“It takes remarkably modest adjustments to materially lift sustainable spending,” Kitces said.
Don't talk to clients about the probability of portfolio failure, talk instead about the probability of needing to adjust spending, Kitces said. “Then the question is, 'What kind of adjustment?'” That might be giving up the vacation home if things turn ugly; phrased that way, clients are OK with it.
“The reality is, if we had a really extended bear market, people are probably going to feel better spending less,” Finke said.
Even in normal times, clients don't spend what they did in their working years.
“A couple years ago, we followed retirees through retirement to see if they were actually spending down their assets in retirement,” Finke said. “What we found was for the most part, they're not spending down that money. … In the first few years of retirement, they spend about the same as the year before they retired, but then in inflation-adjusted terms, it goes down every single year.”
“For clients we've had for 20-plus years, we absolutely see that spending slowdown,” Kitces agreed.
In fact, advisors overall tend to have a self-selected group of lifetime savers, and getting them to spend in retirement can be a challenge.
Annuities can help these people, as well as those who might run short.
Wealthier clients won't feel guilty about spending the regular checks they get from an annuity, Finke said, and the regular income enhances growth assets.
“It's been known among economists that annuitization is the most efficient way to get [bond] income in retirement,” Finke said. “You can cover a pretty good chunk of that 4 percent rule with annuitized income … and that takes a lot of pressure off the remainder of your portfolio.”