Lifestyle Creep

DEFINITION of 'Lifestyle Creep '

A situation where people's lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.

BREAKING DOWN 'Lifestyle Creep '

Lifestyle creep is particularly a problem to those individuals approaching retirement. People, five to ten years before retirement are typically in their peak earning years, but at the same time many of their earlier expenses, such as paying off a mortgage, or raising a family have been reduced dramatically. Faced with a surplus of cash, some people use it to buy more expensive cars, more expensive vacations or possibly a second home.

Since the goal in retirement is to maintain the lifestyle enjoyed in the last few years before retirement, these retirees require more funds to support their new, more lavish lifestyles. Unfortunately, they don't have the resources to do this because they spent their surplus cash flow.