Is Lifestyle Creep Hurting Your Retirement?

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When it comes to burning through money in retirement, lifestyle creep can be partially to blame. A pricy car here, a fancy trip there, and before you know it, you’re blowing your retirement budget.

While lifestyle creep can happen to anyone in retirement, it tends to be more prevalent among those with financial means. After all, for some, their eye isn’t on the ball as much since they know they have a sizeable nest egg.

“Some higher earners use future dollars to fund their lifestyle today,” says Derrick Longo, a wealth advisor at Exencial Wealth Advisors. But if they don’t factor in the higher costs of things like health care down the road, they could end up having trade-offs later in life, he says.

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What counts as 'lifestyle creep'? Think of it as when your spending on non-essentials increases to the point that former luxuries become current necessities, leaving you at risk of becoming less financially stable. Lifestyle creep tends not to occur all at once, but day by day, sometimes without you really noticing that it's happening; it essentially creeps up on you.

Small, frequent purchases can add up and be just as costly as a single big-ticket item. While you'll likely notice the impact of buying a luxury home or a brand-new car, it's easy to overlook how much you're spending on things like dining out, streaming subscriptions, clothing, electronics, or other non-essential items. These smaller expenses can stealthily take a big chunk out of your budget.

For some, lifestyle creep is driven by a need to keep up with the Joneses. For others, it's driven by a wish to make up for lost time spent working. Moreover, they want to quell boredom, dissatisfaction, or to fulfill a need for validation. Left unchecked, that lifestyle creep can get costly.

Lifestyle creep's worst-case scenario? Outliving your retirement savings. The not-so-great alternative? Having to get a part-time job, downsize, or give up on something you truly value, like helping a family member, says Longo.

The good news is you aren’t doomed, even if lifestyle creep has taken hold. There are easy ways to avoid the temptation or to shake it off if it's already got you trapped. Read on to learn how.

How to avoid lifestyle creep

Make a lifestyle budget

The first defense against lifestyle creep is a lifestyle budget, says Longo. This is in addition to a budget that covers necessities, such as your mortgage or rent, food, insurance, utilities, health care and transportation.

Your lifestyle budget should include hobbies, vacations, entertainment, and any money spent on non-necessities throughout the year. While you don't need to have a precise number in mind, having a general range can give you a clear structure for managing your discretionary spending.

“Having a set number for your lifestyle and living within it is really important,” says Longo.

Find void-filling alternatives

If filling a void is the reason for your lifestyle creep, Jeff Smith, founder of financial planning firm The Retirement Smith, says to find low-cost hobbies instead. He pointed to things like exercise, writing, music and volunteering as potential ways to find fulfillment without spending money.

Smith also encourages people to practice the 24-hour rule. If you see something you want to buy, wait 24 hours and revisit the decision with a spouse or trusted adviser.

“Often, the impulse passes,” says Smith. “I call this the 'Toyota Decision.’ Instead of splurging on the Hummer EV I once wanted, I chose a Toyota Tacoma and saved over $50,000.”

Prioritizing family, community and activities over material things can all be ways to fight lifestyle creep.

Get an accountability partner

Setting a budget and resisting temptations are all well and good, but sometimes it's not enough to prevent lifestyle creep, and that is where an accountability partner comes in.

Typically, a financial adviser, but also a trusted partner, family member or friend, an accountability partner is someone who keeps you in check. If you are living a champagne lifestyle on a beer budget, they are the first person to call you out. They keep you on track and hold you accountable.

“A lot of people hire an adviser and think they manage just their investments, but that adviser does a lot more,” says Longo. “They look at the spending, risk, taxes, everything that is important to someone’s life.”

If lifestyle creep has you feeling trapped

If lifestyle creep has a hold on you, awareness is the first step to freedom. Review your expenses and identify where you are overspending. Does what you're buying bring you value? If no, then cut it. If yes, where else in your budget can you cut costs to make it work?

Identify why you are spending the money. Are you unhappy? Want to fit in? Do you have a penchant for certain kinds of things? Once you know why you're spending, ask yourself if a purchase you have in mind aligns with your long-term financial goals. That will help you decide if it stays or goes.

It's also a good idea to revisit your overall budget, financial goals and financial plan to make sure everything aligns with your current and future plans. “Often, just shifting your focus from things to experiences and relationships can reset spending patterns,” says Smith.

It's up to you

Lifestyle creep can happen to anyone, but it doesn’t have to ruin your retirement.

Knowing how much you can spend on your lifestyle each year, holding yourself accountable to that number and focusing on experiences and low-cost hobbies are all surefire ways to rein in lifestyle creep before it gets out of hand.

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.