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Jamie Hopkins

Retirement Planning > Spending in Retirement

Jamie Hopkins: 3 Techniques to Help Retirees Spend More (Yes, More!)

By John Manganaro

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What You Need to Know

  • Many working Americans live by a simple financial mantra that says that saving is good, and spending is bad.
  • In the real world, things are more complicated, especially for those who have accumulated substantial wealth.
  • Advisors can deliver a lot of value to retiring clients by easing their fears about spending.

There are many emotions that come to mind when one talks about retirement, ranging from excitement to ambivalence, but far and away the most prevalent feeling for many clients is fear, says Jamie Hopkins, managing partner of wealth solutions for Carson Group.

Fear and concern are reasonable responses when an individual is facing a rocky financial outlook in retirement, Hopkins says, but many clients who are demonstrably retirement ready from a financial perspective are also plagued by doubt.

In fact, as Hopkins recently explained in a video he posted to Twitter, one of the key roles of the retirement-focused financial advisor is to help the client understand their unique readiness position — and how their financial standing today translates to decisions about lifestyle and spending in retirement.

In some cases, this will mean helping the client see the need to set a strict budget and avoid excessive discretionary spending. In other cases, however, the financial picture is a lot rosier, and the real hurdle to retirement success is the client’s ingrained sense that “saving is good, and spending is bad.”

In the real world, things are much more complicated, Hopkins says, and the typical advisor can deliver a lot of value by easing their clients’ fears about spending.

A ‘Weird’ Position for Advisors

“At first you might think this is a little weird to be talking about encouraging spending,” Hopkins says. “After all, don’t we hear all the time that most retirees need to cut back and minimize their spending?”

In some cases this is clearly true, Hopkins says, but as more Americans enter retirement after successful careers and decades of diligent saving and investing in retirement plans and private accounts, there is a tremendous amount of wealth that has been earmarked for retirement.

What’s more, many older Americans who are early in their retirement journey become the recipients of legacy giving from their elderly parents, and it can be psychologically challenging to account for this added wealth within a long-established income plan.

Advisors can do a lot of good by helping their clients spend in a sustainable way, and that can mean encouraging clients to loosen the purse strings now and again, Hopkins says.

“The reality is that a lot of Americans are fearful and scared about retirement,” Hopkins says. “They don’t spend as much as they could, and so we have to actually give people permission and show them how they can spend more without running out of money in retirement.

“We all get taught about the importance of saving, but we don’t necessarily get those same lessons about how to spend. You spend a career putting money into the 401(k), and then you get to the end of your career and suddenly you are supposed to change direction and start spending. That can be really tough.”

Hopkins says there are many ways for advisors to help their clients feel comfortable spending, but there are three methods in particular that he has found to be the most powerful.

Technique No. 1: Test It Out

According to Hopkins, learning how to spend in retirement is “kind of like anything else we have to learn.” It’s one thing to talk about retirement spending, he says, and another thing to “test it out and give it a try.”

“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)

John Manganaro

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