Longitudinal patterns in cohort income inequality, income instability, and income trajectories of a US cohort on the cusp of retirement

Abstract

Previous research has shown that the course of income inequality of a US cohort in retirement depends on the inequality measure used. For example, the variance of logarithmic income, a bottom sensitive measure, displays a decidedly declining trend. This study examines the mechanisms that underlie these income inequality changes as a cohort enters their retirement years using longitudinal data over a 20-year period and a variety of methods. In particular, individual income trajectories and income instability just before and in retirement are investigated. The results show (i) the variance of logarithmic income falls as the cohort ages primarily due to a reduction in income instability; (ii) on average, the rich and poor get poorer as they age into retirement; and (iii) consistent with previous research, a person’s place in the retirement income distribution is largely determined before retirement.