Have you asked for a raise lately? Far too many people don't try to negotiate a periodic raise from their employer, and are instead left hoping that they'll be offered a salary boost -- or left with an income that doesn't even rise enough to keep pace with inflation.
It's important that you advocate for yourself and ask for an occasional wage increase, and not just to give you more money today -- having a higher income can also help you improve your long-term financial situation in less obvious ways. In fact, here are three reasons a raise could help you out financially beyond just increasing your paycheck.
1. A higher salary could mean a higher 401(k) match
Many employees have a 401(k) at work that allows them to set aside pre-tax money for retirement. If your employer offers one of these accounts, there's a good chance they'll match contributions you make -- which essentially means they'll provide free money for your future.
Employers that offer a match often cap their contributions at a percentage of your salary. You might, for example, have 100% or 50% of your 401(k) contributions matched up to 4% of your salary. If that's the case, then a raise could mean a higher employer match.
If you're making $50,000 right now and contributing enough to your 401(k) to get the maximum employer match, the most you could receive would be $2,000 if the match is capped at 4% of your earnings. But let's say you negotiate an annual raise at every performance review and your salary climbs to $55,000. In this situation, your employer's maximum contribution would go up to $2,200.
This extra $200 may not seem like much, but over 30 years of saving it could turn into almost $23,000 extra in your retirement savings account, assuming an 8% return on your investment.
And of course if you keep negotiating periodic raises, your salary will keep going up, your matching contributions will be even higher, and the boost to your retirement savings will be greater.
2. A higher salary could mean a larger Social Security benefit
Social Security benefits are based on the amount you earned over the course of your career. The formula to determine your benefit is complicated, but basically you get a benefit equaling a percentage of your average wages in the 35 years when you earned the most, after adjusting for inflation.
If you ask for a raise and increase your salary you'll have a higher average wage when your Social Security benefits are determined. This means you'll get more guaranteed lifetime retirement income from the government to support you in your golden years.
3. A higher salary could mean increased savings
Many people contribute a portion of their earnings to their retirement savings. If you base your contributions on the amount you make, a boost to your salary means you'll automatically contribute more. While a contribution equal to 10% of a $50,000 salary is $5,000 per year, a 10% contribution jumps up to $5,500 if your salary goes up to $55,000.
Many financial experts also advise banking raises whenever possible. So if your salary goes up from $50,000 to $55,000 because you negotiated a raise, you could keep your cost of living the same and contribute the full additional $5,000 you're earning each year to your retirement savings account.
If you can make that happen and contribute $5,000 extra a year over 30 years of investing, that additional $5,000 contribution alone would turn into more than $566,000, assuming an 8% return. Asking for raises and saving the salary difference can go a very long way to setting you up for a secure retirement.
Is now the right time to ask for a raise?
As you can see, there are lots of benefits to asking for a raise. If you've been doing well at work and haven't advocated for yourself to increase your income, consider setting up a time with your employer ASAP to discuss a salary boost. You can -- and should -- also bring up raises at annual performance reviews so you can make sure you're getting adequately rewarded for a job well done.