My Salary Will Never Increase Again In Real Dollars – Will Yours?

by Darwin on April 10, 2011

Today I was taking inventory of my career, salary and where things are headed with my company.  Like what we’re seeing in the rest of corporate America, companies have figured out how to do more with less.  On an aggregate level, industrial and service sector productivity is through the roof and corporate profits are at an all-time high.  Corporate America is minting cash and interest rates are at generational lows.  That has the perverse effect of everyone looking over their shoulders wondering if they’re the next takeout target.  As such, companies are likely to continue to remain lean in two ways – headcount and salaries.

Our average salary was the lowest I’ve seen in the 12 years I’ve been here.  So, even though I had a good review and can’t complain about the bonus and long-term incentive award, my annual increase wasn’t much to write home about and I expect this to continue.

Here’s Why My Salary Will Never Increase Again

  • Annual Increases Likely to be 2-3% Forever – I’m not optimistic that we’ll be seeing the days of 4-6% annual raises like I saw early in my career.  In my twenties, I was “hot” enough if you will, that I was even given double digit retention bonuses when I wasn’t even leaving!  Just to stay… Now?  With layoffs in the industry, healthcare reform and a 9% unemployment rate, employers see no need to retain employees with lavish raises.  They have nowhere to go!
  • Raises?  Maybe 1 To Go – I moved up pretty quickly early on in my career and I’m realistic about the prospects of NOT being a VP or CEO someday.  While I might eek out a 5-10% bump once more for another promotion to Director somewhere along the way, that’s a one-time boost I wouldn’t see often prior to retirement.  I used to be on the “fast-track” and work tons of hours.  Since becoming a family guy and reassessing my priorities, I’m content with a solid middle management role with increasing responsibilities along the way, but I’ve changed my outlook on the C-suite role by 40.  That pretty much leaves annual raises as the primary means to increase salary.
  • Staying Put – The only surefire way to make a lot of money in corporate America is to jump jobs a lot.  It’s a mathematical certainty.  If you have no regard for company loyalty, location, and risk, if you continuously have your feelers out for any job offering a 15% raise from your last salary and jump at each offer you land, after a few jumps, you’ve increased your salary to 150% of your baseline salary had you stayed put. For varying reasons, I’m not actively pursuing opportunities with other companies.  Primarily, I don’t really weigh the extra income as a necessity.  We’re pretty happy where we are, we’re doing OK financially, and we’re putting money into the house and our community.  I never moved as a kid and I’m still best friends with my childhood friend since 5.  I’d like for my kids to have the same if possible.  Moving for money just isn’t worth it at this point.  If things were headed south here or something changed financially, then of course, I always have my feelers out the awesome network TheLadders.com where I’m constantly alerted to 6-figure opportunities by job and region.  But I have no plans to move, so my salary will likely inch along.
  • Increasing Costs – With my salary realities reflected above, it’s now time to get real about costs moving forward.  Once again this year, the increase in our health insurance contributions practically wiped out my annual increase.  On top of that, inflation is rising.  Despite the low government numbers which are useless, the REAL costs everyday people see like gas, food and clothing are all increasing.  Global inflation is much higher outside the US as well, and with our global supply chain, that will eventually eat its way into our economy.  Not to mention the endless printing of dollars.  Just use Gold as a barometer and you can see what the market is saying about US dollar purchasing power in the world.

How to Manage This New Reality

  • Fixed vs. Variable Costs – One of the largest recurring costs we have is the mortgage.  Fortunately, the monthly mortgage payment is fixed in real dollars, and hence will decline in future dollars.  As my annual salary increase, even at a snail’s pace, the mortgage payment stays the same.  So, that’s one fixed expense that will decline over time.  Most of my variable expenses will continue to increase at least on par with or exceed my annual raises due to inflation.  Health care premiums are likely to continue to increase above inflation, but if my wife ever goes back to work teaching (the plan is once our youngest gets into 1st grade but we’ll see if that works out), we could probably hop on her plan.  Teachers tend to get golden benefits where they pay very little into their healthcare and pension costs and the taxpayers eat the promised costs.  (Contrast In Defense of Teachers with Chris Christie is a Hero and Unions Should be Ashamed).
  • Drive Out Costs – I’m always looking for ways to cut costs on products and services we’d normally be paying for anyway, like when I saved over 60% off a new fridge and how I routinely cut my Comcast bill by threatening to leave.  The obvious include coupons and avoiding sale gimmicks at Gap when we don’t actually need things.  I work under the premise that everything’s negotiable, even when it traditionally isn’t.
  • Additional Income – You can only cut so much out of a budget and frankly, we like to split saving for a rainy day with enjoying life in the present.  So, to be able to hit all our goals of funding 529s, IRAs and 401(k)s, along with fun vacations, gadgets and activities with the kids, I earn extra money on the side (see the Economics of Blogging). When time permits, I seek out various opportunities to earn extra cash, being mindful that the ROI has to be worth it since I have limited time.  One such endeavor is a new CAD Drafting outsourcing firm a friend and I set up.  We’ve only been live a month or so and we’re already profitable.  So, that’s an example of a great side gig that’s eating up some time now but should pay off in the future as the return/time increases.
  • The Wife – We’ve been living off one income for 7 years now since our first son was born.  I’m glad we started off our marriage with the ability to do so by driving reasonable cars (fully paid) and not buying a McMansion or keeping up with the Joneses. This way, when my wife delivered and decided she wanted to stay home instead of go back work (surprise!), we were able to do it.  So, if and when she gets back into the workforce in some capacity, this will be supplemental income and also act as a buffer in the event of my job loss.

Given the combination of low annual raises and high cost of living increases, in terms of real dollars, it’s likely that I’ll never make more money than I do now in my professional career (I hope to keep growing my blogging income though according to my 2011 Objectives!) .  This is the same exact scenario facing millions of Americans, perhaps yourself included.

Have You Faced Up to This Reality?

{ 16 comments… read them below or add one }

101 Centavos April 10, 2011 at 11:10 pm

You might well be writing about our own situation, it’s that parallel. I’m also OK with not climbing the corporate ladder or job-hopping to increase my salary.

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Darwin April 11, 2011 at 9:45 pm

I figured as much. Many Americans just haven’t figured it out yet!

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Invest It Wisely April 10, 2011 at 11:39 pm

I’m younger than you guys so I don’t see myself in that situation, yet, but unless I start hopping around then I can’t expect much more than modest hikes, either.

Maybe you can hope for some sanity in the monetary system — real costs of production tend to fall over time, so even if you get small raises, hopefully you can buy more with them. I think this would be the case if not for a pervasive level of waste that shuttles resources away. In the interim though it really is not looking that way, especially in energy and food.

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Darwin April 11, 2011 at 9:46 pm

We’re printing dollars like there’s no tomorrow but still giving 2% pay raises, so it’s going to be tough to stay ahead when inflation finally sets in for good. They should have started hiking rates already but they’ll be a few quarters behind as usual.

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Dave @ Money In The 20s April 11, 2011 at 6:30 am

I think that this is true for a lot of older people. I am younger and I know that the yearly raise with my current company is that 2 – 3%, but I still have a lot of opportunity through promotions. I could always job hop too, but I really enjoy where I am at.

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Investor Junkie April 11, 2011 at 9:42 am

I know you’ve poo-pooed this previously, but owning your business is the only way. At least, as you mentioned, do one on the side.

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Darwin April 11, 2011 at 9:48 pm

Nah, I don’t really poo-poo the small biz owner route; I admire it. But I think it’s wrought with more failure, headaches and mediocrity than the mainstream media gives it credit for. A lot of people equate owning a small biz to being the next Mark Zuckerberg when in reality it might be the annoyed Burger King franchisee who can’t find reliable workers and gets by on $40K/year. It depends on the business.

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Ravi Gupta April 11, 2011 at 9:43 am

I haven’t started working in any significant capacity yet. I think for the first couple of years I want to switch as much as possible to take advantage of those salary hikes. Eventually though I would want to slow down and either downshift to working part time or quit working all together. I too hope that I can make blogging income to supplement my salary.

-Ravi Gupta

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Darwin April 11, 2011 at 9:49 pm

Get it while you’re young to be sure. If you set that base high early on with each move, interested companies will have to give you at least a 10-20% premium each time.

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retirebyforty April 11, 2011 at 1:44 pm

I’m in similar situation at the full time job. I can work really hard and probably get one or two more promotion and that’s probably it for me. I got a 2-3% increase this year and I’m fine with that. My wife is going back to work (after baby) though so we’ll see how that goes. She may change her mind once the maternity leave is up….

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Darwin April 11, 2011 at 9:50 pm

Maybe she’ll hit you with a surprise like mine did. “Honey, I changed my mind. I want to stay home!”

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krantcents April 11, 2011 at 3:26 pm

It depends on the company and career! Some people are eligible for bonuses, profit sharing and increases above the inflation rate. Most people are not because the company they are working for are having difficulties in this economy.

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Darwin April 11, 2011 at 9:50 pm

Yeah, I didn’t include the bonus consideration, but I figure in terms of year over year increases, still not much above inflation. Even though I got a bonus this year, if I get one next year, it will likely be roughly equivalent.

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Rob April 11, 2011 at 10:34 pm

As a contract software engineer, I actually have the potential to get significant raises each year the bill rates get re-negotiated. Of course, that’s balanced out by the possibility of going stretches without work. But realistically, in the industry we service, there is very little chance that someone won’t have something for us to do at any given time. Heck, sometimes I wouldn’t mind getting a couple of months off so I can concentrate on side projects. After all, the main function of this job is to pay for the things I actually want to do.

My partner, on the other hand, has maxed out on her pay grade and has only gotten nominal cost of living raises with bonuses. Her boss even told her that the only way she was ever going to make significantly more money was if she went somewhere else. But since we’re pretty much grounded here, where there aren’t many employers for her job type, there aren’t many places to jump to.

At this point, the only viable way we can really boost our income is to find a side job of some sort. We’ve both started exploring this avenue in our own way. I’ve been investing and working on building a decent blog and she makes jewelry.

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optionsdude April 12, 2011 at 10:12 am

I will likely be in a similar situation so now is the time to evaluate costs and lifestyle in an attempt to maximize cash flow, pay off debt, and start generating some residual income. I would expect that the prospect of negative real interest rates to be with us for the next several years. Following the Great Depression, it took 25 years for the Dow to reach its old highs. We have already had one lost decade. Look for another and prepare accordingly.

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No Debt MBA May 13, 2011 at 9:48 am

I think your 20s is the only time you see huge salary gains anymore and a lot of that is minimized if you start in a well-paying job out of college instead of at $30-40k.

I saw an article recently, can’t remember where, that was showing how median salaries over the last 20 or 30 years haven’t kept up with inflation. I would expect this trend to continue as there is a lot of downward pressure on wages in the US at the moment and probably for the foreseeable future.

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