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The Number One Reason People Cannot Retire Comfortably
‘Lifestyle inflation’, also known as lifestyle creep, is a pervasive problem that affects people of all ages and, it is in my opinion, the number one reason people cannot retire comfortably.
Lifestyle creep is especially dangerous for those in their 40s as, at this stage of their lives, they are typically at the peak of their earning potential. As income rises, individuals will be tempted to spend more and more on luxurious items like a bigger house, a newer car, or the latest gadgets. Unchecked, this will lead to a cycle of overspending and under-saving, where individuals will end up without enough savings for their golden years.
I believe that the best way to manage lifestyle creep is to copy how the Singapore government manages our national reserves through the NIRC mechanism.
Under the Net Investment Returns Contribution framework, 50% of investment returns generated by the reserves are contributed to the government’s budget for immediate use, while the other half of the returns are returned to the reserves for reinvestment. This approach ensures there is money for immediate expenses, while also allowing for investment for long-term growth.
