Getting a raise at work isn't a given. For some people, a boost in pay comes as the result of hard work and dedication. But even if you've done a great job at work over the past 12 months, the unfortunate reality is that a lot of companies are still grappling with higher costs thanks to lingering inflation. So while you might normally be entitled to a raise based on your performance, that extra money may not come to be this year.
But if all goes well, then ideally, you will see your paychecks increase in 2024. Chances are, if that's going to happen, your employer will give you a heads up at some point in December -- perhaps in the context of a performance review.
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You may be tempted to take that extra money and use it to upgrade your lifestyle in 2024, whether that means upsizing to a larger apartment or swapping your older vehicle for a newer model. But here's something you may want to do with that money instead.
Bank your raise for the future
Once you get used to a higher paycheck, it can be difficult to scale back on spending. So a better bet is to decide now that you're going to send your entire 2024 raise into your 401(k) plan.
For one thing, the extra money could be instrumental in helping you build up a larger nest egg for retirement. Data from Northwestern Mutual finds that the average person in their 60s only has $112,500 saved for retirement. While that's certainly better than nothing, it's frankly not a whole lot of savings, given that that money might need to last 20 or more years.
If you bank your entire raise for long-term savings purposes -- not just in 2024 but in future years as well -- you can potentially set yourself up to retire with a lot more money than the typical senior. That could make your post-career years more fulfilling and less stressful.
Plus, remember that if you're saving for retirement in a traditional 401(k), as opposed to a Roth, every dollar you put in is a dollar the IRS can't tax you on, up to the annual limit. If you're under 50, for 2024, that limit is $23,000. If you're 50 or older, it's $30,500.
It's much easier to save more off the bat
You may be inclined to collect your raise in early 2024 and see how things go before committing to sending all that money into your 401(k). But remember, once you get used to having a larger paycheck, it's going to be difficult to part with some of your earnings.
That's why a better bet is to decide now that you're going to be saving your entire raise. Put in that change with your payroll department by the end of the year so you can start off 2024 with higher 401(k) plan contributions -- and the peace of mind that comes with knowing you're really making a strong effort on the retirement savings front.
