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How Americans Make and Spend Their Money, by Age Group

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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:

  1. Less than 25 years old (Very early career)
  2. Between 25-34 years old (Early career)
  3. Between 45-54 years old (Peak earning and spending)
  4. More than 75 years old (Retirement)
    1. 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)
      Less than 25 Years Old

      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)
      Between 25-34 Years Old

      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)
      Between 45-54 Years Old

      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)
      Over 75 Years Old

      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.

      For more breakdowns, check out how Americans spend their money based on income levels or education levels.

      Did you find any surprising anomalies in the numbers?

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How Small Investments Make a Big Impact Over Time

Compound interest is a powerful force in building wealth. Here’s how it impacts even the most modest portfolio over the long-term.

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This bar chart shows the power of compound interest and regular contributions over time.

How Small Investments Make a Big Impact Over Time

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Time is an investor’s biggest ally, even if they start with just a modest portfolio.

The reason behind this is compounding interest, of course, thanks to its ability to magnify returns as interest earns interest on itself. With a fortune of $159 billion, Warren Buffett largely credits compound interest as a vital ingredient to his success—describing it like a snowball collecting snow as it rolls down a very long hill.

This graphic shows how compound interest can dramatically impact the value of an investor’s portfolio over longer periods of time, based on data from Investor.gov.

Why Compound Interest is a Powerful Force

Below, we show how investing $100 each month, with a 10% annual return starting at the age of 25 can generate outsized returns by simply staying the course:

AgeTotal ContributionsInterestPortfolio Value
25$1,300$10$1,310
30$7,300$2,136$9,436
35$13,300$9,223$22,523
40$19,300$24,299$43,599
45$25,300$52,243$77,543
50$31,300$100,910$132,210
55$37,300$182,952$220,252
60$43,300$318,743$362,043
65$49,300$541,101$590,401
70$55,300$902,872$958,172
75$61,300$1,489,172$1,550,472

Portfolio value is at end of each time period. All time periods are five years except for the first year (Age 25) which includes a $100 initial contribution. Interest is computed annually.

As we can see, the portfolio grows at a relatively slow pace over the first five years.

But as the portfolio continues to grow, the interest earned begins to exceed the contributions in under 15 years. That’s because interest is earned not only on the total contributions but on the accumulated interest itself. So by the age of 40, the total contributions are valued at $19,300 while the interest earned soars to $24,299.

Not only that, the interest earned soars to double the value of the investor’s contributions over the next five years—reaching $52,243 compared to the $25,300 in principal.

By the time the investor is 75, the power of compound interest becomes even more eye-opening. While the investor’s lifetime contributions totaled $61,300, the interest earned ballooned to 25 times that value, reaching $1,489,172.

In this way, it shows that investing consistently over time can benefit investors who stick it through stock market ups and downs.

The Two Key Ingredients to Growing Money

Generally speaking, building wealth involves two key pillars: time and rate of return.

Below, we show how these key factors can impact portfolios based on varying time horizons using a hypothetical example. Importantly, just a small difference in returns can make a huge impact on a portfolio’s end value:

Annual ReturnPortfolio Value
25 Year Investment Horizon
Portfolio Value
75 Year Investment Horizon
5%$57,611$911,868
8%$88,412$4,835,188
12%$161,701$49,611,684

With this in mind, it’s important to take into account investment fees which can erode the value of your investments.

Even the difference of 1% in investment fees adds up over time, especially over the long run. Say an investor paid 1% in fees, and had an after-fee return of 9%. If they had a $100 starting investment, contributed monthly over a 25-year time span, their portfolio would be worth over $102,000 at the end of the period.

By comparison, a 10% return would have made over $119,000. In other words, they lost roughly $17,000 on their investment because of fees.

Another important factor to keep in mind is inflation. In order to preserve the value of your portfolio, its important to choose investments that beat inflation, which has historically averaged around 3.3%.

For perspective, since 1974 the S&P 500 has returned 12.5% on average annually (including reinvested dividends), 10-Year U.S. Treasury bonds have returned 6.6%, while real estate has averaged 5.6%. As we can see, each of these have outperformed inflation over longer horizons, with varying degrees of risk and return.

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