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One of the biggest financial challenges people face is “lifestyle creep”, when spending balloons right along with increases in income, undermining long-term financial stability and goals. Understanding how to manage and mitigate lifestyle creep is crucial to your financial wellbeing.

Here are some tips to maintain your financial discipline, from peak earning years through golden retirement:

Peak earning years (late 30s to early 50s).

  • Recognize and curb unnecessary spending. During peak earning years, people often experience their highest income levels. It is tempting to upgrade your lifestyle – bigger home, nicer car, lavish vacations, luxury purchases – with bumps in pay. Learn to separate needs from wants and set boundaries on discretionary spending.
  • Maximize savings and investments.  With higher income comes greater opportunity to save and invest. Maximize contributions to retirement accounts to supercharge your wealth accumulation. Diversify investments and consider tax-efficient strategies to mitigate your lifetime tax bill.
  • Establish long-term financial goals. Set clear, long-term financial goals (retirement planning, kids’ education funding, major purchases). Plotting a financial path can help anchor spending habits. Revisit your financial plan regularly to ensure that any bump in spending is aligned with your broader financial intentions.

Pre-retirement (50s to early 60s).

  • Dial down investment risk. Evaluate the risk profile of your investment portfolio. Protect your hard-earned wealth by reducing exposure to high-risk investments and transitioning to lower-risk assets.
  • Boost savings. Paid off student loans, a mortgage or other large debts? Redirect funds previously used for loan payments into savings and watch your retirement nest egg grow.
  • Plan for healthcare and longevity. Healthcare costs can skyrocket as you age. Consider health savings accounts (HSAs) or long-term care insurance to help keep unexpected medical costs from eroding your savings. Be mindful that Medicare eligibility begins at age 65, and even those plans are limited. Take the potential need for supplemental insurance and additional premiums into account.

Post-retirement (Mid-60s and beyond).

  • Stick to a budget. Retirement spending should be aligned with your fixed income: savings, social security benefits, and any other passive income streams. A detailed budget that accounts for fixed expenses, fluctuating costs (like healthcare and home maintenance) and money for leisure activities can help prevent overspending.
  • Monitor and adjust withdrawal rates. A customized withdrawal strategy, detailing what your annual portfolio withdrawal rate should be, can allow you to enjoy retirement without stressing over outliving your assets. Be open to adjusting your withdrawals as needed.
  • Stay flexible and adaptive. Financial curveballs will come your way, from factors outside of your control (economic downturns, health problems, family emergencies). Staying flexible with your financial plan can help you manage your spending habits through the unknowns of life.

Lifestyle creep can sneak up on you at any stage. Set yourself up for a secure financial future with strategic planning and smart money moves. What to dive deeper? Don’t hesitate to reach out.