Living Well on Less: The Middle Class Pinch

When I was growing up, being middle class represented economic and social mobility. It meant you had the income to buy a nice home in the suburbs with a couple of cars in the garage, to send your kids to college and to quit working at age 65 knowing you'd have a secure and comfortable retirement.

In Middle Class Families Making It Work, we report that what once was a growing economic force in the U.S. has been losing steam. As senior editor Eileen Ambrose writes, the middle class has been shrinking since the early '70s, according to the Pew Research Center's frequently cited definition of middle-class income. At the start of that decade, just over 60% of adults lived in middle-class households; now it's about 50%. (A family of three is considered middle class with an income of $46,218 to $138,656, depending on location, according to Pew.)

To see how the middle class is faring in 2018, Eileen profiles middle-income families in different stages of their lives and in different areas of the country. The families share common themes: They are making progress toward their financial goals, but only because they are also making sacrifices—putting off college savings or delaying retirement or, in the case of one family, choosing not to buy health insurance. They also drive older cars and rarely treat themselves to pricey restaurant meals or expensive vacations.

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New challenges. The flip side of a shrinking middle class is that more people are now on either side of the middle. Back in 1971, 25% fell into the lower-income group and 14% fell into the upper-income tier. The most recent data show that 29% of U.S. adults are in the low-income group and 21% are considered upper income.

You can argue that seeing more people rise into the upper-income tier is a positive trend, but it has exacerbated income disparity—most pundits call it income inequality—in recent years. After the Great Recession, when the economy started to recover and employment picked up, hundreds of thousands of workers—in particular older men—couldn't find jobs that matched their skills. One shocking statistic from the Census Bureau: In 1973, the inflation-adjusted median income of men working full-time was $54,030. In 2016, it had fallen to $51,640.

Globalization and automation have taken a toll on manufacturing jobs, and the most-desirable jobs created in the past decade have been for workers with post-secondary-education degrees. Plus, stock market gains have disproportionately benefited upper incomers. Other factors weighing on the middle class include wage stagnation, rising health care premiums and skyrocketing college costs, which have led to stultifying levels of student loan debt. Even the new tax cuts for middle incomers are temporary.

Income inequality has led to a "haves and have-nots" mentality—a feeling that the spoils are going to wealthier Americans, a feeling that we're not all in this together, striving for common goals. And that has helped reshape the political landscape.

I know many of you have financial challenges similar to the ones the families we profile in our story are facing. A number of you have shared your stories with me, and I see a common, inspiring theme: You followed our advice and achieved your version of the American dream. Whether you fall above or below an arbitrary income cutoff, we hope you continue to benefit from our mission to help you achieve long-term financial security.