Mark Rank, a professor of social welfare at Washington University, has written extensively on income inequality in the United States. For example, in a 2013 blog in The New York Times, he wrote that “Contrary to popular belief, the percentage of the population that directly encounters poverty is exceedingly high.” Specifically, he says his research shows that at least 54% of Americans between the ages of 25 and 60 “will spend a year in poverty or near poverty (below 150% of the poverty line).”
But in an opinion piece in the April 20 Sunday Review section of The Times, Rank reveals the findings of research he conducted with Thomas Hirschl of Cornell that addresses the issue of the highest-income group in America, the 1%. That research shows that “12% of the population will find themselves in the top 1% of the income distribution for at least one year” during that same age range — 25 to 60. Moreover, 39% will spend a year in the top 5%, 56% will be in the top 10% and “a whopping 73% will spend a year in the top 20% of the income distribution.”
Rank’s conclusion is that his research “casts serious doubt on the notion of a rigid class structure in the United States based upon income.” Instead, “the majority of Americans will experience at least one year of affluence at some point during their working careers.” He is quick to point out that such “fluidity” of income applies to poor people, going back to his earlier data that shows 54% of Americans will experience poverty or near poverty during their working years. He proposes that we “shape our policies” to reflect this fluidity, and concludes that “we have much more in common with one another than we dare to realize.”
For advisors, the lessons could be different, and could serve as one more reason why getting professional financial advice is beneficial to consumers. Why do some people enter the affluent ranks for only a short time? Rank mentions it could be because someone changed jobs, received a bonus or a spouse started working.
In addition, it could be because there was some other kind of liquidity event, such as the sale of a business or a home, or receiving an inheritance. The death of a spouse or divorce also can have significant effects on wealth, or the lack thereof.