Feeling Squeezed?

Call it the middle-class squeeze. According to Paul Taylor, executive vice president of the Pew Research Center, income is shifting to the top tier of American households, especially those in the top 5% who earn more than $181,000 annually.

Just how much of American income has shifted to the top wage earners? The Pew Research Center found that in 2010, the top 20% of U.S. households collected 50.3% of the nation’s income, up from 49.9% in 2006. The lowest-earning one-fifth of households collected just 3.3% of the nation’s income, down from 3.4% in 2006. Three-fifths of households, or 60% collected just 46.3% of the income last year, down from 46.7% in 2006.

These increases for top tier households and decreases for the middle class may seem relatively minor, a percentage point here and there. However, according to Heidi Shierholz, an economist with the Economic Policy Institute, in the 1970s, 53% of the nation’s income went to the middle class. She notes that middle class households began losing significant ground in the early 2000s and that the downward trend has been exacerbated by the recent recession and our difficult employment market.

With record unemployment, a struggling housing market, and continued market volatility, it is unlikely the middle class squeeze will cease anytime soon. That makes it that more crucial than ever to tend to your financial plan. Now’s a great time for an annual review to construct your balance sheet, evaluate your goals and ensure that your investment strategy properly aligns with your short- and long-term goals and your risk tolerance.

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