Estimate lifetime earnings.
Lifetime earnings compound, which is why small differences in the annual raise dominate the total. A 3 percent average raise over 28 years roughly doubles the final salary and lifts cumulative earnings well above a flat projection. Career breaks are subtracted at the average salary rather than the current one, because a break in mid-career forgoes pay at the level you would have reached rather than the level you are at now.
Compounded lifetime earnings
Each year salary = previous x (1 + raise); lifetime = sum of all years; break cost = average annual salary x break years
Illustrative projection in nominal terms, ignoring tax, inflation, unemployment risk and pension effects. Not financial advice.
Because it compounds. Over 28 years, a 3 percent average raise produces roughly 44 percent higher lifetime earnings than a 1 percent one — a far larger effect than any single negotiation.
No, and this is the point most calculations miss. A break taken in year twelve costs the salary you would have earned then, plus the lower base from which subsequent raises compound. The average-salary approach approximates that.
No — it is in nominal terms. If your raise percentage roughly matches inflation, the real value of lifetime earnings is closer to the current salary multiplied by the working years.