It's a common enough habit: You get a raise, you can suddenly afford to spend more—and you do.

But if instead of boosting spending each time a raise hit their paychecks, workers socked that extra money away into their retirement savings, says a report from Morningstar, they'd be much better prepared for retirement—in more ways than one.

Higher income, the report points out, can actually make it tougher to prepare adequately for retirement.

Not only do people not generally increase their retirement savings rate with each raise, that higher income contributes to lifestyle creep—a gradually rising style of living that costs more and thus is more difficult to maintain on the likely restricted income that accompanies retirement.

Retirement assets don't rise at the same rate as income—indeed, if at all—and not only won't keep up with new retirement expectations, but may even shrink relative to them.

And the higher up the income scale a worker gets, the less likely it is that Social Security, in particular, will provide the same proportion of yearly income that it did at that worker's former (and lower) rate of pay, since income provided by Social Security is capped well below the income received by highly paid workers.

Three savings rules tested for the report were: spend twice your years to retirement; save your age as a percentage of the raise; and save at least 33 percent of your raise.

In the first instance, someone planning to retire in 10 years should save at least 20 percent of the raise. In the second, a 50-year-old should save 50 percent of the raise. And for the third, if a worker's take-home has increased by $1,000, that worker should save $333 of the new income.

Those are just starting points, the report adds, but it can be challenging to postpone instant gratification in favor of retirement savings.

Incidentally, the most effective of the three strategies is the "spend twice your years to retirement," while the other two are better than the status quo but are only good up to the point where income outdistances savings again.

Since this topic isn't often covered in retirement savings materials, workers need a bit more guidance on how much more they need to save with each raise to stay on track for retirement.

READ MORE:

Instant Insights /

How getting a salary increase can threaten retirement

More From HR Executive

Related Stories

Recommended For You