Explore the considerations of work-life balance, the value of personal time, and the financial benefits of a **salary increase**.

When I was in the Army, the platoon sergeants in a unit I was in got caught up in a game of one upmanship. They wanted to be in early so they’d be there before the soldiers. That was understandable. Then, though, they got into their own little competition.

They wanted to be there before the other platoon sergeants got there.

At first, it was 5 AM.

Then it was 4 AM.

Pretty soon, they were wheeling in cots into the company offices.

Finally, one of them realized the insanity and put a stop to it, and they started showing up at 6:15 AM instead, 15 minutes before 6:30 PT.

After all, they weren’t getting anything accomplished by being earlier. They were just winning an unspoken contest.

But, sometimes in corporate America, the extra hours do turn into increased success.

When I was at Capital One, almost invariably, the people who had either been promoted ahead of their peers or identified as high potential candidates had one thing in common.

They stayed later and worked more than anyone else.

Sure, some of the cause-effect was appearances. The bosses saw them there working harder than anyone else and ascribed good traits to them. Instead of seeing the 8-5 folks as efficient, the bosses saw them as not committed like the ones who stayed from 7 AM to 8 PM. But, the people who were there 10 hours a day were able to do 25% more work, assuming they stayed on task, than the folks who worked 8 hour shifts. Create 25% more output, and eventually, someone will notice.

One person who noticed this correlation was Dr. Dora Gicheva of the University of North Carolina at Greensboro. She conducted a study evaluating whether spending more time at work led to a higher salary. Her answer was unequivocal.

**If you already work more than 47 hours a week, then increased hours has a positive, non-linear relationship with your salary increase.**

What does this mean?

**You had to already be working 48 hours a week.**People who increased their workloads from 40 to 48 hours saw no benefits. It was only from 48 hours/week on that workers got the benefit.**There wasn’t a direct hours to pay link.**To get 1% as salary increase, you needed to work 5 hours a week more, but to get to 2%, you needed about 13 hours a week more. Once you got to 65 hours a week, there really weren’t any incremental benefits to more work.**These results are for college and graduate school graduates.**The cohort that Dr. Gicheva studied came from people who took the GMAT, so they were already college graduates, and most of them went on to earn their MBAs.

Just how much does your baseline salary increase by 1 or 2 percent affect your lifetime earnings and chances of success in retirement?

To answer this question, I took an average 22 year old college graduate who made $44,259 per year. This person spent $37,260 at age 22 – 85% of his salary – and saved the remainder. He has a 401k plan that matches 3% of his savings. He invests in equities at 110 – his age and the remainder in bonds. His salary and expenses go up with inflation. He retires at age 66 and receives $2,000 in today’s money in Social Security.

I then ran random 10,000 simulations based on historical stock market and bond returns and inflation rates to answer the following questions:

- What is the median net worth at age 96 (30 years after retirement)?
- What is the probability of still having money at age 96?
- Using the 4% withdrawal rule, at what age could this person retire?
- How much does the starting salary increase by 1% or 2% affect the answers to the first three questions?

What did the simulations tell us?

**How much does a salary increase affect median net worth?**

The reason that I used the median net worth is that there were some exceptionally high outcomes (hundreds of millions of dollars) that skewed the average high. I wanted to see where the 50% line was: 50% of the people wound up with less money, and 50% wound up with more money.

In this case, the baseline average worker has a median net worth of about $13.4 million. The salary increase by 1% led to a net worth of about $15.3 million, and a 2% pay increase led to a median net worth of about $18.5 million.

**What is the probability of still having money at age 96?**

Our baseline individual still had money at age 96 about 85.7% of the time, which increased to 87.6% of the time after a 1% pay raise and went to a 91.0% success rate with a 2% pay raise.

**What is the average age to be able to retire?**

I defined the age of retirement as the point at which the person had 25x their annual expenses in net worth. Regardless of savings, I had the person stop working at age 65.

Average | Minimum | |

Baseline | 59.34 | 38 |

1% Pay Increase | 58.69 | 38 |

2% Pay Increase | 57.29 | 37 |

A 1% pay increase bought about 8 months of retirement, and a 2% pay increase bought about 24.7 months of retirement. However, the earliest retirement outcomes didn’t change much. This isn’t surprising, as the relatively small salary increases haven’t had enough time to compound.

**What do you have to sacrifice to achieve the salary increases?**

Let’s look at the average 40 hour a week worker.

He shows up at 8 AM.

He takes an hour at lunch.

He goes home at 5 PM.

8 hours a day, 40 days a week. No weekend work.

Now, in order to get to that 1% raise baseline, he needs to work 53 hours a week.

If he can’t get up earlier, then he’s going to stay at work until 7:36 PM each day.

Or, he could stay until 6 PM each day and work a full day on Saturday.

To get to the 2% raise baseline, he needs to work 60 hours a week.

That’s showing up at 8 AM and leaving at 9 PM every day.

Or, if he wanted, he could work from 8 AM to 7 PM Monday through Saturday.

I did a similar schedule when I was deployed to Bosnia, for 6 to 9 months straight with no break.

It’s rough. It’s doable, but it’s rough.

If that’s the way that you want to go, then go for it. More power to you. If working 53-60 hours a week for your working career sounds like your definition of misery, there are other ways to achieve a secure retirement and to increase your chances of reaching financial independence early.

What do you think? Nose to the grindstone, or is there a better way? Let’s talk about it in the comments below!