If you’re like most people, your income and spending changes significantly as you get older.
In the most common career trajectory, earlier years coincide with a lower salary as skills and experience grow. Then, peak earning years are achieved in late adulthood, and eventually retirement comes onto the horizon.
Is this typical earnings arc supported by data?
Income and Spending, by Age
The data visualizations in today’s post come to us from Engaging Data and they use Sankey diagrams to display data from the Bureau of Labor Statistics (BLS) showing differences in how various age groups in America earn and spend their money.
The four charts below will show household data based on the age of the primary resident:
- Less than 25 years old (Very early career)
- Between 25-34 years old (Early career)
- Between 45-54 years old (Peak earning and spending)
- More than 75 years old (Retirement)
Let’s take a look at the collection of data, to see how it shakes out.
Less than 25 Years Old – $31,102 in spending (94.6%% of total income)
These contain an average of 1.9 people (1.3 income earners, 0.3 children, and 0.0 seniors)
For the average household with a primary resident under 25 years old, total income is $32,893.
The biggest expense is housing (24.3% of spending), followed by vehicles (10.8%), gas and insurance (9.3%), food at home (7.7%), and dining out (7.6%). For this younger cohort, education is also a significant expense at $2,333 per year (7.5% of spending).
Between 25-34 Years – $48,928 in spending (70.8% of total income)
These contain an average of 2.8 people (1.5 income earners, 1.0 children, and 0.0 seniors)
In this age range, earning potential starts to rapidly expand with experience – and households make double that of the previous category (Under 25 years old).
Housing remains the biggest expense (25.9% of spending), followed by gas and insurance (9.2%), household expenses (8.2%), food at home (8.1%), and then vehicles (8.1%).
Between 45-54 Years – $64,781 in spending (64.6% of total income)
These contain an average of 2.8 people (1.7 income earners, 0.7 children, and 0.1 seniors)
This age range is notable because it has both the highest income and the highest spending. It also represents a time of peak savings, with the average household stashing away $19,159 per year.
Expenses are similar to the previous category. Housing is the biggest expense (22.0%), followed by gas and insurance (9.0%), food at home (7.9%), vehicles (7.9%), and household expenses (6.7%).
Over 75 Years Old – $40,211 in spending (95.6% of total income)
These contain an average of 2.6 people (0.2 income earners, 0.0 children, and 1.4 seniors)
Not surprisingly, here we see salary contributing just $7,891 per year to total income, with social security supplementing income with $25,057 per year.
For this older segment, health insurance (8.2%) jumps up to become the second most important expense. Meanwhile, driving and housing both drop in their respective allocations.
The Typical Earning Arc?
The data confirms that conventional wisdom around the typical earning trajectory for Americans seems pretty accurate.
Did you find any surprising anomalies in the numbers?
Why Investors Should Rethink Traditional Income Strategies
Traditional longer-terms bonds are no longer as effective—so which additional income strategies should investors be considering?
Why Investors Should Rethink Traditional Income Strategies
Humans are creatures of habit. We all have daily routines, whether it’s walking the same lunchtime route, watching a familiar TV show, or cooking the same meal over and over again. Once we develop a pattern, it can take a drastic change to convince us to rethink our approach.
One such shake-up to ingrained investment habits is the changing landscape of income investing.
In today’s infographic from New York Life Investments, we explain why traditional long-term bonds may not be as effective as they were in the past, and which additional income strategies investors can consider.
The Status Quo
For years, investors have relied on traditional longer-term bonds as the centerpiece in an income portfolio. These debt instruments usually pay out interest to investors on a predetermined schedule, providing a steady income stream investment. Historically, they have also been subject to less volatility than equities.
The typical bond portfolio is diversified, much like the Bloomberg Barclay’s U.S. Aggregate Index. Here’s how the sectors are broken down in the index:
Unfortunately, this income strategy has been less effective in recent years. Over the last decade, core bond duration has increased by 1.5 years while yields have decreased by almost 2%. Essentially, interest rate volatility has increased—but investors are less compensated for the risk.
In light of low rates and higher expected market volatility, it’s critical that investors explore other income solutions. Luckily, there are many lesser-known asset classes for investors to consider.
Additional Income Strategies: An Investor’s Choice
When investors decide how to re-allocate, they can keep these objectives in mind:
- Preservation of principal (risk level)
- Pursuit of capital (growth potential)
- Perseverance in markets (long-term objectives)
Which additional income strategies can they explore?
Taxable Municipal Bonds
Issued by state and local governments, the yield of taxable munis has historically been higher than that of other sectors. Taxable munis also have a strong credit rating—over 76% of U.S. municipal bonds outstanding are A+ rated or better.
Insured Municipal Bonds
Investors can get additional downside protection with insured municipal bonds, which are guaranteed to pay interest and principal back by private insurers. They have historically performed similar to munis while capturing less of the “downside”, often providing an attractive risk-adjusted return for income investors.
Short-duration, High-yield Bonds
Bonds with a shorter duration and higher yield can be a lower volatility approach to achieving the same income investing goals.
Yield and Risk in Bonds (July 1, 2014 – June 30, 2019):
|Bond Type||Yield||Standard Deviation (annualized)||Yield per Unit of Risk|
|U.S. Aggregate Bonds||2.49||2.94||0.85|
|High Yield Bonds||6.05||5.60||1.08|
|Low-duration, High-yield bonds||5.00||3.90||1.28|
Short duration funds have lower interest rate risk, and can offer attractive yield per unit of risk.
Equities can also play a role in an income focused portfolio. Investors should look for established companies that are achieving:
- Growth in free cash flow
- Stable or growing dividends
- Share buybacks or debt reduction
Over the last 40+ years, the annual compound return of stocks with growing dividends have outperformed dividend cutters on the S&P 500 by more than 4%.
Preparing for Your Future
Maximizing the benefit from new income opportunities can take time. For this reason, it’s important to consider potential portfolio changes now, so that these strategies can play out in the lead up to retirement years.
It may be tempting to stick with the status quo—both in daily routines and investment strategies—but those who proactively adjust their approach will be able to maximize their potential.
Chart: Which Universities Have the Richest Graduates?
Today’s chart ranks the top 25 universities in the world by ultra-high net worth (UHNW) alumni and total wealth. Does your institution make the cut?
Chart: Which Universities Have the Richest Graduates?
Higher education is often considered the first rung in the ladder of success.
That’s why thousands of students flock to top-tier universities around the world, hoping to translate their degrees into financial outcomes. After all, a degree from specific institutions can often mean that a wealthy and secure future is in the books.
With a new fall term just around the corner, today’s chart relies on the third annual Wealth-X report ranking of global universities with the most ultra-high net worth (UHNW) alumni. We’ve also tracked their combined wealth, and how much each UHNW alumni makes on average.
Analyzing UHNW Riches
The Wealth-X database defines ultra-high net worth alumni as those who own at least $30 million in assets. In addition, the alumni figures are based on the actual known UHNW individuals from each university, then projected based on the sample size to predict total alumni within the global UHNW population.
One caveat to note is that both bachelor’s and master’s degree-holders have been considered, while UHNW individuals who may have attended more than one university have been counted twice. With that in mind, let’s dive in.
Upholding a Stellar Reputation
It’s immediately noticeable that a majority of universities on the list are located in the United States, with a high concentration on the East Coast—including the elite Ivy League.
Established in 1636, Harvard dwarfs all its Ivy League counterparts for the richest graduates. Its 13,650 UHNW alumni is double that of second-place Stanford (5,580 UHNW alumni), with twice the total wealth to boot.
One way that Harvard falls short is when average UHNW alumni wealth is considered in this chart, with Stanford beating it by a difference of $170 million per graduate. Regardless, it’s clear Harvard graduates go on to have a significant impact on the world. Notable alumni include political leaders such as former U.S. President Barack Obama, and billionaires such as Michael Bloomberg.
Interestingly, Princeton climbs the charts for total alumni wealth ($1.1 trillion), despite a lower UHNW alumni count of just over 2,000—but this also puts its wealth per graduate at a high of $516 million. Notable alumni from Princeton include Jeff Bezos and Steve Forbes. Meanwhile, Brown and Dartmouth are the only Ivy universities that don’t make the list at all.
Excellence Outside the U.S.
Zooming out, private universities dominate most of this list of richest graduates. In the United Kingdom, Cambridge, Oxford, and the London School of Economics and Political Science (LSE) have over 6,500 UHNW alumni combined. This represents a total of $1.08 trillion in wealth, an average of $174 million per UHNW grad.
Notable alumni and achievements from these institutions include:
- Cambridge: Isaac Newton, Charles Darwin, Stephen Hawking
- Oxford: 69 Nobel prize winners, Stephen Hawking, JRR Tolkien
- LSE: 18 Nobel prize winners, including political leaders
*LSE’s label has been misrepresented in the original report as #26 instead of the actual #25.
Nearby in France, the graduate business school Institut Européen d’Administration des Affaires (INSEAD) has a total of 1,956 UHNW alumni and $356 billion in combined wealth—contributed by CEOs of companies like Credit Suisse, Royal Dutch Shell, Ericsson, and Lego.
It’s impressive that the National University of Singapore (NUS) enters the list, with 1,890 UHNW alumni and an average of $46.6 million to their name. Graduates from NUS have gone on to become Singaporean prime ministers and presidents, as well as high-ranking officials in the WHO and UN Security Council.
Here are the full statistics for the top 25 universities worldwide—does yours make the cut?
|Rank||University||Total Wealth||UHNW Alumni||Wealth per UHNW Graduate|
|1||🇺🇸 Harvard University||$4.7T||13,650||$349M|
|2||🇺🇸 Stanford University||$2.9T||5,580||$519M|
|3||🇺🇸 University of Pennsylvania||$1.8T||5,575||$319M|
|4||🇺🇸 Columbia University||$1.5T||3,925||$382M|
|5||🇺🇸 Princeton University||$1.1T||2,180||$516M|
|6||🇺🇸 Massachusetts Institute of Technology||$990B||2,785||$355M|
|7||🇺🇸 Yale University||$777B||2,400||$323M|
|8||🇺🇸 University of California Berkeley||$760B||2,385||$318M|
|9||🇺🇸 New York University||$712B||3,380||$210M|
|10||🇺🇸 The University of Chicago||$707B||2,405||$293M|
|11||🇺🇸 The University of Michigan||$691B||1,970||$350M|
|12||🇺🇸 The University of Southern California||$548B||2,645||$207M|
|13||🇺🇸 Cornell University||$483B||2,245||$215M|
|14||🇺🇸 The University of Texas at Austin||$463B||2,195||$210M|
|15||🇬🇧 University of Cambridge||$390B||2,760||$141M|
|16||🇺🇸 Northwestern University||$389B||2,725||$142M|
|17||🇺🇸 The University of California Los Angeles||$375B||1,945||$192M|
|18||🇫🇷 Institut Européen d'Administration des Affaires||$356B||1,965||$181M|
|19||🇬🇧 University of Oxford||$349B||2,290||$152M|
|20||🇬🇧 London School of Economics and Political Science||$342B||1,495||$228M|
|21||🇺🇸 University of Miami||$309B||1,700||$181M|
|22||🇺🇸 Boston University||$277B||1,640||$168M|
|23||🇺🇸 University of Virginia||$246B||1,650||$149M|
|24||🇺🇸 The University of Notre Dame||$179B||2,085||$85M|
|25||🇸🇬 National University of Singapore||$88B||1,890||$46M|
Where’s the Money, Really?
According to the report, a majority of UHNW alumni from these universities are “self-made” millionaires, who became successful through their own efforts rather than relying on family fortune or social status.
Of course, the name of a university is one step to climb on the ladder. What’s often glossed over is how steep the tuition fees at private institutions are, which can rack up significant student debt over time.
Graduates from Boston University, Columbia University, and Northwestern University relied the most on inheritance for their wealth, between 10-12%. A combination of both self-made and inherited wealth sources are also common for UHNW alumni—and it’s not a stretch to say that it helped them pay off debts before focusing on their wealth creation.
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