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."
