Did you realize that you grow old one day at a time, you grow fat one kilo at a time….it is all an SIP..similarly lifestyle creep also happens slowly. Over a long period of time (could be as small as say 4-5 years) when a person moves from a simple middle class guy/gal to a ….much higher lifestyle!

Look at the Americans not just at the Indians..Americans do things in style. So whether it is getting into a financial debt trap, chapter 11 bankruptcy claims, or living far beyond their means, they have a term for all of that. Like subprime. Like lending $700,000 to a person earning $ 17,000 per annum. They create products like “interest only”, “balloon repayments” or “increasing mortgage” – it does not matter!

One such term they have created is Lifestyle creep.

What is lifestyle creep?

It is about people increasing their standard of living with temporary income – thus not being able to maintain it when the income suddenly disappears -Lifestyle creep is particularly a problem to those individuals approaching retirement. People, a few 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 vanished. Suddenly with a new found surplus of cash, some people use it to buy more expensive cars, more expensive vacations or possibly a bigger 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.

This is somewhat akin to the ant and the grasshopper story – the advice somebody can give them is “if you were singing during the summer, go and dance in the winter”.

So suddenly you have people who have “upped” their lifestyle with temporary income (come on, you knew it will end on the day you retire) and now they can now wonder how to continue this “temporary addictions”!

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  1. Hi Subra,
    Well said. I think the person also has pressure from family members for the same,less dream of the person to own a particular brand of car in a life time.

    I have aware of few cases within the family and friend circle but too late for them to realize.



  2. Subra,

    A good article.

    Everyone has to be prudent in increasing the lifestyle. Very difficult to curb the expenses you get used to. Many times there is social pressure in doing so. Many people enjoy perks like free housing and car etc when working. These stop the moment you retire.
    Best to make a financial plan and predict what amount you can expect. Inflation impact can ruin all calculations. Is there any good retirement savings calculator which can be used to see the balance of retirement savings after regular income stops? There was one on bloomberg.com, which has been removed now.

  3. oh i thought searching on Google for Retirement calculators is easy! Franklin Templeton, Icici Prudential Life Insurance, are all companies who have a retirement calculator. Just plug n play!

    Also websites like http://www.myiris.com, moneycontrol, etc have retirement calculators ….In my book there are ‘some useful tables’ ..and a retirement calculator.

  4. Frankly, most of them are not complete. What we need to see is how the savings will build during remaining working life and then reduce over time considering existing lifestyle expenses with inflation correction etc. The bloomberg table had many features. I am trying to make my own with excel sheet and formulas. 🙂

  5. Rajeev actually it depends on your age. It is almost impossible at 32 to know how much you will spend during your retirement. I am now meeting people in their 60s, 70s happily earning money. Generally life is about creating so much wealth that Money is passed on to the next generation. Estimating has been made by lifestyle changes. My parents, aunt, uncle – 3 out of 4 of them bought ONE house AFTER retirement. When i speak to people they are in a denial about big purchases. So just create wealth, and one day stop worrying about ‘EARNED income’ the earlier, the better 🙂

  6. Subra,

    I am convinced that the present Indian generation is creating wealth and will pass it on to future generations. Indians are by nature cautious towards spending money. This is in contrast to the developed world where students have to take huge loans to pay for their education (very few go on to do higher education). It is also common to see parents using reverse mortgage to pay for their post retirement expenditure.
    Today, in most developed world, the retirement is taken care of by the state. How long will this continue no one knows. In India only the govt servants get some pension. All others make their own arrangements. I have read your articles, promoting better saving / investing habits. You are doing a good job. We need more such efforts.

  7. Dear Subra,
    Could u please elobrate on what is “temporary income”,if possible with an example…..thanks in advance.

  8. Dr Mohammed Ali Khan

    I remember the father of my cousin brother.. He was working a big executive in an MNC in chennai.. He has a palatial( Own ) house in a posh locality in Chennai.. After he retired, he gave the house for rent and settled down in his ancestral town, where 1/4 of the rental income of his Chennai house ( he rented it out to an MNC ) is enough to take care of ALL his expenses because the cost of living in this town is very low.. He is also very happy because he is among his own people.. Last I heard, he is sponsoring poor students for higher education..
    Now, that is a smart financial move

  9. plz dont refer calculators on ICICI site- they r 4 ULIPs, n we all hate ULIPS to the core!

    Still ppl dont understand differance between Insurance and Investment (or retirement 4 that matter)!!!

  10. Only one observation. I dont know if any one here (and this refers to those who did their class X before 1985!!) remembers Somerset Maugham’s essay on The Ant and the Grasshopper. Its always been my favourite, even if I dont buy all that the author wrote about…

  11. It is all about being financially savvy. As long as one sticks to Earn-Save-Spend strategy things will remain in check. Unfortunately the lack of financial awareness is creating a huge chunk of population with Earn-Spend-Borrow-Spend lifestyle.

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