For clients nearing retirement, money spent can turn out to be a lot more valuable than money saved, advisors and other experts say. It all depends on how that spending is deployed.

This is the opposite of the “save until you’re 70” mentality that many clients and some advisors can’t let go of. The idea has been around for a dozen-plus years; it revolves around a counterintuitive virtuous circle and now is being revisited in practice, often in new ways, by advisory firms large and small.

Instead of socking away as much money as possible, clients are sometimes being advised to stop saving and instead drop $15,000 to $20,000 on something they’ve always wanted—a magnificent trip, a month on a summer house rental, a new car. And not do it just once, but over and over again.

“If you’re going to sit here and tell me how burned out and stressed you are, you need to work on rightsizing your life,” says Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Md. “Some people are scared to spend. Conditioned not to spend. But spending $20,000 of a $1.3 million portfolio to go somewhere with your wife when your kid graduates from college is OK.”

It’s completely different from the way prior generations retired, and there’s good reason for that, experts say. Workers can maintain better health through their 50s and 60s, and increased longevity is bringing retirees well into their 80s and 90s.

“The concept of retirement has really only been around 100 years. People didn’t retire. They worked until they died,” says Tim Doehrmann, a retirement specialist and the founder of Eagle Ridge Wealth Advisors in Morton, Ill. “Retirement accounts have only been around 40 to 50 years. Roths, 25. Our whole mindset has evolved as well. It’s an advisor’s job to help clients become aware of their options.”

And there’s also something extremely 2023 about it. “The pandemic was a huge storm,” says Michael Doshier, vice president and senior retirement strategist at T. Rowe Price. He points to the terrifying and isolating lockdowns, stock market drops and jitters, and, of course, the loss of health and life.

“Now there’s all this focus on mental health, and financial wellness has benefited from this because people are really thinking about what it is that they need to be healthy, to have enough money,” he says. “To be happy.”

A Counterintuitive Strategy
Doshier’s colleague, Marcie Daniel, the vice president and head of practice management, agrees. And the people at T. Rowe Price should know. A former advisor at the investment company named Christine Fahlund came up with a concept called “practice retirement” more than a dozen years ago, and turned it into a playbook for advisors, although the concept has evolved since then.

“I think when we brought this concept to life, we were a little bit ahead of our time. I feel that the environment is more open to this type of dialogue now,” Daniel says. “The major math that Chris came up with is the opposite message of telling a 20-year-old they have time on their side because of compounding. What she would say is a dollar in is a dollar out in your 60s, because you don’t have much time.”

Instead, that money could be better used showing soon-to-be-retired clients how they spend within their budget while indulging in meaningful moments. Jamie Hopkins, a managing partner of wealth solutions at Omaha, Neb.-based Carson Group, has evolved his own set of recommendations for clients, which includes putting a stop to saving except for what’s matched by an employer.

And catch-up contributions? Those can be a sucker’s bet for clients this close to retirement, Hopkins says, noting that a lot of people already have enough qualified plan savings, and the money spent on catch-up doesn’t meaningfully impact retirement. “But it could be meaningfully impacting the now,” he says.

One of his clients, for example, was almost ready to retire and had been doing the opposite of what Hopkins recommends. “He hadn’t gone on vacation for three or four years. He just buckled down because he was getting ready for retirement. And he was right on that line of not knowing if he saved enough or needed to do more,” he says.

Hopkins says he encouraged the client to spend $15,000 on a two-week vacation with his wife and it was so successful in reinvigorating the client that he worked another six months and did it again. And again.

“He bought a car, and worked for six more months. Then he went to Ireland, and could work another six months because he’d had this great experience,” Hopkins says, adding that the work-reward cycle was easy for the client to get used to. “He ended up working for five more years where he was making six figures. And that has totally transformed his portfolio.”

Hopkins illustrates how the six-month cycle works with a hypothetical client who makes $100,000 a year. Every six months, that would be $50,000 the client doesn’t pull out of their retirement portfolio.

“If you were saving 20% of your income, it would take you 3.5 years to save that. So not only do you not spend it, but it’s invested and you delay the date of withdrawal,” he says. “You take all these benefits together, and the idea of spending more to stay in the workforce makes a lot of sense.”

Average Clients Benefit The Most
Putting the brakes on saving for retirement and spending that money instead on quality of life is a strategy best deployed with clients about three years before their planned retirement age, these advisors say. And typically, these clients have pretty solidly funded their retirement, with maybe $1.2 million to $2 million in assets.

Hopkins, previously an associate professor of taxation at the American College of Financial Services, says that during his teaching years he developed a test to see what worked and what didn’t for retirees, and discovered that people who were financially literate at 50 or 55 were not retirement-income literate at 65.

“They didn’t really understand distributions, taxes or how to spend their savings,” he says. “All the systems and processes that build up to retirement are about savings. Every system flows on the savings side. There’s nothing on the spending side.”

The strategy is also great for clients who are feeling burned out and desperate to retire, but have financial reasons for wanting to hang on a few more years, as per Hopkins’s earlier example.

It’s not for people who have low assets, or very high-net-worth clients who have full autonomy in life, he says. People who are just planning on Social Security payments already know how to adapt to lower income.

“We don’t have to teach [people taking Social Security only] how to spend,” Hopkins says. If you’re on the top 15% of American wealth, on the other hand, “that group really does have wealth they could spend but doesn’t know how to.”