Page 17 - Investment Advisor July/August 2023

supposed to change direction and start different spending buckets, and that on Social Security, and they have the
spending. That can be really tough.” can give people a lot of peace of mind option of purchasing guaranteed income
Hopkins says there are many ways for about spending.” annuities, as well.
advisors to help their clients feel com- As Hopkins explains, this type of On the other hand, this approach is
fortable spending, but there are three mental accounting is actually critical also about showing clients that, unlike
methods in particular that he has found in the retirement planning process: “It a plane trip, retirement is not a binary
to be the most powerful. helps to create a feeling of safety when outcome of complete success or failure.
According to Hopkins, learning how you can show that they aren’t going It is important for advisors to under-
to spend in retirement is “kind of like to run out of money for their needs score this point with their clients when
anything else we have to learn.” It’s one just because they do some spending on Monte Carlo simulations are being used,
thing to talk about retirement spending, wants and wishes. What people fear the for example. In reality, Hopkins says,
he says, and another thing to “test it out most is not being able to take care of people will adjust their spending in
and give it a try. We’re always better off themselves because they spent too much retirement as situations warrant, and
when we test things, and in this con- too early on the discretionary side.” a “failing” Monte Carlo outcome may
text, that might mean knocking back the The third key to spending comfort, simply require a modest lifestyle adjust-
work schedule and transitioning into a Hopkins says, is to steer the client away ment to become a success.
partial retirement, where you are still from an obsession about “pure success Additionally, no financial plan, strat-
working part time. You can supplement or failure metrics.” This is a two-front egy or product can guarantee a suc-
the working income by starting to make approach, he explains. On the one hand, cessful outcome for an investor, given
retirement withdrawals.” the advisor can help the client under- the myriad of risks and uncertainties
Hopkins suggests that a client, in stand the importance of guaranteed in real life, so it is important for retir-
the two or three years before their full sources of income that are not going to ees to understand that embracing some
“retirement,” could also keep putting run out. It’s about reminding people that amount of risk is a normal and necessary
money into their 401(k) based on the they will be able to rely, at the very least, part of the retirement journey.
wages they are earning. At the same
time, they can also start to draw some
amount from that same account, so that Americans With Annuities Want More Annuities: Survey
they can get accustomed to what spend- Americans who already own annuities, or other products that provide a guar-
ing feels and looks like. anteed source of lifetime income, love the idea of buying more annuities. The
“It’s kind of a way to ‘cheat’ and test American Council of life Insurers came up with data on how familiarity with
out what it feels like to spend without annuities breeds love for annuities when it sponsored a recent survey of 1,003
actually seeing their balance diminish,” u.s. retirement savers ages 45 through 65.
he explains. “The reality is that, for About 26% of the survey participants said they already owned annuities, and
many clients, simply starting the pro- 86% of the survey participants who owned annuities said they were somewhat
cess of drawing money out of retirement or very interested in buying more. Roughly 73% of all of the participants, 76% of
accounts will go a long way towards eas- the participants with pension plans and 67% of the participants without annuities
ing some of their discomfort.” said they wanted annuities.
Another useful technique, according The AClI sponsored the survey at a time when prices are rising and regulators
to Hopkins, is to help retirees see the in Washington and state capitals are talking about whether to impose annuity
fact that not all spending is equal — it sales standards that would limit use of traditional commission-based sales rep
exists on a broad spectrum that ranges compensation arrangements.
from spending on wholly non-discre- Inflation was a worry for 85% of the survey participants, and about 58% of the
tionary needs to spending on completely participants said they would work with financial professionals on retirement plan-
fanciful wishes. ning or might do so. Only 15% said they preferred to work with retirement plan-
“This may seem like an obvious ners with a $100,000 investment minimum.
thing, but the point is to go through AClI president susan Neely said the survey results show that life insurers, and
the planning process and specify what the financial professionals who work with them, are offering products that can fit
the person’s needs, wants and wishes with what consumers are thinking about. “Retirement savers are clearly concerned
are,” Hopkins says. “You lay out the safe about inflation and the overall economy,” Neely said. —Allison Bell
assets and income sources against these

July/August 2023 InvesTmenT ADvIsor 15