To infinity and beyond

Next pay period I will receive a small raise at work, to the tune of $2,500 (a 3% raise). While I’m stoked to be getting any raise at all, let’s be real, it’s not a life changing amount. In fact, I’m only expecting to net $75 more each paycheck because of it. Big Macs on me tonight guys. Wait… too expensive, dollar menu cheeseburgers on me instead 🙂

Girl Ninja and I have decided to do the boring and responsible thing and increase our retirement contributions, as opposed to increasing our discretionary cash flow. We’ve been contributing 10% to my 401k, but looks like it’s time to increase it by another 3%? My employer matches 5%, so in total 18% of my gross pay will be going to my 401K plan.

Is that hot or what?

So yeah, technically I got a $2,500 raise, but before I even have a chance to see it in my paycheck, it will be going straight to 65-year-old me via retirement contributions. If that’s not keeping up with the Joneses I don’t know what is.

Since I’m a self-proclaimed PF nerd, I thought I’d run a quick calculation…

If we keep throwing that $2,500 in to our 401K plan for the next 40 years, do you want to know how much extra we’d have come retirement? This example assumes an 8% rate of return.

$732,141.92

You can see the decision was easy. Get $75 extra in each paycheck or have an extra $732,000 waiting for me when I’m older? I don’t know about you, but I’m picking the latter every time.

Lifestyle inflation is cool and all, but if we are already content with what we have, what else is there to inflate besides our savings, retirement, and charitable contributions? I’m not going to go run out and buy another TV or laptop just for the hell of it (pardon my language).

Last time you came in to a little extra money, what did you do with it? If you had to inflate your lifestyle in one aspect how would you do it? (We would probably dine out a little more, or maybe pay for a maid service).

25 thoughts on “To infinity and beyond

  1. Hey! I’m so envy (again!) that you can calculate this.
    Retirement is public here in the Old Continent, and we have no idea what’s going to happen. Every governor changes the rules…cool huh?
    I’m thinking of doing a private one just in case, but I’m not 100% sure yet.

  2. I will be receiving a 50 cent per hour raise in the spring but our pay roll taxes went up January 1 so the extra $20 per week will just go to put me back to the net level I had last year.

    It seems everything goes up except my pay.

    I am a PF math nerd and I love the math on this. It looks to me like you are on target for a much earlier retirement target date than 65.

  3. I also got a raise effective in January and, like you, when you determine how much it is per pay period after taxes, it isn’t exactly a life changing amount. Mine isn’t earmarked for anything, but we have some rather big savings goals for the year, so that’s where it will likely end up.

  4. We added all the salary increases to savings and all the bonuses to lump sum payments for our mortgage. We already maxed out on the RRSP (401K0 contributions.

  5. When I got my bonus in January it ALL went right on my debt! and thats the plan for all bonuses until I can switch to savings. My employer offers us to put up to 85% of our bonuses right into a pension (401k for you I think) tax free, so once the student loan is gone, that is the plan!

  6. I didn’t get a raise this year due to budget cuts at work, but DH’s 3% raise went to our charitable contributions. We’ve decided to up that incrementally each time we get raises to 10%. We’re already contributing 15% to retirement and any remaining to pay down the mortgage (looking to pay it off this year! woot!).

  7. Hoping to get a raise in July. Did the budget for the coming year and we currently have more expenses than money, so any extra will go to plug the holes. Once school credit cards are paid off (0% interest), extra money will probably go to kid fund and house downpayment fund. I need to get my butt in gear and get taxes done, cuz I’m betting we’ll get a decent refund.

  8. Guess what? I started up a 401k a few weeks ago! I did this mainly to reduce my tax liability, because my company does not match. Besides my big concern that the entire market is a big Ponzi scheme, I feel sad that the money is locked up pretty tight until retirement. But being the slave to peer pressure, I have conceded to take this gamble on my future.

    What I really want to do is lifestyle inflate with an Audi R8 or even the new Corvette.

      • Hahaha. Seriously though 😉 Bright side is, you made it a little cheaper for me to buy in to today!!!!

        Buy and HOLD, buy and HOLD. don’t forget it!

          • Actually not, Cash. Bernie Madoff would say your balances will always go up. Smart investors know that markets will go up and down (but in the long run up), and they know to diversify among asset classes (to smooth out the effects of the more volatile assets, i.e. stocks) and to keep their fees low.

            • Dollar cost averaging for the win, me hopes :-). Also my 401k options are quite limited. Strangely enough I picked 2 moderate risk and one high risk instead of the safe ones. The Asian gambling blood in me cannot be denied…

  9. When I was still working full time, I usually put raises into my savings account. *sigh* I miss those days!

  10. My husband got a 0.99% raise starting in January. So generous eh? They couldn’t even make it a round number.

    It equates to about $40 after taxes a month. Our rent is increasing $75. So we will actually have less every month than last year. Awesome.

    Be grateful you can at least use the raise to have more money in the end!

  11. Well for us I just readjusted our budget so that we are contributing to max out our 401k and also we are on track to max out the IRAs. The ESPP (Employee Stock Purchase Program 10% off company stock) should reach the maxed out level this year. Of course this leaves us a little tight, but not uncomfortably so and gives a little push to improve or start other streams of income.

  12. I always do the same thing. But if I ever get to where I think I’m contributing enough (is there such thing?), I will eat at my favorite Mexican restaurant more often!

  13. Good for you guys, but I already think we’re over-saving for retirement so we didn’t put all of our last cost-of-living raise in our IRAs. We upped our IRA contribution from 17 to 17.5%, increased our charitable giving to match the raise, and put the rest toward our short-term targeted savings accounts for fun purchases – electronics, travel, and a new camera.

  14. I second setting up a college fund for Baby Ninja!

    But you didn’t ask what you should do, you asked what we would do. You are lucky. I work for state government and haven’t had a raise since 2009. Slated to get one in May, though. May of 2015, that is. And, in fact, I have taken $5000/yr cut in salary due to furloughs and pay cuts for the last 4 years. So when I do get a raise, I suspect it will feel a lot like playing catch up. But in my fantasies, my lifestyle inflation would include more travel (I rarely go more than 200 miles away these days), nicer clothes, etc. Maid service sounds awfully nice. In reality I will probably save the money to bolster my e-fund and retirement fund.

  15. Doubtless you’ve made a good choice, though a 529 plan would be a good choice too. But I wouldn’t count on a steady 8% return, and you don’t know what the effects of inflation will be. Having passed official retirement age myself (65) and still working for a while longer, I can confirm that as you get closer to that Blessed Time, the balances in your retirement accounts weigh far more than any raises you’re likely to get. My “frugal” employers have not seen fit to give me a raise for a couple of years; however, I made 2/3 of my salary last year through my investments. Compounding makes all the difference.

  16. We max out 401ks, roths, employee stock purchase plans already so it would likely go into a money market. We need to do a better job at funding the 55 to 65 age range so we can retire early and get by comfortably before our retirement accounts are available penalty free.

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