Skip to content

Is Lifestyle creep costing you a comfortable retirement?

TABLE OF CONTENTS

    It’s easy once we move past the point of ‘just getting by’ to start enjoying life’s little luxuries. In fact, as you get older and the bank balance starts looking a bit healthier, you might upgrade your holidays, your car, buy your weekly shop in Waitrose and splurge on some of life’s little niceties and it starts to add up – it’s what is called lifestyle creep.

    However, is this lifestyle creep coming at the expense of your comfortable retirement?

    A report by the Centre for Aging estimates that around 90% of those with defined contribution pensions are at risk of not saving enough for a comfortable retirement.

    While there are plenty of contributing factors playing a part here, one thing you can take action on today is Lifestyle Creep.

    Lifestyle creep may not sound like a big deal, but this seemingly invisible force has the potential to slowly rob you of your future and could leave you scratching your head wondering where on earth all that money went.

    Lifestyle Creep Definition 

    Lifestyle creep is when an increased income leads to increased spending and lower savings. It manifests in a heightened taste for the finer things in life, resulting in a severely depleted savings pot.

    Government figures show that the richest households spent almost five times as much on discretionary areas such as recreation, culture, restaurants and hotels as lower-income households. This suggests there are plenty of opportunities for savings to be made. 

    Unsurprisingly, this amped-up attitude to spending can have a major impact on your financial future; in particular, your pension savings and retirement plan. After all, the more we spend, the less we have to save.

    Lifestyle creep examples

    The glaring issue with lifestyle creep is what initially may feel like inconsequential changes to your spending habits can actually have a major impact on your financial security. Purchases that feel frivolous and fun could end up in serious debt and a lack of savings.

    You may notice lifestyle creep in different ways. Those things you once saw as total luxuries could all of a sudden feel like a burning necessity. Perhaps you spend without a second thought, never really sure how that purchase is impacting your bank account. Or your day-to-day shopping habits have jumped up a notch, but you’ve barely noticed it.

    Lifestyle creep can often be seen when it comes to holidays. Upgrading to premium or business class may feel like a well-deserved treat, but it can easily double or even triple the cost of your flights. Likewise, when you upgrade to a newer car model, you’re also upgrading the price tag on running costs and insurance. Cue a deeper dent in your wad of savings.

    But it doesn’t have to be a huge purchase. Regularly eating out and buying your daily coffee from Starbucks makes a big difference to your monthly expenditure. In fact, a 2015 report estimated that Brits spend a quarter of their annual income on eating out.

    If you’re reading this and nodding along with a growing look of fear on your face, don’t worry. The more we earn, the more we want to spend. The key is to counteract that spending with the right level of saving. This will protect you today, tomorrow and far into the future.

    How much does a comfortable retirement cost?

    A comfortable retirement is entirely subjective, but the latest figures from PSLA suggest that a couple now needs roughly £50,000 a year to enjoy a comfortable retirement, while a single retiree should aim for an annual budget of £33,600. 

    Of course, this doesn’t take into account a person’s individual circumstances, their hope for those golden years or what standard of living they are used to.

    RELATED: WHAT IS A GOOD RETIREMENT INCOME?

    what's a good retirement income article_retirement budget list

    While these figures are a useful starting point, it’s more realistic to look at your standard of living. A government think tank suggests that you’ll need somewhere between one half and two-thirds of your pre-retirement income to maintain that same standard of living in retirement. This is called the target replacement rate.

    In order to achieve this, the latest reports suggest that most of us need to be saving 20%: a further 12% above the minimum required under automatic enrolment of 8%. You may feel the pinch at first, but remember that these small increases will be worth their weight in gold over time. 

    Look at where you could make more savings with your current finances (this is something that a financial advisor could also help you with). Rather than taking those savings and spending them, save to invest. That chunk of money can immediately be funnelled into your retirement pot. Likewise, if you have a workplace scheme, this would be the ideal time to contact them and ask them to increase your contribution.

    Note that the target replacement rate isn’t without its flaws. If you want to enhance your standard of living in retirement, then you’ll need to take this into account. Plus, the post-covid ‘working from home’ era means that many people have already made major savings on their commuter costs, BUT can expect to pay far more for small luxuries such as UK travel, theatre tickets and eating out. In fact, research has found that retired couples will need an average of £2,200 per year extra to enjoy the small luxuries that we all look forward to in retirement.

    How do you combat lifestyle inflation? 

    If you want to combat lifestyle inflation and start saving more towards that comfortable retirement, you first need to look at your financial health and long-term goals. Then, you can implement small and sustainable lifestyle changes to make sure everything aligns.

    A few realistic lifestyle changes you can make include:

    • Setting a monthly budget – and more importantly, sticking to it! Start off with an overall budget and then break it down into smaller pots, always making sure you have enough money for adequate savings and a contingency fund.
    • Save at least a third of any future bonuses and pay rises – remember that as your income increases, so too should your savings.
    • Write a shopping list and shop at a budget supermarket like Aldi or Lidl – it’s surprising how much longer your receipts end up being without a shopping list to guide them. Your groceries can have a hefty impact on your overall monthly spending. Check-in on any savings you can make.
    • Buy a refillable water bottle – simple but effective! Grab reusable bottles and flasks to dissuade you from buying on the go.
    • Regularly review subscriptions and automatic payments – when was the last time you properly looked at where all your money was going on a monthly basis? Take a look at those regular outgoings and subscriptions and consider whether you really need all of them.
    • Stop impulse buying by imposing a 24 or 48hr cooling-off period before you buy anything new – you know that burning feeling when you tell yourself you MUST buy that brand new thing? Give it some breathing space. If you still want it after the cooling-off period, then chances are it’s more than a whim purchase.

    Worried that you aren’t saving enough for the retirement of your dreams? Try our FREE ‘Retirement cost calculator. You can also get in touch with a member of our team if you want to take a deep dive look at your current retirement plan and pension strategy. 

    RELATED: HOW TO START PLANNING FOR RETIREMENT

    Posted in
    Simon Garber

    Simon Garber

    Simon Garber is an Independent Financial Adviser and Pension Transfer Specialist with over 15 years of experience. He's a member of the Personal Finance Society and holds the coveted Gold Standard for Pension Transfer Advice.

    He is the Managing Director of 2020 Financial Ltd, Financial Advisors specialising in Retirement Planning & Wealth Management, based in Southampton, Hampshire.

    Get RETIREMENT READY WITH OUR FREE GUIDE TO

    Comfortable Retirement Planning

    Discover everything you need to know about planning a comfortable retirement in our expert guide

    Please enter your name.
    Please enter a valid email address.
    Something went wrong. Please check your entries and try again.

    If you liked this article you may enjoy ...

    Woman holding ipad showing UK Retirement savings by age chart

    Recommended retirement savings by age

    freebies-and-discounts-for-over-60s_main

    Freebies & discounts for the over 60s | Retirement discounts

    How to budget for retirement_checklist and figures

    How to budget for retirement

    Share this article ...

    Ready to get started?

    We work with clients of all ages and lifestyles - it’s the beauty of what we do.
    No matter where you are in your retirement planning journey, we’re here to help you.

    Scroll To Top