Pay raises are announced on January 1 of each new year in the company I work for… assuming there are pay raises I guess.
This was my first January with my new employer and I had a good idea what to expect as far as raises go. I got exactly what I expected and while it isn’t amazing I’d say it is a fairly typical raise for 2013.
My raise ended up being in the low single digits in terms of a percentage. This is typical for my industry given the current state of the economy.
Unfortunately, this year a couple percent raise doesn’t end up translating into much with everything else that is going on.
There were a some twists this year which I’ll go into more detail below. The real question is did I do what I said I’d do with my raises given these twists? I’ll cover that after I explain the twists.
My Take Home Pay Is Going Down in 2013 Despite My Raise
If you don’t know what I’m talking about make sure you read this post that explains why your paycheck may be smaller and should help you to understand your 2013 paycheck. Essentially, a two percent tax break expired at the end of 2012 which now means a two percent tax hike in 2013 for me.
That isn’t the only hit my paycheck took in 2013. I was lucky and did receive a raise but with the raise comes the pleasure of paying federal income tax on the additional money. This additional raise money is taxed at my marginal tax rate which is a lot higher than my real or average tax rate.
There was one more change that affected my paycheck in 2013. My health insurance costs were increased in 2013 by a couple dollars a paycheck.
It isn’t a big difference, but combined with the payroll tax break expiration and the extra federal taxes I have to pay on my raise, I ended up with a smaller paycheck in 2013 than in 2012.
So What Do I Mean “What Did I Do With My Raise”?
Now that you realize my take home pay actually decreased in 2013 you may be thinking “What do you mean “what did you do with your raise in 2013″? You didn’t get one!!!”
That is one way to look at it but in reality I will make more money in 2013 than I did in 2012, I’ll just be seeing less of it. Just because it isn’t take home pay doesn’t mean I’ll make less in 2013.
You never know what is going to happen with taxes in the future so it is possible this could happen again. I figured I need to be prepared and instead of just pretending like I didn’t get a raise I used my raise exactly as I planned I would.
I Saved Half of My Raise For Retirement
Yup! Despite a decrease in my paycheck BEFORE adding even more to my retirement savings I did it anyway. Retirement isn’t getting any cheaper just because taxes go up so I need to continue saving for retirement according to my plans.
As you may recall, I plan to save half of every raise for retirement. This is the first year since I’ve made the declaration and I wanted to make sure I started out strong! I wasn’t going to let a smaller paycheck get in my way.
In fact, I increased my contributions to my Roth retirement accounts which means I don’t even get a tax break (right now) on my higher retirement savings rate.
This means that I’ll have to cut back in other areas of my budget. I have a couple ideas of where I’ll cut back but I need to get my first paycheck before I make a final decision. I had a little extra wiggle room built in to a couple budget categories that I’ll likely reduce.
Make sure you’re aware of the new and higher 2013 retirement plan contribution limits if you plan to increase your retirement contributions in 2013.
Did you get a raise this year? What are your plans for it? Did your paycheck get smaller despite getting a raise like mine did? Let me know what is going on with your paycheck (and retirement savings rate) in 2013 in the comments below!