The Behavioral Finance Hack To Turn Your Pay Raise Into Retirement Gold

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Congratulations! You are likely to score a raise this year. According to HR.com's 2025-2026 Salary Budget Survey , 97% of employers plan to increase their employees' compensation in 2025, with 78% of respondents planning to give average raises of 3 to 4 percent. Receiving a raise presents a terrific opportunity to turbocharge your retirement savings. While taking the extra cash and splurging on a new gadget or a fancy vacation may be tempting, I would advocate for a more strategic approach, at least for a portion of the increase: immediately increase your retirement contributions. Timing an increase in your retirement contributions with a salary increase is a shrewd move that leverages behavioral economics principles to outsmart your brain and improve your long-term financial security .

Mental accounting, a concept introduced by Nobel Prize-winning economist Richard Thaler, refers to the cognitive bias where individuals categorize and treat money differently based on its source or intended use. Mental accounting often leads people to spend unexpected windfalls, such as lottery winnings or bonuses, on non-essential goods and experiences while treating regular income more conservatively. Understanding this bias is crucial for making more rational financial decisions, including what to do with a pay raise.