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9 Ways to Keep Clients From Overspending in Retirement

9 Ways to Keep Clients From Overspending in Retirement 9 Ways to Keep Clients From Overspending in Retirement

Let’s say you’ve done a great job preparing your clients for their eventual retirements. They’ve followed the sage advice you’ve provided, dutifully stuck to an appropriate savings and investment plan for decades and, despite some severe macroeconomic headwinds and extreme market volatility, they’ve managed to reach 65 or thereabouts with a healthy nest egg set aside for their golden years.


Well, your work is far from done.


Not only are clients demanding more from you in terms of retirement income ideas, they’re also living longer and incurring spiraling health care costs at the same time they’re taking first-class cruises through the Caribbean or – more likely – providing financial support to their kids and grandchildren.


Even the best-laid retirement plan can come unraveled if clients and their advisors aren’t proactive about setting reasonable spending limits and sticking to them.


Here’s an interactive slide show detailing nine ways advisors can keep their clients from overspending throughout their retirements.


Source: Kirk Hulett, executive vice president of strategy and practice management for Securities America.

1. Remind Clients They Still Need Advice From the Pros 1. Remind Clients They Still Need Advice From the Pros

A recent survey conducted by the Principal in June 2011 found that 73% of advisors reported “living beyond one’s means” as the most common issue on which clients fail to be forthcoming. Financial planners report having to confront 10% to 30% of their clients regarding spending.


There are numerous ways to help your clients curb their spending by using a process, including developing and documenting a budget, coaching, gathering financial information, tracking expenditures, and creating a follow-up plan. Then for serious overspenders, a professional therapist may be needed.

2. Create a Spending Plan, Test-Drive It 2. Create a Spending Plan, Test-Drive It

You can help your clients easily create a spending plan by teaching them several processes which include the plan and the professionals. A spending plan can be difficult for a client to live with, particularly for those clients who have never done it before. Like any skill, it just takes a little practice to be comfortable with it.


You might want to create the plan and budget and ask the client to “live with it” for a few months before they retire. It’s a good idea to test-run a budget this way so there are no surprises and the plan can be adjusted well in advance. This way, both you and the client can get an idea of how realistic the spending plan will be for him or her during retirement.

3. The Dreaded “B” Word 3. The Dreaded “B” Word

Start with an annual budget; it’s more effective. The ability to track income and expenses and balance the two to the greatest benefit seems to be a skill set that has eluded many adults approaching retirement. Longevity trends, however, demand a more conscientious approach to retirement spending.


Because the word “budget” might meet with mental resistance from a client, you might consider using the phrases “written spending plan” or “formal spending policy” to describe a thoughtful approach to expenses and spending expectations. Most processes for creating a spending plan include having the client write down each expenditure. A higher-tech option is for the client to use only a debit card for one month, then use their bank’s account management platform or an account aggregation website to categorize and total the expenses.

4. Organize, Visualize All Expenditures 4. Organize, Visualize All Expenditures

You might consider this approach as one of your steps. Ask your client to arrange to have as many bills as possible on auto-pay from their bank account. They then get a set amount of cash, divided per week or per month, to use for discretionary expenses. Receipts from those expenses go in the envelope, helping the client visualize the exchange of cash for those expenses.

5. Keep It Real 5. Keep It Real

Remember, a single month’s worth of expense tracking may not provide enough information to address overspending issues. This is especially true for “emotional overspenders.” Suggesting that your clients keep a diary or journal in conjunction with tracking spending can help identify situations or feelings that trigger overspending.


This being the case, developing a realistic spending plan may require several months. As mentioned, emotional overspending may require the help of a trained mental health professional as well.

6. Start Gradually 6. Start Gradually

Just as a sound weight loss reduction plan doesn’t encourage fasting or completely cutting out favorite foods from the start, a spending reduction plan may be most successful when undertaken gradually.


Clients may choose a certain type of expense to reduce or eliminate, like going from a cappuccino every day to once or twice a week, or they may do better by setting a dollar amount, which works well with the discretionary cash envelope method described earlier. As clients maintain their spending plan, they can shift those funds to regular deposits to savings or investment accounts.

7. If It Gets Really Bad, Involve a Professional Therapist… 7. If It Gets Really Bad, Involve a Professional Therapist…

Clients who spend out of an emotional need may require more help than you are willing or able to provide. Spending behaviors that evolve out of family conflict may be the most difficult for advisors to address. Many clients who are attempting to leave addictive spending behind will disclose emotional issues you may feel uncomfortable handling at times.


Enlisting the help of a mental health professional may help you better serve clients’ needs and change their destructive behavior. The best approach is to involve a mental health therapist (not instead of your services but in collaboration with your services), addressing the client’s emotional issues while still pursuing good financial strategies.

8. …But Do It Delicately, Objectively and Professionally 8. …But Do It Delicately, Objectively and Professionally

It’s very important that you give serious thought to how you will incorporate the therapist into the client relationship. This may depend to some extent on your client and the situation, and the type of conversation you have with him or her. Also, will the therapist be present at client meetings? Will the therapist’s fee be passed on to the client or absorbed as part of your overhead?


You should interview several therapists before involving them in the client relationship or referring clients to them. You and the therapist should have strong rapport and mutual respect. Therapists with a background in finances may be particularly suitable for working with clients with emotional overspending problems.

9. Make Sure They Know You’re In It Together 9. Make Sure They Know You’re In It Together

The best part of helping clients modify their spending behaviors is that it, of course, sets them on the right path to having a more comfortable retirement with less stress and worry. But also it can be gratifying for you as well.


Don’t forget this important point: your conversations with your clients about overspending and keeping them on track can lead to deeper client relationships and higher client satisfaction levels. And that’s what everyone is striving to achieve. Good luck.


Also see:
12 Terrifying Retirement Facts Keeping Boomers – And Their Advisors – Up At Night

The Five Biggest Threats To Your Clients’ Retirement Nest Eggs

Here’s an interactive slide show detailing nine ways advisors can keep their clients from overspending throughout their retirements.

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