Broker Check

How To Talk To Clients About Overspending in Retirement

March 30, 2020

With the market declines and the Great Recession of the 2000s still fresh in American minds, and the real possibility of living 20 years or more after retirement, outliving retirement savings has become a major concern for a growing number of adults.

Yet, despite their awareness, many people within sight of retirement will experience significant disconnects between their retirement expectations and reality.

Patterns of spending beyond one’s means, however, typically manifest long before retirement. Failure to address those tendencies before retirement may not become apparent until salary or wage income can no longer camouflage the problem. Financial advisors routinely face disparity between clients’ expectations and their real-life behavior, and that disconnect shows itself in clients’ spending habits.

During retirement, when new dollars from a job have stopped coming in, clients may find their retirement portfolio cannot produce an income equivalent to their preretirement earnings power. They may be forced to live according to a budget for the first time in their lives.

If you engage in retirement income-distribution planning, you can help clients spread their nest egg across their retirement years. Unfortunately, success in accumulating a sizable retirement portfolio does not mean a client will be successful in spending that portfolio wisely and in accordance with limitations like a budget.

If you’re like most advisors, at some point in your career, you’ll face the dilemma of approaching a client whose overspending threatens their retirement-distribution plan. You can help clients understand that having enough income to fully fund their retirement requires one or a combination of three common choices:

  • Stop overspending
  • Compromise on retirement goals
  • Work longer

Understanding the reasons clients overspend and the stages they go through in changing their behavior can help you guide them to make better decisions. You can expect some resistance and relapses once clients agree to act and you should be prepared to help them get back on track.

Making compromises on retirement goals will likely require helping the client prioritize expenses using a budget or spending plan. Like any skill, creating and living within a budget requires practice, which is best undertaken well before the client retires. Enlisting the client’s accountant or attorney to reinforce the impact of failing to make compromises can emphasize the seriousness of the situation.

Because many clients consider working longer to avoid curbing spending, you should help them create a plan that optimizes their potential to continue working as long as they need to avoid outliving their retirement funds. Managing health, continuing career development and exploring part-time employment or business ownership will likely be areas where advisors can add value for their clients who choose to delay retirement.

Helping clients change their emotional relationship with money and modify their spending behaviors can be gratifying, particularly when those clients can then enjoy a less stressful retirement. When you have the appropriate knowledge, skills and resources, those conversations can be more productive and can lead to deeper client relationships and higher client satisfaction levels.

Contact Iron Point today for a no-obligation coaching call to learn more ways you can talk to clients about overspending in retirement.

Written by Securities America for distribution by Robert Santoriello