry is champing at the bitwaiting for the boomers toretire and all that boomer-based income-earning capacity careening towards the late 60s and early 70s.
Some, perhaps as much as half, will dissipate as boomers leave the workforce. But the rest will make 60-something "a really interesting time in life" by the middle of next decade.
There is an annual pool of more than $80 billion in spending that lies beyond 60. This market has to double by the time the boomers give it a makeover and a shake-over towards the end of next decade.
Bernard Salt is a Partner with KPMG
Copyright 2007 News Limited.
