Ep. #127 - Jedi Mind Trick to Help Savers Spend in Retirement
Old habits die hard. Did you sacrifice and save to get to retirement only to find you remain frugal, reluctant, or fearful to spend more freely in a new phase of life? Adam and Ben aren’t jedis and can’t wave their hand to simply make their clients believe that they can spend more in retirement. But they do share some tips and tricks around mental accounting and labeling of accounts to help their clients get over psychological hurdles. Listen in!
Chapters
0:49 Introducing the Jedi Mind Trick
1:55 Challenges of Spending in Retirement
3:16 Overcoming Financial Fears
6:17 Effective Financial Planning
8:00 Real-Life Client Examples
10:18 Making Consistent Income
10:47 Psychological Hurdles in Spending
11:29 Building Spending Habits
12:23 The Bucket Strategy
13:33 Judging Spending Success
14:35 Labeling Accounts for Better Spending
15:35 Encouraging Spending for Happiness
17:02 The Emotional Satisfaction of Giving
17:44 Concluding Thoughts on Spending
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Full Transcript:
[00:00:00] Adam Werner: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.
[00:00:27] Ben Haas: Hi, Adam. Lovely day in the neighborhood. How are you doing?
[00:00:33] Adam Werner: Just fine. Just fine. It is a lovely day outside. It's a nice, cool ish fall day after some unseasonably warm temps we've had recently, which has been welcomed.
[00:00:44] Ben Haas: Yeah, we'll take it. I wanna, I wanna throw this immediately to you. Okay. We're titling this podcast, Jedi Mind Trick to Help Savers Spend in Retirement.
Yeah. Kick us off.
[00:00:58] Adam Werner: Yeah, either either people know exactly what we mean or they have absolutely no idea what we mean. So for those i'll try to give a little bit of context. I'm sure everyone's familiar with the Star Wars movies, but in there, there is a scene that sticks out to us where I think it's Obi-Wan Kenobi, and oh, man, I'm gonna forget who the person is with him. But the point is they're looking for these robots.
They're looking for these droids. The imperial army, right? The bad guys. And these jedis just wave their hand and say, these are not the droids you are looking for. And these bad guys are like, Oh, these aren't the droids we're looking for. And off, and through they go. So the idea from our perspective is if we could just do that for certain clients, that is, you know, wave our hand and they will just take everything that we say and feel like kind of at face value and believe it.
That would be great. Because where we see a lot of hurdles right now, for some retirees, it's being able to flip that switch from being a saver to now being in retirement. And we are trying to, more strongly encourage some spending, if we truly believe you don't need to be as frugal as maybe you are, you've done the hard work.
Now's the time to enjoy it.
[00:02:18] Ben Haas: Yeah, and this has to come back to just that reality that old habits are hard to break and certainly we've probably all had a situation where we would recognize bad habits. I eat, eat things I shouldn't later at night. You know, if it's people stopping smoking, drinking, they stay up too late, whatever it is. But that happens in reverse too. We've got a bunch of these clients who have done such a great job committing to saving, creating that good habit that now has led them to retirement. And that sounds like, Hey, that's, that's what you should have done.
But to your point, we can't just expect them to then flip a switch. And now we're saying, look, you not only have what you need to retire, we believe you have excess, right? You have enough to live the life you want to live, and go spend it. That doesn't mean that they're able to flip the switch and just spend it. So we need to do something a little bit more than the wave of a hand and say all's good and we certainly have to be able to talk about that today.
How can we help people do that?
[00:03:16] Adam Werner: Yeah, it's that classic scenario of you know what got you here isn't necessarily what's going to get you there once you kind of get to retirement. And it's so natural I think for the people that are kind of in that, in this struggle or that have that mindset of, do I have, do I, do I really have enough?
Number one, do they actually believe that they have enough? But then it's all the other scenarios that we as humans will create of, but what if insert any number of scenarios, right? What, what do I need this later? What if something goes wrong? And I'm going to want to have this kind of backed up behind me.
So it's better, better to have too much than not enough, right? That is kind of that mindset and even the same, the same, the thought process again, maybe just being what got us here of, of just being frugal, being very disciplined with our spending decision, do I really need to go on this trip? Do I really need to buy the thing, the car, whatever, you know, another vacation property for your family?
Do I really need to give this gift to a family member or to a charity? It's, it's those little things that even though they may not need to do them, if we believe they are in a spot where they should absolutely do them, it's again where that disconnect kind of happens. And then our role is to hopefully try to not only just encourage, but to try to show maybe some of the work as to why we believe what we believe, but then it's, I think it's more focused on how, how can we get people, what are the mechanisms that can be built to maybe help someone who has a difficult time spending more freely than they have to be able to enjoy this money that they've done the hard work.
We've said this before, the hard work for a lot of people is just actually doing the saving, right? And for these people in question, we're saying they've done a great job at doing that, but now the flip side of that problem is now you have all this money for who? For what? What is its purpose? And if you're not going to use it and spend it, then then what was the point?
Right. Getting up, getting to this point, you should want to use it and do something with it. That's either for yourself or others. You name it, but can't take it with you. So let's try to figure out a way that you can enjoy the savings that you have.
[00:05:37] Ben Haas: You know, so as you're saying all of that, I'm thinking back to certain relationships that we have and the job that we can do kind of building up to that point and making it known that we believe that our goal as a planner is not just to get you to this point of retirement, but then see you truly enjoy it by starting to spend it.
And I believe what we basically said here is there's two really huge hurdles there is the habit that's hard to break, the habit of a good job of being frugal. What got us there isn't going to get us through this next leg. But then it is also very fear based relationship with money that we have.
Like, we're part of the reason we may have created that habit is we don't want to be without it. So to take from it doesn't feel good. I think the 1st thing that we can do, how we can help is just do the very good planning, right? Convince ourselves that they truly can spend. We have to believe that.
And I think there's a couple of different ways that we would talk about going through that.
I think the 1st step that we need to take and how we can help people is to actually do financial planning, do good planning where we do have our own confidence that what they have set aside is truly going to serve them so we can be super confident in how we communicate through that process, right?
Communicate verbally. We need to trust ourselves in our profession enough that there are certain people that that will innately trust us. If we say you're in a great spot. More often than not, we're going to have to respect some of those fears you mentioned, whether it's around the market, uncertainty of the future, make sure that they have an understanding that part of our planning, part of the reason we do planning is to run a lot of what if scenarios.
Right. We did a whole podcast on part of helping people through this and understanding likelihood of success is to plan for the worst case. Some of our best conversations with clients and having success doing just this, getting them to spend was to literally say, what are all the things that we think could go wrong with money?
And if there's still something left over here, then we hope that alone, right, creates some permission not to do anything dramatic. I mean, the examples you gave, take that trip, buy that thing, give this gift. These are small pieces of a very, very, very big pie. So I think, again, just feeding into some of that human nature of pessimistic or worry by doing worst case scenario planning. That's a good step one.
[00:08:00] Adam Werner: And I just want to kind of throw out maybe a very recent example that we just had this week. You kind of threw out, you know, we'll throw out all these different what if scenarios. And sometimes maybe that in and of itself can feel daunting.
Like now I'm putting on my client hat. Now I have to think through like all the things that I'm fearful of. And that feels not great. But then if I'm staring down the barrel of 10 different negative scenarios, how, how can we really plan for all of them? So sometimes it may just be trying to isolate.
What's the biggest fear? What's, what's the most important, right, that you would want to avoid? And for this couple, it was, if we needed long term care, are we still going to be okay? And just that as its own, let's illustrate a long term care event in our planning tool. And as long as we all feel decent, that the outcome in that scenario still leaves plenty of a buffer for longevity, these long term projections in retirement.
That was just enough. I could see the little bit of the relief in the client, in the spouse that went, okay. I think it kind of clicked, like we kind of saw it happen in real time, Oh, I think I might believe them that we're going to be okay. So just something as simple as, again, it doesn't need to be every single fear that you have, but if you're able to isolate maybe the biggest to you, and our job is also to try to bring some of this to the table, if someone's not thinking about certain aspects, but if you can kind of just isolate a variable or two here or there and that in and of itself can just give massive relief and peace of mind to I think the people in this camp that are more maybe worry more than others or are more focused on the yeah, but what if this and I need this money because it's going to serve me in the future.
I don't know how, but I need it there. And that's the comfort.
[00:09:51] Ben Haas: So I like, as you're saying that I want to go to the complete reverse of that right here, here we're showing in a tool. Look, we're trying to convince you that over the next 30 years, things will be fine when the complete opposite of that might be to create an example for somebody of let's just dip our toe in the water here.
Like, what about just this next year? If this was a good, a very good market year, and we did not project things to be this good. We say, here's really what you need to be making on a consistent basis. But this year is like really, really good. Then let's just call that a bonus. Let's literally just take that money and let's move it somewhere.
Let's spend it. Let's create something so simple and small. Try to maybe not picture things 30 years, but just next 6 to 12 months.
Can we just see what it feels like to take this extra trip? To give this gift to buy that. Yeah.
[00:10:46] Adam Werner: Yes. That's a fantastic point because it does lead to one of the things that we had noted in preparation for this is that these hurdles, which are mainly psychological. This is not something that again, the point of it being a switch that can be flipped.
These hurdles are not going to be broken down overnight. I think you make the good point. Maybe building different habits and just dipping your toe in the water of spending money on a family trip that you've been hesitant to take because of the financial impact of that. We know that this is not something that is just going to magically fix itself immediately with us telling somebody you're going to be okay.
You can go spend this money and all of a sudden, they take that and run with it. I think it is a bit of a transition process to maybe see the proof in the pudding that it's not a one year thing. It is a transition. It may take time to get comfortable and see that yeah, the market was good this year. I can afford to maybe spend a little bit more because just looking at my total value of my investments, even though I spent X amount of dollars, I'm still higher than where I was to start.
[00:11:55] Ben Haas: Yeah, dip your toe in the water. We'll check in with you in three months and see how you felt about it. First of all, I'm assuming that if you are spending money on the things that truly make you happy, create the permanent positive emotion, engagement, it's relationships with the people you love, providing you meaning, achievement, whatever it is, it's going to feel good.
And if we can say, well, we'll check in with you in three months or six months, and now the financials still look fine. Then why would you want to repeat that?
One of the Jedi mind tricks is to, for us to do the work that says, okay, let's look at your life savings in different buckets and the buckets are, well, what purpose is that going to have in my life? There's cash reserve. There's all this money that I may need to spend on retirement. There's uncertainty, right?
That couple you mentioned, what if I need money for long term care, but we would hope there's going to be a bucket that after we calculate all that stuff, that's our job. That is the nature of our work to look forward and think about what needs to be in those buckets.
Maybe play the game, the Jedi mind trick with the client that says, this is the bucket that you now need to spend from, right? This is permission to spend because we've calculated this as excess. And even when they're bad market years, and we look back at those numbers, it's so rewarding to go to a client and say, I know this feels horrible that you're down X dollars, but by the way, you still have a retirement bucket that's overflowing.
So this isn't affecting or shouldn't affect your ability to still spend in the places that are going to be very meaningful for you. Like bucketing exercise, I think is a great, great opportunity for us to help people spend.
[00:13:33] Adam Werner: I think you you've often liked to reference this recently that whatever that, that spending bucket, judging success shouldn't be, how much do I have in that account?
It's how little do I have in that spending account in any given year? And that's the success that I'm actually using it in the way that it's intended, which is to be spent for whatever purpose. And that is completely up to the client. And you said, what's going to give me the most satisfaction? What's going to make me happy?
How is spending this money going to really fulfill me and let's do more of that. And if I'm able to have that spending account and see success, like a golf score, the lower, the better that that can be that permission to just view that bucket of money differently than everything else that you have accumulated.
[00:14:27] Ben Haas: I think the beauty of using that as a, not a mental exercise of accounting. Cause we've done that with a lot of people. Like this is what you need, this is what you need. And there will late, we have clients that will open different accounts and label them differently so that they can see it. This concept of like your fun money, or for some people, maybe it's to give it away a legacy bucket.
Yeah. I hope we find more opportunities to look within our client relationships and say, you know what we need them to create a bank account label it this way because I know even in the last couple of weeks, you and I had multiple conversations where I'll come over to your office and I'll be like, my gosh, I had no idea that John had $200, 000 sitting in the bank.
[00:15:07] Adam Werner: Right.
[00:15:08] Ben Haas: I had no idea, Mike's got, $150, 000. I'm asking him, do you want to take more? And he's telling me. I haven't spent what you sent me, right? So find a way to label that literally and logistically. And I love what you said. We're going to judge success now moving forward by how little is in that bucket.
[00:15:27] Adam Werner: It feels so counterintuitive. And I think for the, for the frugal minds among us. It's a bit of a mindset shift. But it's the example of let's just start somewhere, right? That spending account doesn't need to have hundreds of thousands of dollars in it.
If it's something as simple as somebody has these investment accounts. They're kicking off dividends and income, and you may have been used to just reinvesting that while you've been accumulating, even if it's something as simple as let's just turn off that dividend reinvestment. Let's just try to spend the income that's being produced by our portfolio.
Let's not even worry about touching principal. But let's just focus on if this is if your investments are producing X amount of dollars, let's try to at least spend some of that as a starting point. So again, there's different mechanisms that we can help people put into practice that may help to start to turn that tide a little bit from, you know, the Scrooge McDuck, right? I need to accumulate all these gold coins and I'm going to swim in my pool with gold money, to start to enjoy it a little bit.
[00:16:34] Ben Haas: Because that has to be the goal. I think we have now seen for as long as we've been doing this collectively, 20, 25 years, whatever, it does somewhat hurt to see people pass away with a lot of money. And if you knew that they were really just not using it for the purposes that maybe they would have liked if they had felt more confident or had we created a different exercise. I just don't want to see that with a lot of our current retirees, right?
If you are still accumulating money in reserve, then think about who you care about that will spend it for you. Part of the reason certain people will gift when they feel like they can is they want to see people they care about or causes they care about rewarded by that money. And here's the reality.
If you pass away and now your estate is going elsewhere, more often than not, other people are going to spend it and they're going to spend it quickly. Yeah. So why not try to see if that can work for you financially and then get the emotional satisfaction of knowing that you've made a difference in somebody else's life or somebody's cause.
[00:17:41] Adam Werner: Yeah. I don't know that I have anything to add to that. It's very well said.
[00:17:44] Ben Haas: It's not just to wave our hand, but there's any number of ways that we will continue to try to get better at encouraging people who are in a good spot, right? We have to start there. We have to do good planning and they have to be good savers to make sure they got to that spot.
But as soon as they're there. You know, jobs not done. Truly got to match that money to the things that matter to you and spend it. Because for most people, last thing, if you pass away with a dollar in your account, that's success, right?
[00:18:15] Adam Werner: Yeah, we often joke about it. Some people judge retirement success by bouncing my last check.
Yeah, at some point checks won't be a thing. But yeah, having, as few dollars left over, maybe success for many people. I think for the people that we're targeting in this podcast, that probably wouldn't resonate with them, but your point is...
[00:18:35] Ben Haas: You didn't run out of money and that might've been your fear.
[00:18:38] Adam Werner: Yeah. That's the point. If you're able to maybe have the best of both worlds where yeah, you didn't run out, but you saw the good that your savings has done, has done while you're living we'd rather see that for people then yeah, you pass away, now it gets distributed to all your heirs to charities and you had the I guess satisfaction of knowing that once you're not here that it's gonna do some good.
But I think most of the clients that we talk to the impact that that satisfaction that they get from just seeing it while they're living that's worth a heck of a lot.
[00:19:11] Ben Haas: Thank you as always
[00:19:13] Adam Werner: See you next time.
[00:19:14] Ben Haas: We'll catch you soon.
Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening.
Ticket Number T008154
Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
