Remember the good old days when a no-frills black coffee was more than enough to jump-start your day? Ever wonder how it got to the point that you’re paying triple the price for a Starbucks® vanilla latte? This is a prime example of Lifestyle Creep – when expensive items that were once considered luxuries gradually become essentials you can’t live without.
What Causes Lifestyle Creep?
Your standard of living rises as your income rises and you find you have more discretionary money. Over time, items that you once considered non-essentials start to become necessities you must have, right now. More often than not, there’s a belief that you deserve more expensive things because you’ve earned it. However, ask yourself this: are you using cash to pay for that pricey bottle of wine or are you using a credit card? Either way, when Lifestyle Creep gets out-of-hand it can derail your retirement.
Lifestyle Creep Is Often Triggered By A Midlife Crisis
When you hit your half-century birthday it becomes clear – you have far more years behind you than the years yet to live. A midlife crisis often triggers a shift in thinking: since you can’t take it with you, you may as well live it up before it’s too late. On the other hand age 50 is when you need to start saving as much as you can for retirement. The bottom line: Lifestyle Creep can swallow up the money you should be saving for your golden years.
“Once you have more discretionary income at your disposal, you’re more likely to splurge on things like dining out at expensive restaurants or buying a boat and a jet ski to go with it.”
Near-Retirees Are Most Vulnerable To Lifestyle Creep
When you’re five to 10 years away from retirement, you’re usually in your highest-earning years. The kids are out on their own and many child-related expenses are eliminated. You may even be close to paying off your mortgage. Once you have more discretionary income at your disposal, you’re more likely to splurge on things like dining out at expensive restaurants or buying a boat and a jet ski to go with it.
Why Lifestyle Creep Is A Threat To Your Retirement
The more you spend on unnecessary luxuries, the less you can save in your Thrift Savings Plan (TSP). When you turn 50, you may not be able to take advantage of TSP Catch-Up Contributions. Then there’s the loss of compound interest on money spent on things you didn’t really need. Worse — if you’re using credit cards to cover the cost of your Lifestyle Creep, carrying high-interest debt into retirement is a huge threat to your financial security.
Avoid the pitfalls of Lifestyle Creep — connect with an FRC® trained advisor.
