How Cooked Are You Financially If You Never Get a Raise?
Earning the same salary year after year may feel like a form of stability — no job loss, zero cuts in pay, just day-in and day-out consistency. However, what can feel like stability is actually an invisible pay cut — thanks to inflation.
The ongoing rise in the American cost of living acts as a constant pay cut against an unchanging salary without raises. Even at a relatively minimal annual inflation rate of 3%, your buying power shrinks without regular pay hikes. Eventually, that shrinking becomes such that you can no longer afford basic bills and rent. Below is a basic breakdown of how not getting a raise can impact various income levels.
“Not receiving a raise is not a neutral act. It is effectively a pay cut to the real-world value of your pay,” said Ali Zane, CEO of IMAX Credit Repair Firm. “People don’t realize they are slowly working their way into a financial crisis until that crisis is upon them.”
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$30,000 Earners: A Razor-Thin Margin
At a lower income level like $30,000 annually, a person is already likely struggling to ensure that bills, rent and groceries are paid for. For inflation to cut into that salary without a raise could be disastrous.
“I have worked alongside $30,000-wage earners who have become homeless, not due to any job loss, but due to five years of wage stagnation,” Zane said. “This led to a situation in which the math no longer worked in their favor and they could not afford the rent.”
$50,000 Earners: Severely Diminished Quality of Life
Zane used the example of someone earning $50,000 and receiving no raise. A 3% inflation rate reduces your buying power every year, so that after five years, your $50,000 salary is equivalent to $43,700. That’s a severely diminished ability to buy groceries, pay for major expenses like rent and healthcare and set aside money for retirement.
While people at this income level might not end up homeless, Zane noted they will have to sacrifice the quality of their childcare, healthcare, education and retirement savings as each year passes.
$75,000 Earners: False Stability
Earners at this level have more financial flexibility and discretionary income, so the pay cut of inflation can go unnoticed early on. By the fifth year of no raises, however, Zane expects them to feel the squeeze of a decrease of $11,250 to $15,000 in spending power.
While that may not seem like much when held against $75,000, Zane also made clear that income earners at this level “have student debts, child care costs and healthcare costs that constitute necessary spending and so the actual amount of discretionary income is much less than it seems.”
Since these earners make more, they spend more and an absence of annual raises can — eventually — be debilitating.
$100,000 Earners: Inflation Still Catches Up
A low six-figure income can easily hide the cash drain that inflation wreaks without regular pay raises — at first. Eventually, Zane said, inflation catches up, despite how well $100,000 might absorb it for a few years.
After a half-decade, spending power at this income level can decrease by $15,000 to $20,000 and, by 10 years, this income level becomes the equivalent of $74,600. Such a decrease can manifest as reduced retirement contributions, smaller (and fewer) vacations and the inability to commit to major expenses such as paying for college and buying a home.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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