The Moment
You got a 3% raise — the standard cost-of-living adjustment. On $70,000, that is $2,100/year or $175/month before taxes. After taxes, it is roughly $130/month.
Here is the uncomfortable truth: with inflation averaging 2.5-3.5%, a 3% raise means your purchasing power stayed roughly the same. You are not earning more — you are maintaining.
The One-Move Strategy
Increase your 401(k) contribution by 1%. On $72,100, 1% is $60/month. You will not notice it in your paycheck. But compounded over 25 years at 7%, that extra 1% adds roughly $45,000-$60,000 to your retirement.
The remaining $70/month (after taxes and the 401(k) bump) goes to your bank account and gets absorbed into normal spending. That is fine — a 3% raise does not have enough margin for complex allocation. The 1% retirement boost is the high-leverage move.
If you already contribute 15%+ to retirement: Direct the raise toward your highest-priority goal: - Extra $130/month toward credit card debt saves $100+/year in interest - Extra $130/month in a Roth IRA adds $1,560/year toward the $7,000 limit - Extra $130/month in savings fills an emergency fund gap in 12-18 months
The key principle: Capture the raise before lifestyle absorbs it. Make the change the week you see the raise on your pay stub, not "next month."
Run Your Numbers
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3% Raise Allocator
A small raise. The temptation is to absorb it — the math says routing it directly to retirement compounds dramatically.
Educational illustration — not financial advice. Math: @/lib/finance/allocation.ts. Allocation order follows the canonical waterfall: high-interest debt → emergency reserves → captured match → tax-advantaged room → taxable invest.
What to explore next
- →How do I negotiate a larger raise?
- →Should I look for a new job to get a bigger raise?
- →How do I auto-increase my 401(k) contribution?
Frequently Asked Questions
Is a 3% raise a good raise?
A 3% raise is a cost-of-living adjustment, not a merit raise. It maintains your purchasing power against inflation. If you are performing well and only receiving 3%, it may be worth having a conversation about a merit increase or exploring external opportunities. Market value raises (from job changes) average 10-20%.