When Well-off Clients Insist That They’re Poor

“Where did we go wrong?” This will sound like a familiar story to many advisors. You might hear the same comments within your own extended family. In a world where it’s been said 52% of Americans are not ready for retirement, your clients fit into the other group: the people who followed the rules, saved and sacrificed to build up their retirement savings.  They do not see things this way. You might know that they are financially comfortable, but they feel poor. As their advisor, what can you do?

What’s undermining their confidence?

You know your client has adequate financial resources to see them through their retirement. You have run the models with them every year or two. They are in good health. They receive a distribution from their retirement accounts similar to a paycheck. And they are collecting Social Security. So, why are they feeling poor?

1. Those drug ads on TV. They are worried about getting sick. Those “ask your doctor about” ads plant the suggestion that your client might have some disease they never thought about. The “side effects include” voice mentions things like fevers, chills, tiredness, weight loss or weight gain. These are shared by many common illnesses like colds or the flu. Your clients start to worry they will not live that long and realize these drugs can cost them a fortune if they need to self-pay.
2. They see prices rising at the grocery store. Everyone has been there. My wife stockpiled name brand coffee when it was on sale at $1.99 per can. Recently, she remarked it is now offered “on sale” at $4.99. These are fixed costs they need to pay, pushing up their overhead. This reduces their discretionary income, making them feel poor.
3. Things that were free now cost money. Your client learned to cope with cable TV bills.  Today, a great TV might cost $400. Yet if the average cable bill is $217/month, watching TV costs $2,600 a year. Now they that find many of the programs they want to watch require a subscription service!
4. The cost of having fun keeps going up. We met friends for dinner in the Tribeca section of New York City.  We arrived early, so we stopped into a storefront café and ordered two glasses of wine. They were $18 each! Our 15-minute interlude ran us $46 after tax and tip.
5. The neighbors are renovating their homes or taking lavish vacations. Your client considered replacement windows and was put off by the cost. The guy across the street is putting an addition on his house. Your client knows these things are pricy. They cannot understand how someone in similar economic circumstances can afford it. They decide it is because they are poor and their neighbor is not.
6. Your client’s grown children are a financial drain. Remember our $18 glasses of wine?  The place was filled with younger people having a good time. During dinner, we asked our college professor friend how these younger people, who are probably not making huge salaries, can afford to pay these prices. He mentioned they may still be collecting an allowance from their parents to help make ends meet!
7. They want to take those deferred vacations but are finding travel is expensive. It is not a stretch to imagine the airlines, who suffered during the pandemic, want to make as much money as possible now that everyone is eager to travel. Airfares are high. Hotel prices seem to have doubled. A recent TV report on summer rentals at the Jersey shore mentioned there are still deals to be had. They then interviewed a person seeking $9,000 per week for his rental property. Suddenly, your client’s desired vacations are unaffordable, making them feel poor.
8. Their house is in disrepair. It is easy to put off maintenance. One day, the roof needs replacing. Maybe the air conditioning system goes. The house needs multiple repairs. Your client is surprised how expensive this will be. These are unexpected expenses. They feel poor.

Why can others afford things they cannot?

The simple answer is they might not be able to afford the lifestyle they are living. Unlike your client, they do not have an advisor who is giving sound financial advice. Perhaps:

1. They are living in the moment. They are living paycheck to paycheck. According to CNBC, 58% of Americans live paycheck to paycheck. As a result, 70% of Americans are stressed out, the article continues. Marketwatch indicates that 49% of Americans making over $100,000/year are living paycheck to paycheck.
2. They have no savings. According to Bankrate, 22% of Americans have no emergency savings, 30% have less than a three-month reserve and only 30% have six months or more socked away.
3. They went into debt. According to Bankrate, 35% of Americans carry debt from month to month. Current annual rates on this type of credit card debt are almost 25%. Maybe they have a home equity line of credit (HELOC) and are borrowing against the equity in their house. This has recently increased, after 13 years of declines.  The average HELOC balance is $41,045.
4. They lack financial skills like budgeting. The three outcomes above lead back to the underlying problem. Unlike a business that cuts its expenses to remain profitable, they continue spending as they always have — first exhausting their income, then drawing down their savings and, finally, going into debt.

Why your client is not poor

Your client doesn’t fit into any of those categories. Three good reasons are they are financially responsible, they can live within a budget and they have been getting good advice from you.  How do you get the message across that they are not poor? Here are some talking points:

1. It is highly unlikely you will outlive your assets. Meet more often with your client to look at the retirement spending analysis. How long can they live until the money will run out? Might it never run out?
2. Your bigger problem might be estate taxes. Tax laws change constantly. The government provided support to many people and businesses during the pandemic. It will want to get that money back. It is probably easier to increase estate taxes vs. raising income taxes. One strategy they might use it to reduce the exemption. Currently it is $12.92 million.  If your client’s investments do well or the IRS lowers the threshold, their problem could be ending up with too much money!  This should at least make them feel better, especially if your analysis shows how it might happen.
3. Let’s run the numbers for paying yourself more. Can your client afford to give themselves a raise? Can they pull out a lump sum from their retirement accounts and pay for their needed home repairs? Run the numbers for this option.
4. Do you need your life insurance? Your client might have whole life insurance with a substantial cash value. Their earlier need for income replacement is behind them. Should they look at converting the cash value into an annuity, to provide extra income? What are their options for turning their policy into cash?
5. There are vacation values out there, if you know how to find them. Your client needs some help shopping. Do they live near a homeport? Flights might be expensive, but cruises can offer great value. Plus, your client is retired, so flying during high season is not essential. Instead, they can vacation during the shoulder or low season. Find them some help to seek out travel bargains. They should have fun doing the research.
6. Getting your overhead costs under control is not that hard. Help your client look at where their money goes. If they are buying name brands at the grocery store, they have plenty of other options. The name brand may manufacturer the store brands. Further, some discount supermarkets are mainstream today. Remind your clients that businesses are great at finding low-cost providers. That’s one of the skills that helps keep businesses profitable, and your clients can do this too. Finding value can help them feel like they have discovered something worthwhile. They will enjoy telling their friends.

Your client is not poor.  Your guidance has helped get them into a secure financial position. Take the time to understand where your client is coming from. Systematically address their concerns.  They might even be happy enough to send a referral!

Bryce Sanders is president of Perceptive Business Solutions Inc.  He provides HNW client acquisition training for the financial services industry.  His book, “Captivating the Wealthy Investor” is available on Amazon.