The Sweet Spot for Raises May Not Be Where You Think

Techonomics Average Salary

When it comes to salary increases, experience matters, but maybe not in the way you’d think.

Last year, the average salary jumped 10.2 percent over the previous year for tech workers with three to five years of experience, according to Dice’s salary survey. Tech professionals with 15 or more years of experience received a 3.8 percent increase, to $103,012.

While it stands to reason that higher salaries tend toward lower percentage increases from year to year, that doesn’t explain why those with the least amount of experience would garner smaller percentage increases than the two experience brackets above them. For example, not only did those with three to five years of experience earn a higher increase in average salary, but so did IT workers with six to 10 years of experience.

The sweet spot for salary gains and earning potential appears to be between three and 10 years. That would mean people in the age group roughly between 25 and 35. For these folks, the important thing to take away is that this is a good time to be socking some of your salary gains into a retirement account.

Consider: A 25-year-old who saves $5,000 a year for 10 years with an 11 percent return can reap $787,176 by age 65. And that doesn’t consider additional contributions you make to your retirement account over the rest of your career, according to the Motley Fool, an investment website. On the other hand, a late bloomer who begins saving at age 55 would only have $83,227 by the time they hit 65. And remember, they’ll be receiving smaller salary increases by that point.

In other words, for those just starting out it’s best to jump in early and jump in hard to save for retirement. Don’t let the cyclical stock market’s meltdown scare you, since you’ll have years to earn it back.

Comments

  1. BY RobS says:

    You have disconnected information in this report and I suspect that it plays out like this:
    Newbies do not get paid much (e.g. $50K) and won’t until haye have enough experience to be able to figure out how to get things done, at which point they’ll get a raise (probably around 3 years).
    For the next 7 years, you are learning like crazy, pulling your weight, doing things that should get you closer to the high end of the salary scale and companies reward you for that with raises starting from (and diminishing from) 10% so year 4 would be 10% of $50K ($5K) to $55, year 5 adds $5,500 (to $60,500) and onward with 10% per year is yr6=$66K, yr7=$73K, yr8=$80K, yr9=$88K, yr10=$97K.
    At this point, you’re approaching the limits that the company perceives as a benefit. The added value you offer the company diminishes so they give you smaller percentages of increase, otherwise you take money out of the CEO’s mouth.

    Even if you’re valuable, you have a dilemma because your knowledge is not necessarily transferrable to another company so you can’t just get a 10% raise anywhere else either unless you go back down the food chain to maybe the 3-5 year experience level, and who wants to take a $40K pay cut to start up the chain again, so you stay and get smaller and smaller raises until the company reorganizes and gets rid of the high-cost workers and you go on unemployment at about $7/hour…and hope you can get a job doing exactly what you were doing before, but now at $65-75K anyway, but with no new skills.

    • BY Brian says:

      Robs, I agree there is a certain amount of diminishing returns and 10% increases annually is highly unlikely (more like 0 – 3%). The only time I saw increases like that were accompanied with promotions. I do disagree with you on the transferring of skills especially with my line of work which has gone from ITA> to Analyst> to Software Developer. I still apply skills that I’ve learned back when I was self teaching myself about computers so I could play video games. Remarkably Dice’s salary averages above are right on par with where I’m at after 12 years of professional IT experience. A Good employee works hard and tries to pitch in where they can… A Great employee applies experience both related and unrelated to their current role in order to propose and implement ideas & solutions. Some individuals are better than others at pattern recognition & problem solving than others.

  2. BY Ray says:

    Dear Robs,

    The best strategy to increase your income is that during years 6-9 when you are really rolling with your position, start to branch out and spend about 3 days a month gradually increasing working on a business plan that will allow you to start your own company. Sometimes you will need partners, other times just a good idea and a good work ethic. You want to be able to launch the company between years 9 and 10 while you are still employed- that way yuo can give it 3-4 years before worrying about being out of the workforce too long if it doesn’t work out. However if you can earn at least 2/3 of your employment income by the end of the second year, you should never look back.

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