The average salary increase in the U.S. is about 3.5% per year when you combine all types of raises, including merit pay, cost-of-living adjustments, and promotional bumps. That figure has held steady recently, with employers budgeting the same 3.5% total increase for 2026 as they reported in 2025. But that single number hides a lot of variation depending on whether you stayed in your role, got promoted, switched jobs, or simply kept pace with inflation.
What the 3.5% Actually Includes
When compensation surveys report a 3.5% average salary increase, they’re combining several different types of pay bumps into one number. According to Mercer’s survey of more than 1,000 U.S. organizations, the average merit increase alone sits at 3.2%. The remaining fraction comes from promotions, cost-of-living adjustments, and other changes like equity adjustments or market corrections. So if you received a standard annual review raise and nothing else, your increase was likely closer to 3% or just above it.
Merit Raises vs. Cost-of-Living Adjustments
Your employer may call your annual raise a “merit increase,” a “cost-of-living adjustment,” or some combination, and the distinction matters more than it sounds.
A cost-of-living adjustment (COLA) is designed to keep your purchasing power flat. It’s pegged to rising prices for things like groceries, housing, and gas. A merit increase, by contrast, is based on your individual performance rating. Top performers might get 4% to 5%, while average performers get 2% to 3%, and underperformers may get nothing at all.
In practice, many companies blend the two into one annual raise and call it “merit.” That means the 3% raise you got might not actually be rewarding your performance at all. It might just be keeping you even with inflation. When the Consumer Price Index rises 3.3% in a year and your raise is 3.5%, your real increase in purchasing power is only about 0.2%.
How Much Raises Actually Beat Inflation
This is where the math gets sobering. Bureau of Labor Statistics data shows that real average hourly earnings, meaning wages adjusted for inflation, increased just 0.3% from March 2025 to March 2026. That came from a 3.5% increase in nominal wages offset by 3.3% inflation. The prior 12-month period was slightly better, with real earnings growing 1.3%.
So while a 3.5% raise sounds meaningful, your actual gain in spending power has been modest. Over longer stretches, a typical worker who receives only standard annual raises without promotions or job changes barely outpaces the cost of living.
Promotions Pay Significantly More
If you’re counting on annual merit raises to meaningfully grow your income, you’ll be waiting a long time. The real jumps come from promotions. According to Ravio’s 2026 Compensation Trends report, the median salary increase at promotion was 22.3% in 2025. That’s down slightly from 25% in 2023, but it still dwarfs any standard annual raise.
The size of a promotion bump varies by job function. Workers in operations roles saw an average 26.7% increase at promotion, while those in product roles averaged 20.0%. Engineering came in at 20.6%, and marketing at 20.7%. Regardless of function, a single promotion delivers roughly six to seven years’ worth of standard annual raises in one move.
This is why career strategists emphasize positioning yourself for advancement rather than relying on incremental yearly bumps. A worker who earns 3% raises for five years and then gets promoted will end up with a significantly higher salary than someone who earns 3% raises for six straight years without a title change.
How Raises Compound Over Time
Even small differences in annual raise percentages create large gaps over a career. If you start at $60,000 and receive a 3% raise every year, you’ll earn about $80,600 after 10 years. Bump that to 4% annually, and you’ll be at $88,800 instead. Over 20 years, the gap widens to roughly $28,000 per year between the two scenarios.
This compounding effect is why your raise percentage in your 20s and 30s matters more than it feels like it does. Each increase becomes the base for the next one. Negotiating even half a percent more in a given year has a ripple effect on every raise that follows.
What Drives Your Raise Higher or Lower
Several factors determine whether your raise lands above or below the national average:
- Performance ratings. Companies with formal review systems typically tie merit budgets to rating tiers. A “meets expectations” rating might yield 2.5% to 3%, while “exceeds expectations” could push you to 4% or 5%.
- Industry and company size. Some sectors consistently budget higher raises to compete for talent, while others hold the line. Employer-specific budgets vary even within the same industry.
- Job market conditions. When unemployment is low and hiring is competitive, employers feel more pressure to retain workers with larger raises. When the market softens, raise budgets tend to flatten.
- Tenure at the company. Workers who stay at the same employer for many years without a promotion often see their pay lag behind what new hires earn for the same role. This is sometimes called pay compression, and it’s one reason job-switching has historically delivered larger salary increases than staying put.
How to Get More Than the Average
If you’re earning the standard 3% to 3.5%, you’re in the middle of the pack. Pushing above that takes deliberate action. The most reliable strategies include building a case for a raise with specific accomplishments and revenue impact before your review cycle, pursuing promotions every two to four years, and being willing to change employers when your internal pay falls behind the external market rate for your skills.
Timing matters too. Asking for a raise three months before budget decisions are finalized is far more effective than asking after budgets are locked. Most companies set compensation budgets in the fall for the following year, so late summer and early fall conversations tend to carry more weight.
Ultimately, the 3.5% average is just that: an average. It’s a useful benchmark, but it shouldn’t be the ceiling for your own earning trajectory.