Client Assumptions About Retirement

When Overspending Threatens Retirement, Clients Have 3 Choices

27 Nov 2019
When Overspending Threatens Retirement, Clients Have 3 Choices

You know that retirement plan you and your client worked so hard to build? There’s a good chance your client could derail it by overspending. 

According to a 2015 report by the Employee Benefit Research Institute, almost half of retirees spent more than what they had spent just before retirement. In fact, it appears many celebrate by going on a spending spree:

  • After three to four years in retirement, 41.5 percent spent more than their preretirement levels.

  • After five to six years in retirement, 33.4 percent still spent more than their preretirement levels.

  • By the sixth year of retirement, 23 percent of households are spending 120 percent more than what they did in the years just before retirement.

Clients whose spending threatens their retirement have three basic choices to prevent that from happening: stop overspending, compromise on retirement goals or work longer. It may be necessary to adopt a combination of the three.


Choice No. 1: Stop Overspending

In the March 2011 Journal of Financial Planning article, “Motivating and Helping the Overspending Client: A Stages-of-Change Model,” coauthors James Grubman, Ph.D., Kathleen Bollerud, Ed.D., and Cheryl R. Holland, CFP, applied a behavioral model previously developed to describe the behavior of drug or alcohol addicts. 

Based on their findings, the researchers proposed individuals addicted to spending experience the same obstacles to changing their behavior as those with substance addictions: denial, ambivalence, preparation, action, maintenance and relapse.

By understanding each stage and adapting your communication approach accordingly, you may be able to help spending addicts change their destructive behavior.

When preparing an action plan, you and your clients might need to consider including therapy, budgeting or a combination of the two. During implementation of the plan, you may need to assume the role of partner and collaborator and provide your clients with regular updates of their progress.


Choice No. 2: Adjust Retirement Goals and Expectations

A retiree who moved from California to Florida told Fritz Brauner, financial professional with the Brauner Company in Redwood City, California, “If you live in Florida, you need a boat.” 

When gas prices soared, he couldn’t afford to use and maintain the expensive boat and tried unsuccessfully to sell it. The client realized too late the need to adjust his expectations – owning a boat – to fit his retirement distribution plan.


Choice No. 3: Work Longer

Clients may view working longer or returning to work as a safety net. But that expectation may prove unrealistic.

In the 2011 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute, about 45 percent of retirees said they retired sooner than expected; of those, 63 percent did so because of a health problem or disability.

You can help clients who opt to work longer by encouraging them to create a plan that addresses health and wellness, part-time employment opportunities, career management and how much time to take off between jobs.

If you haven’t already, you’ll likely have to coach clients whose overspending is threatening their retirement plan. No matter how you approach the problem, you should expect some resistance and relapses, so you’ll need a plan to help them get back to safe spending levels.




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