Unlocking Financial Potential: How a Small Raise Can Grow Your Retirement Savings

The beginning of a new year often brings fresh budgets for companies, leading to salary increases. If you receive a 3% raise in 2025, it could significantly boost your retirement savings. Here’s a breakdown of how you can turn that raise into over $171,000 by the time you retire.

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Typical Raises Average Around 3%

Employers have the freedom to implement their own raise policies, but most offers hover around 3%. According to Indeed, that’s the average increase workers can expect.

As per the Bureau of Labor Statistics, a full-time worker earned an average of $1,165 per week in the third quarter of 2024, totaling $60,580 annually. Thus, a 3% raise translates to an additional $1,817 per year. While this amount can help improve your current living standards, there’s a strategy to grow it even further if you don’t need to use it immediately.

Maximize Your Raise Through Investing

Investing is a proven method to enhance your financial power over time. Although you’ll temporarily set aside some cash, the potential returns can far exceed your initial investment.

For instance, if you invest the $1,817 raise—about $151 per month—at a 7% average annual return, you could accumulate approximately $171,163 over 30 years. Your contribution would amount to $54,360 during that period.

This estimate doesn’t consider future raises, higher investment returns, or potential employer contributions due to retirement savings. Therefore, the final amount could be even greater.

For example, if your employer matches 3% dollar-for-dollar in a 401(k) plan, you would effectively contribute $303 monthly to your retirement account. After 30 years, with a 7% average annual return, that combined amount could grow to around $343,460, while still totaling your original $54,360 personal contribution.

Finding Balance: Saving vs. Spending Your Raise

It’s completely understandable to want to enjoy some of your raise right away. Rather than choosing one approach or the other, consider a balanced method. You can allocate half of your raise for personal use and invest the other half, or customize it to what feels comfortable for you.

Establishing a savings plan in advance can be beneficial. Simply hoping to save what remains at the end of the month often leads to spending the entire raise instead. By setting aside a specific portion for savings, you can avoid this lifestyle creep.

A $22,924 Social Security Bonus That Many Retirees Miss

For many Americans, retirement savings may lag behind expectations. However, there are lesser-known “Social Security secrets” that could boost your retirement funds. Learning how to optimize your Social Security benefits could potentially add as much as $22,924 annually. To discover these strategies and retire with confidence, click here for more information.

View the “Social Security secrets” »

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