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It’s not enough to guide clients into retirement. You have to ensure they have enough money to live through it.

Yet for some, that’s not a problem. “The older generation lived through the Depression and the war, so being frugal is deeply ingrained,” says Alan Atkins, CFP, CPCA, president of NetWealth Consulting in Barrie, Ont.

The unnecessarily frugal risk isolated, depressing or unhealthy retirement years, since they refuse to spend on necessities—or fun.

Broaching this sensitive topic may lead to pushback, so here’s how to do it properly.

Case study: Frugal Frank

Frank, who grew up during the Depression and World War II, lives on a small pension and modest savings. He tracks expenses judiciously because he’s terrified of outliving his money. He allows himself no luxuries, keeps his house a chilly 68 Fahrenheit in winter, and twice stopped refilling a prescription for heart medication due to cost.

Frank has no problem listing things he’d like to spend money on (annual cruise, new car, helping a grandson with a down payment on a first house) but is terrified an irreversible spending decision would leave him destitute. With some planning, Frank could check several items off his bucket list without that happening. How can you convince him to loosen the purse strings?

How to talk to Frank

Unlike over-spenders, Frank should stop obsessive cost-counting. “A client like that can’t be turned around completely, but needs to be weaned off the day-to-day monitoring,” says Atkins.

First, he demonstrates Frank’s income can cover more minor but uncontrollable expense increases such as a higher heating bill or medication costs every six months.

Then, he suggests small splurges, like going out for dinner or to live theatre once a month, to show they won’t break the bank. Finally, he introduces larger expenses, like a new car or gas fireplace. “The goal is to show these modest expenses will not erode savings,” Atkins says.

Find the fear

One client said her fear was longterm-care needs, says Heidi Pullem, who specializes in retirement planning at ZLC Financial Group in Vancouver. So Pullem asked what her friends and family had experienced, to see if her fear was rooted in a specific experience. “I quantify the issues as much as possible,” Pullem says. She modelled how both moderate and extreme long-term-care costs would affect the client’s plan—in both cases, her cash held up.

“If there had been a shortfall of $4,000 a month in the extreme situation,” Pullem says, she would investigate a life annuity or GMWB product to deliver that $4,000, depending on age and eligibility.

Then, show which scenarios result in running out of money. Run stress tests based on a client spending 10%- to-15% more—an amount significant enough to have a real lifestyle impact.

Read: Stress-testing your retirement plan: “How big is my cushion?”

If the results are favourable, an advisor can then start a conversation about boosting spending. To help the client grasp the possibilities, overestimate the cost of one-off items, like a trip or home reno, to show how safely the expense can be absorbed.

Take it slow

Janine Purves, CFP, CPCA, has a client like Frank. So Purves put his retirement income in the same context as the salary he once earned. “Every year, I say, ‘It’s time for a raise,’ ” says Purves, a senior financial advisor at Assante Capital Management in Richmond Hill, Ont. This helped shift his focus from accumulating to drawing from savings.

Initially, raises are based on annual inflation rates. As clients spend more, and continue to see they have funds in reserve, they become comfortable with enjoying their money. Annual raises then move beyond the inflation rate baseline to ensure a client’s income provides for more than simple necessities.

Consider carving off three years’ retirement income to avoid being forced to sell at the bottom. To ensure emergency savings keep up with inflation, put each year’s income into a separate account, and allow the markets to dictate how and when each one is accessed (read “Protect emergency savings”).

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Originally published in Advisor's Edge