Posted in Finance, Accounting and Economics Terms, Total Reads: 335
Definition: Lifestyle Creep
Generally people’s lifestyle and standard of living improves as they progress towards their retirement. When a person approaches the fag end of their careers, the income of the individual is the highest. The luxuries and standard of living is the highest in their respective lifetime and the individual gets used to these with time.
In most of the cases, the individual would be having no outstanding mortgages or repayments to be done. This also increases the disposable income to a huge extent. The cost incurred to raise and maintain a family also reduces by a huge percentage. As the income increases, the expenditure on lifestyle forms a major chunk of the overall expenditure. People start spending on vacations, high end cars, dining out at lavish restaurants, buying a second home or a vacation home etc.
As the ideal retirement is about maintaining a lifestyle that an individual enjoys during the last few years of working, the resources needed are generally inadequate. Retirees generally see themselves a bit stretched in terms of balancing their outgo with the resources that they have amassed during their working era. With no steady or high source of income, the expenses that were made during the fag end of their careers get tough to manage.
With the life expectancy increasing tremendously over the last few decades, the limited sources need to be used for a longer duration.
Lifestyle Creep is basically an improvement in the way of living by means of more disposable expenditure either due to rise in income or a fall in the expenses of an individual. Maintaining this lifestyle due to being “used to” is a real tough ball to play.
The best way to avoid getting stuck in such a situation is to ensure that retirement planning is done properly. Steps and savings should be done as early as possible. Starting early with investments for retirement will ensure more wealth and compounding of wealth will also get longer time duration.