Jamie Hopkins: 3 Techniques to Help Retirees Spend More (Yes, More!)
“We’re always better off when we test things, and in this context, that might mean knocking back the work schedule and transitioning into a partial retirement, where you are still working part time,” Hopkins says. “You can supplement the working income by starting to make retirement withdrawals.”
Hopkins suggests that a client, in the two or three years before their full “retirement,” could also keep putting money into their 401(k) based on the wages they are earning. At the same time, they can also start to draw some amount from that same account, so that they can get accustomed to what spending feels and looks like.
“It’s kind of a way to ‘cheat’ and test out what it feels like to spend without actually seeing their balance diminish,” Hopkins says. “The reality is that, for many clients, simply starting the process of drawing money out of retirement accounts will go a long way towards easing some of their discomfort.”
Technique No. 2: Needs, Wants and Wishes
Another useful technique, according to Hopkins, is to help retirees see the fact that not all spending is equal — it exists on a broad spectrum that ranges from spending on wholly nondiscretionary needs to spending on completely fanciful wishes.
“This may seem like an obvious thing, but the point is to go through the planning process and specify what the person’s needs, wants and wishes are,” Hopkins says. “You lay out the safe assets and income sources against these different spending buckets, and that can give people a lot of peace of mind about spending.”
As Hopkins explains, this type of mental accounting is actually critical in the retirement planning process.
“It helps to create a feeling of safety when you can show that they aren’t going to run out of money for their needs just because they do some spending on wants and wishes,” Hopkins says. “What people fear the most is not being able to take care of themselves because they spent too much too early on the discretionary side.”
Technique No. 3: Go Beyond Success or Failure Metrics
The third key to spending comfort, Hopkins says, is to steer the client away from an obsession about “pure success or failure metrics.”
This is a two-front approach, he explains. On the one hand, the advisor can help the client understand the importance of guaranteed sources of income that are not going to run out. It’s about reminding people that they will be able to rely, at the very least, on Social Security, and they have the option of purchasing guaranteed income annuities, as well.
On the other hand, this approach is also about showing clients that, unlike a plane trip, retirement is not a binary outcome of complete success or failure. It is important for advisors to underscore this point with their clients when Monte Carlo simulations are being used, for example.
In reality, Hopkins says, people will adjust their spending in retirement as situations warrant, and a “failing” Monte Carlo outcome may simply require a modest lifestyle adjustment to become a success.
Additionally, no financial plan, strategy or product can guarantee a successful outcome for an investor, given the myriad of risks and uncertainties in real life, so it is important for retirees to understand that embracing some amount of risk is a normal and necessary part of the retirement journey.
(Pictured: Jamie Hopkins)
