How to Avoid “Lifestyle Creep” in Retirement

Ever noticed how small luxuries tend to become everyday needs over time? 

That’s what “lifestyle creep” (also called “lifestyle inflation”) is all about. It’s when the occasional luxury (that pricey coffee or treat-yourself dinner) starts feeling like the norm. Although this can happen at any stage of life, it’s especially tricky in retirement when you might feel like you’ve got more wiggle room in your budget and more free time to spend those funds.

In fact, one study found that younger retirees (ages 55 to 64) especially tend to increase their spending – more than those older or younger. Now you might be thinking I’m telling you this to scare you into spending less, but I’m not. Plot twist. 

Knowledge is power! Want to spend more on life’s little luxuries in retirement? Let’s plan for it!

While lifestyle creep might get a bad wrap, I don’t believe that it’s all bad. Why not have that fancy coffee regularly if you enjoy it? The part of lifestyle creep that we need to be wary of is the unintentional side of it. 

Your golden years should be about enjoying well-earned freedom, not worrying about finances slipping out of control. Read on to explore when lifestyle creep in retirement is risky, and steps you can take to make sure you’re getting the most out of your money as you transition out of the workforce. 

How to Recognize and Reign In Lifestyle Creep in Retirement

1. Create a Budget that Aligns with Your Needs and Values

You’ll need to start out being realistic in terms of the expenses that your retirement budget will need to cover. While your current spending provides a good starting point, it shouldn’t be the sole factor in determining your retirement spending. Remember that your expenses will likely change initially in retirement, but also as you grow older. 

In fact, a recent report found that “those between 65 and 74 spend about $13,000 a year on health care. That jumps to $24,000 between 75 and 84 and then rises to $39,000 for those over the age of 85.” 

Here are a few things to keep in mind as you build out a budget for your retirement years:

  • Healthcare Considerations: Healthcare costs are a significant expense in retirement and often increase with age. Research potential healthcare costs, including Medicare premiums and out-of-pocket expenses. Consider how long-term care insurance could help you curb costs. 
  • Inflation’s Bite: Inflation erodes the purchasing power of your money over time – as of June 2024, inflation sits at 3.3%. When creating your budget, factor in a realistic inflation rate based on your location to ensure your savings keep pace with rising costs. A financial planner can also help you estimate these costs.

Once you’ve identified your baseline, needs-based budget, determine a reasonable amount of discretionary spending (you may need to work with your financial planner on this) and make sure it aligns with your values and priorities. Want to take those dream vacations with your family? Pursue a passion project? 

Although these activities can have steep price tags, they don’t always have to. Think about what it is that you really want out of these financial goals. Once you are clear on your priorities, make adjustments as needed so that you can still get at what is important to you without putting too much strain on your retirement savings.

2. Track Your Spending

Keeping an eye on where your money’s going can make a huge difference, and tracking your spending can help you spot patterns early. That way you are able to make sure your spending is still aligning with your priorities. 

Are you dining out more frequently? That might be okay as long as it fits in with your plan and brings you more of what you value in life, like relaxed time with a loved one. Have subscriptions you barely use snuck onto your credit card statement? Maybe reconsider these. Recognizing these trends early on allows you to course-correct before significantly impacting your budget.

Related: The Millionaire-Next-Door’s Guide to Safeguarding Wealth

We’re not saying you have to track every penny that comes and goes from your bank account, but there are several ways you can automate your spending to get an idea of where your savings are being spent:

  • Budgeting Apps: Numerous budgeting apps, both free and paid, are available to help you track your income and expenses. These apps can categorize your spending automatically, allowing you to see where your money goes easily. Many also offer features like goal setting, budgeting tools, and bill reminders.
  • Online Banking Tools: Many banks offer built-in budgeting and expense-tracking tools within their online banking platform, which are directly linked to your bank accounts. It may be worth reaching out to your bank of choice to ask!
  • Cash Envelope System: This classic budgeting technique involves allocating specific amounts of cash for different spending categories (groceries, entertainment, etc.) in separate envelopes before you start spending. The idea is that it’s easier to save money that you can physically see. 

3. Maintain the Frugal Habits You Already Know and Love

You’ve reached retirement as a Millionaire-Next-Door thanks to years of hard work, smart planning, and frugality.  Those very same habits that helped you build your nest egg are now key to ensuring it lasts.

Here’s how you can get started:

  • Embrace the Power of Familiarity: Maintaining some of your frugal habits you’ve already established, like cooking at home or seeking out free entertainment, allows your financial discipline to work on autopilot.
  • Remember the Big Picture: Smart spending habits free up resources for what matters most to you, whether that’s travel, hobbies, or time with loved ones. Keep reminders around your home to motivate you to stay on track.
  • Take Advantage of Your Resources: Look for senior discounts on entertainment options, travel, local college classes, and more – you’d be surprised how many savings opportunities are available for seniors!

4. Seek Professional Guidance 

Retirement planning can become even more nuanced as you navigate factors like potential healthcare needs, fluctuating income streams, and evolving lifestyle goals – and that can feel overwhelming. 

A financial advisor can become a valuable partner to guide you along the way, analyzing your situation, considering your retirement savings, income sources, and desired lifestyle to help you craft a plan you feel confident in. They can also provide insights on investment strategies and asset allocation, helping you maximize your returns while minimizing risk.

Related: Click here to read “The Clarity Difference: Learn What Sets Us Apart from Other Financial Advisors”

Tracking your spending, creating a realistic budget, and maintaining your frugal habits are all crucial steps towards a secure retirement free of lifestyle creep. With the above steps in place, you can effectively manage your spending and embrace your golden years with confidence.

Guard Your Golden Years With Clarity Wealth

We understand the importance of combating lifestyle creep and can help you develop strategies to keep your finances on track. Let’s work together to ensure your retirement is everything you’ve envisioned – comfortable, secure, and filled with the freedom to pursue your passions. Contact Clarity Wealth Development today for a free consultation. 

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