The Trap That Could Quietly Kill Your Retirement

Avoid the temptation to increase your spending with every pay bump.

- Alix Langone

WHAT’S THE FIRST THING you did the last time you got a raise?

If it involved buying a designer handbag or an $800 Lego set, you may want to think twice the next time you feel entitled to splurge after a paycheck bump.

When starting a higher-paying job or receiving a bonus, it’s only natural to want to reward yourself for working hard. But if you start spending all the new money you’re making, you’ll end up in the same situation you were in before your raise, with no additional savings to show for it. There’s a term for this dollar-in, dollar-out mentality— “lifestyle inflation”—and financial advisors call it a huge missed opportunity that could damage your financial security in retirement.

“It can be subtle, but America is a consumption-based society,” says Peter Creedon, a certified financial planner and CEO of Crystal Brook Advisors, with offices in Manhattan and Mount Sinai, N.Y. “The mentality of ‘I want to show that I’m doing well and I can afford this’ has become acceptable, and the idea of ‘buy now, pay later’ has become entrenched.”