Helping Retired Clients To Actually Start Spending And Enjoying Their Money: Kitces & Carl Ep 178

Video

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and YouTube Music.

Show Notes

• Add Value To Client Relationships And Uncover New Goals By Asking: "What's Possible Now?" by Meghaan Lurtz
• "Thinking Smarter" by Shlomo Benartzi
• Helping Hesitant Clients Boost Their Retirement Spending

Kitces & Carl Transcript

Carl: Michael Kitces, imagine finding you here.

Michael: David Carl Richards III.

Carl: That's right.

Michael: DCR III...I still every time I want to say DCF. But you are not a discount cashflow machine. You are David Carl Richards III.

Carl: I deserve to be discounted, but it's not a cashflow. So, I have a question for you that seems to be coming up a lot lately. And, in fact, I've been surprised by how often it's coming up in conversations with advisors. And the question is, how do I get my retired clients, maybe even not retired, but how do I get my clients that have secured retirement, if you will, to spend money? Right? And I've been...

How Can Financial Planners Encourage Their Clients To Spend? [00:56]

Michael: So not the, how do I get my spenders to save? How do I get my savers to spend?

Carl: This has always, sort of, come up over the years that often we're working with a subset of the population who, by their very nature, had a series of habits or some luck, or some whatever, and they're in a situation where they've got more money than they're going to need. And they may have even been delaying gratification, and that's why they have this money. And now it's time to stop delaying. And so this has been floating around my work, and I'm sure you've run into it and advisors ask about it. But I've been surprised at how much I've been asked this last four months about how do we get clients to spend the money. Before we talk about how do you actually do it, what do you make of the question itself?

Michael: I certainly agree with the question. I've lived with the question. There are clients at the margin who tend to spend a little more than they should or above their means. And we help them learn how to live within their means and save money. And if we work with them long enough, they accumulate some dollars for retirement, and it's great and awesome and we can pat ourselves in the back for having shaped the client's path. But in practice, I think the reality is, we as advisors tend to disproportionately work with people who have a proclivity for saving and a good future orientation in the first place. That's how they accumulate enough dollars in wealth that they can qualify to hit our radar screen in the first place as more and more of us have fee minimums and asset minimums and the like.

And so, on the one hand, I do feel like, as we've gravitated more towards retirees in the AUM model, a lot of us spend less time coaching clients to save than maybe we used to, or in the early years or early career because we tend to get them further along on that journey. And, yeah, in the same manner that it's really hard to get the spenders to save, it struck me, as I started working with more retired clients, how hard it was to get the savers to spend, right, just their...For some, they're so just proud of the saving. It's like, it's their identity. "I'm frugal Bob. I've been successful because I'm frugal." And it's like, "Bob, but you already won capitalism and you have a lot of money and you can pay for all of your goals and all the things you want to do, and your money's still going up and to the right. Why don't you enjoy some of this?" And he is like, "But I'm frugal Bob. I don't spend on those things."

So, yes, I have definitely felt this and watched this play out over the years. I can think of one client that, his name wasn't Bob, but, yeah – he was frugal Bob, frugal something else. He was frugal Bob. And he could not mentally adjust to the idea of spending more in retirement because the fact that he was not a big spender was a point of pride and identity in his life. And so, "My whole family knows me as frugal Bob. I'm the frugal...I can't take the fancy vacations now. I'm the frugal one. They all know I'm the frugal one." He was like, "I can't do that." It's like, "Bob, what are you being frugal for now? You're just going to die with more money, dude." He couldn't get around that.

Truly, I found this...it was so ingrained in his identity for that phenomenon. And he was an extreme version, but I could think of a number of clients over the years that could never dream of spending more than the account was growing in a similar version of the same manner. "I've made it go up and to the right all my life. I can't spend so much that it would go down." I'm like, "Yeah, but you're 74 years old. If it goes down a point or two, you're not running out. You're not living to be 150 years old. You're not going to run out." But they couldn't bear any scenario where the account didn't keep growing, even though they did not literally need it to grow in any version of an actual financial planning scenario. And I'm assuming these are not folks that had legacy goals, inheritance goals, "I want to leave a certain big old nest egg for kids." People who genuinely have a, "I'm still trying to save because there are other goals after I'm gone." That's a different crowd. Frugal Bob wasn't saving the money for anything. He just couldn't stop being frugal.

Help Clients Develop Spending Skills With "Experiments" [06:06]

Carl: No, I love that. Let's pretend...So first of all, it's okay for people to never spend, right? I always like to say, we should keep our values off other people's plans. So, if that's what's important, and I can think of two clients that I love, they would collect the glass bottles and return them to the store. And I didn't even know that was still a thing. And I told them, I'm like, "You don't have to do that anymore." And they're like, "We like doing it." Okay, that's a different thing.

So, what I would love to talk about a little bit is, so first of all, we should decide, it's okay if people don't want to spend the money. We don't need enforce, but let's pretend the clients I'm getting asked the most about are the ones that are still, sort of, maybe complaining a little bit about things that they're putting off. Like, "I've always wanted to do that," or, "I really want to help the kids."

Michael: Oh, yeah. Frugal Bob would occasionally complain about his car that was getting a little unreliable because he was driving around, and it was like, "Bob, buy a new car."

Carl: Yeah, exactly. So, how do we...

Michael: "You can buy a really nice one." And he's like, "But do you know what the maintenance would be?" I'm like, "You can afford it."

Carl: Right. Buy the extra warranty. The reason they got to this spot often is because they've been delaying gratification. And now let's pretend we're at the point where it's time to stop delaying. How do we talk to them?

Michael: Honestly, I don't know that I have great answers for this. I can tell you what I did that very rarely worked in any particular...

Carl: Okay. Well, let's start there.

Michael: ...scenario. I proved to them with math spreadsheets and financial planning objections that they could afford it.

Carl: And that's perfect. I think that's still a very important part of the discussion.

Michael: It pulls out the debater in me, like, "You think you can't afford it?"

Carl: Watch this.

Michael: :Wait, let me roll up my sleeves and pull out eMoney. Let's show you how this is really going to turn out. Look, you do the thing...Bob, you buy the new car and you still die with $9.7 million, and you don't even have anyone to leave it to." I know…

Carl: Okay. But you said that didn't work very often.

Michael: ...I would start there, or I did start there.

Carl: But you said that didn't work very often.

Michael: "You still can afford it, can we show you that you can?"

Carl: And you said that didn't work very often. Why didn't it work very often? Why is that maybe necessary, but not sufficient?

Michael: I don't regret doing that. I never really had a...I can't recall any bad client situations where people were angry, or backlashed, or anything. It was just, like, we did that. And it was like, "Yeah, but I still can't do it." Right? I'm thinking of a widow client that I had, let's say Sally. Sally just had to see her account keep going up and to the right. It was compounding to more than she needed. She already had more than enough to materially increase her standard of living, and it was going to be fine, but she couldn't do anything that would risk the account not growing even when she had no particular reason for it to grow.

And I don't even know if I ever really got to the source of what was going on with Sally, but I can remember a few clients of that type. It just needed to grow, and it didn't feel good if it wasn't growing, and there wasn't a purpose for it. It just felt scary if it went down and not scary when it went up. So, it just had to keep going up even if there was no purpose for it. And then there was frugal Bob, I will say frugal Bob was different. I at least got clear on what was going on with frugal Bob. It's what I commented earlier, frugal Bob was so proud of being frugal Bob and had spent 40 years in his family and friend circle being frugal Bob that he couldn't not be frugal Bob. Like, "My friends will freak out. My family will freak out if I actually buy the nicer plane tickets to go see them, or get the upgraded room," or like, "Oh, my gosh, what my friends say if I showed up in a nicer car?" I'm like, "I don't know. Good job for saving for 40 years. Way to go, man." It was an identity thing for him. And he couldn't change that that was his identity because that was his identity. He was known as the frugal one that everyone looked up to because he had a safe, secure retirement because he'd been so frugal and he couldn't get off that ride.

Carl: So, here's a couple principles I think, to me, have been really important. Number one, if we understand, especially after the facts and figures discussion, if we understand that this is irrational behavior, it's irrational to know that you could spend the money and be fine and want to spend the money, but not be able to. It's not reasonable, right? And if somebody's acting irrationally, generally the last thing they want is somebody to reason with them, right? Try that with a teenager. It doesn't really work very well. What what they want...It's a different problem. And the different problem is, and you're pointing to some of it. Identity is a really important one, habit.

Michael: I became a financial planner because I didn't want to become a psychologist.

Carl: I know.

Michael: It was my major I moved away from.

Carl: But what I think, to me, where this comes down to is a discussion around why and discovering this identity piece is really good, right? Like, "Hey, my friends..." And so then I think the conversation starts around, what do you do anytime you want to change a behavior or anytime you want to...? Okay, we're asking them to do a thing that they are not good at. What do you do anytime you try to learn a new thing that you're not good at? You practice. And so that's what...

Michael: It's like exposure therapy. That just sounds better.

Carl: Yeah, exposure therapy would be appropriate too, but you practice. And so that's where these conversations have led for me of, "Okay, I totally get it. You've said that, man, you'd really love to...you've got a grandson that really wants to take sailing lessons. You guys live by the shore and you used to sail and you'd love to go with him, give him that opportunity. And maybe you'd even take the lessons with them, or maybe you could just sit on the shore and you take them there and come...You'd really love to do that. And the lessons cost...I don't know what sailing...let's say they cost $1,000." "That's a lot of money for a lesson." "I know.

"So, you've also said you really want to take a trip to Europe. You've been thinking about that forever. In fact, a great story from Alan Smith about a woman in Wales, one of his clients in Wales that had more money than she'd ever need. And a bunch of her ancestors had left Wales to go to Argentina. She'd always wanted to go to Argentina to see the pumas, the Argentinian National Rugby team play the Welsh National Rugby team. She'd always want to do that. We've got these ideas of what you...You've even got specific things you want to do. "I could never do that. It's too expensive." So, we're going to just practice, right? And you could break this down as far as you want. I've had people practice because they bought into the, "I can't buy coffee, but I love coffee at a coffee shop, but I can't buy coffee because Suze Orman told me I can't buy coffee."

Michael: No, no. David Bach told me I can't buy coffee.

Carl: David Bach told me, or David Ramsey. I don't know who it was, but one of those people waved their hands on the internet and said, "You can't buy coffee because..." And so we're going to have them practice by, "I want you to go to the coffee shop, right, take a friend, just be crazy, buy their coffee too. It might be $22." And then..."

Michael: For a cup of coffee, Carl, that's mortifying.

Carl: It's insane. It's Park City prices. Are you kidding me? It's New York. And let's just start noticing what it's like to practice something that we're not good at, right? And then depending on the degree, maybe it's not your job, but I feel like if I knew a client really wanted to go with their grandson to sailing lessons that I could make a real impact in at least two lives by helping them get better at spending the money. And that's what Alan Smith did. Alan Smith kept after it for a couple years, as I recall. He wrote about this in a book. Alan's a great London-based planner. And she finally went. He introduced her to a travel agent. He helped book the...She was like, "I can't handle that long of a flight." You will book a lay-flat bed. You could charter a plane. You could do it every year for ten years." It was kind of that level of proving. And even after all the proof, she's still like...Okay. He just worked slowly over time. She went and she said it was one of the most important things she ever did in her life.

So whether it's the cup of coffee, I think the answer is practice. You're out of practice. And I think you can make it a game. "This is crazy, frugal Bob, I'm going to ask you to practice spending money. I want you to get good at it in service of what you've told me is important. If these things aren't important, let's talk about that. Let's change the plan, for sure. But if this is important to you, let's practice getting better at it." I think that's the only answer to the question I'm getting asked over and over and over is, how do I get clients to stop delaying gratification and enjoy their lives by spending money is practice.

Connecting Financial Planning Client Goals To Their Values To Encourage Spending [16:49]

Michael: So, there was a piece there that you said at the very end that you also brought it back to, for instance, something tying back to values or what's important.

Carl: And I think I maybe use the word, if these goals are important to you, if these activities are important to you, but underneath those would rest some values, right? I really value, like, using the sailing example, which is...I think, I mean, sailing. What else have I heard? I've heard, "I'd really like to help my kids get into a home," right? "They just finished graduate school. They're in their 30s, they're moving to their first place that they really want to actually...they could see themselves staying there. I really want to help them get it, but I can't do that." If those things are...

Michael: So you're asking, like...how are you getting those conversations though? You're asking, what's the purpose of this money? "Hey, Bob, we worked together for a long time, just you've had great financial success. What's the purpose of all this money at the end of the day?"

Carl: Totally. That's back to, these are goals, right? You've said forever, your goals are to travel more, right? Well, when did we get that? Well, somewhere early in the relationship, we have some statement of financial purpose along with some goals. And the statement of financial purpose could be something like,"Experiences with my family. That's what I love." And then you would, at some point, say, "Hey, let's put a little framework around experiences with your family. Let's put a little framework around...How would that show up? What do you like to do?" "Well, we like to go to the cabin." "Okay. Cabin? Do you have a cabin?" "Yeah, we have a cabin." "Great. So keeping the cabin's important. Can we put some framework around that? We'll call it a goal." "Yeah. Keep the cabin."

"Travel. We love to travel." "Okay. Let's put a little framework." This is goal clarification over time that you and I have talked about. "Let's put a little framework around travel. What would it look like? What's your favorite kind of trip?" "We're pretty simple folks. We just love to go to a national park every year." "Okay. National Park every year. About how much would that...? Let's put a framework around, we'll call it a goal. Would you really like to go every year?" "Yeah, totally." "What do you think that would cost?" "Well, I don't know, $2,500 because we like to rent a Suburban to drive." "Okay, $2,500 for a..." And then, now we're in the position, "You haven't done it, right? You've told me it was important. You haven't done it." I feel a little obligation to say, "Hey, can we solve this problem? You've told me these things are really important to you." "Man, I know. But that trip now, I thought it was $2,500. It's like four grand." "You could go every month for the next ten years of your life and not make a dent in your plan." "Okay, great. That's the facts and figures."

Michael: Now you got back to the spreadsheet. I'm good with...

Carl: Yeah, that's the facts and figures. Now I need to move to, "Okay. Are we clear there?" "Yeah." "Okay. Now why don't you do it?" "Geez, it just feels wrong." "Okay. Is it wrong?" "No, I hear you." "Let's practice. How could we practice? Could you just go...?"

Michael: Okay. And then that's where, "Okay, then let's practice."

Carl: And then even like, "You also told me that going to the art museum often, especially with your grandkids, is really something you love. How much does that cost?" "It's 50 bucks." "Okay. So, it's not four grand for the national park trip. It's 50 bucks. Could you do that? What are we waiting for? What if you did that, how long would it take you to plan?" "Two weeks." "Okay. Could you do that two weeks from now?" I feel like this is a fun game to get a little bit up in somebody's face in service of what they want. Now, again, they reserve the right to change it. "You know what? I don't like art museums. I don't want to go to the national park anymore. I love just being frugal Bob." "Cool, man."

Michael: I don't know. I'm trying to map to conversations, client scenarios over the years. The gap to me...So, I think back on those folks, they didn't have a lot of goals. They didn't set a lot of goals. Maybe I wasn't as good then as I might be now about trying to draw out some goals further. It was like, "What do you want to do?" "I want to save enough to afford a comfortable retirement." "Well, cool. You definitely crushed that one." "What else?" "I don't know, we live a pretty simple lifestyle. We're happy." I'm like, "Cool." I don't really have anything I can put in my spreadsheet for that.

Carl: I don't think there's...

Michael: There's a...

Carl: But I don't think there's anything wrong with that.

Michael: ...failure to dream phenomenon I feel like comes up sometimes. Sally so accepted the life that she created for herself that happened to make the account always go up and to the right forever that she didn't particularly espouse any other goals, or desires, or things that she wanted to do. And I don't really believe she had no other goals in life or things that she would want to do that would be fun, and positive, and uplifting for her. But the conversations were something to the effect of like, "Well, what else would you want to do with your money and this wealth if you can?" "I don't know. We're pretty comfortable. We live a simple lifestyle." I'm like, "Cool."

Carl: Michael, I don't know that there's...Okay. I have two thoughts. One is, I don't know that there's anything wrong with that.

Michael: I don't know that there is, but I guess, deep down, I don't know that I...at least in retrospect, deep down, I don't know that I believe them.

Carl: Yeah. So, that's my second thought is...

Michael: I think they settled their goals to their spending habits. They didn't lift their goals up to what their wealth could allow. But I didn't know how to get to that conversation, right? I would get to, "Tell me about your goals and what you want to do." Like, "I don't know, we have a pretty simple lifestyle. We're good." I'm like, "Well, cool."

Carl: Totally. So, I think it's an 'and'. I don't know that there's anything wrong with that – and how fun would it be to just help this dreaming process? And wasn't it Shlomo Benartzi's work that people do suffer from a lack of creativity around goals? So, I think some of these conversations of like, "Hey, could we have just a quick conversation? Let's pretend, in a crazy dream, what would you do? If you had next week, what would you do?" And you could even have a list of some of those ideas. I believe I got that idea from Shlomo was like, "Here's some of the things I've seen other clients...Are any of these important to you?" Could we help? Could we give them a subscription to...They've mentioned, "I kind of like antique cars. I've always wanted to fix one up." Could we give them a...

Michael: Tell me more about that. What would you do?

Carl: If we could find any little opening of just like, "Tell me more of that. Have you ever been to, like, an antique car show?" How interesting would it be if you did the little bit of research and you're like, "There's one two hours away in a month. What do you think?" Because, again, is this our job? I don't know. But I think it is, helping clients find...and Bain thinks it is. We're talking about self-actualization here, right? And so a failure...You said the failure to dream, which I think is a great way of framing this, is like how could we help them to dream a little bit and wake up one day and go, "I didn't know this was even...I didn't even know I wanted this. And now you're right. When I was 12, I loved guitars. I had one, right? I want to learn to play the guitar again, but it's going to cost me some money to get real instruction because I'm kinda old now. And if I did it, I'd like to get a really good guitar, but I had forgotten. It's been 40 years. Thank you."

How cool would that experience be? "You helped me have a relationship with my daughter who's across the country and we haven't had a relationship because I didn't think I could...I like to spend time. I don't like talking on the phone." "What if you went once a quarter? What if you met somewhere in the middle and you paid for it?" "Ten years later, you helped me salvage a relationship with my daughter." Man, to me, that's the job.

How To Hold A "Spend More" Conversation With Clients [25:29]

Michael: So, I guess just once more, as we come towards the end here, I guess just help us frame up again...because you have a gift for these words, right? I'm envisioning all these clients, like, "You've accumulated all this wealth, whatever. Tell me about your goals. What do you want to do?" "We're fine. We live a simple life. We're comfortable." How do I get the next layer deep with them to start getting to some of the things you're talking about?

Carl: First of all...

Michael: How would you open that conversation?

Carl: Yeah, of course, deep empathy and congratulations on that spot first, right? I get it. I think as we reviewed two weeks ago, or last month, or last year, or last quarter, you guys are...Man, if that was your goal, you've nailed it. I think the word you used was crushed it, right? You crushed that goal. It's not going to be a problem. I would almost do it exactly as I'm doing it right now. The feeling would be very impromptu, very curious. That's the nature I'd be trying, not formal, but just sort of like, "Gosh, you had mentioned..." If they've mentioned nothing else, they've given me nothing so far and this is the first time I'm trying to discover, I would just be tempted to be like...I would be looking for interests. And one way I'd look for interests is like, "Hey, just curious, in your free time, what do you find yourself reading, watching, or listening to? Do you have a magazine you subscribe to? Do you listen to podcasts, Sally? Do you have a favorite podcast? Oh, wow. Tell me more about that." "Yeah, I love this one. It's about this lady who started a garden." You're like, "Oh, that's interesting. Tell me more about that."

And then maybe that's the end of that meeting of just like, I got some interests. I'd be careful to not rush into these things. But then maybe that same meeting, maybe the next meeting, I would be like, "I'm just curious, if we were just dreaming for a bit, just having...There's no pressure here. This is just a fun thought experiment. You mentioned...Is there anything with gardening you'd like to do more of? You mentioned, like, or if we were just dreaming for a second..." You know what else is good? And I think I heard this from Meghaan Lurtz. "If I gave you an allocation every year that had to be spent on fun..." I think she used happiness. "If I gave you an allocation every year that you had to spend on happiness, how would you spend it?" That's a great question. "Oh, I wouldn't." "Well, no, if you don't spend it, it goes to the federal government." "If you don't spend it, you lose it, right? It's gone."

Michael: You need the extreme accountability. If you don't spend it, it goes to whatever your least desirable opposing charity...

Carl: I used to do that a lot, but now it's gotten so contentious that it's, like, not even really a fun conversation. But, yeah, "It's just going to go to...you're going to lose it. Actually, if you don't spend it, it will be taken out in cash and lit on fire."

Michael: Oh, that's good. Frugal Bob will not like that.

Carl: In other words, it's gone, right? I'd just be interested in how many...

Michael: Don't light the money on fire. You have to use it.

Carl: How many questions could we ask that would just open up space? Can we change the default? So what we just did there was change the default. The default isn't spend or save, the default is spend or it's gone. Maybe that would give them the freedom to explore a bit.

Michael: Interesting. I like that. That's an interesting one. "If I gave you an allocation that you had spend on happiness, how would you spend it? If you don't, it ignites. You will have to watch the money burn."

Carl: Plus blows in the wind. It does something like...But it's going to be gone. So, I'd find some way to give people permission to dream. And maybe that's a book you send them. Maybe that's a podcast. Maybe that's sending them two tickets to the boat show because they talked about how they would love to spend more time on the lake, but they don't have a boat. And, man, how fun would that be in terms of the job?

Michael: Very cool.

Carl: Okay, Michael, that was super fun. Thanks.

Michael: Awesome. Thank you, Carl.

Carl: Okay. Cheers.