We all know a principal factor of how long retirement savings will last is the withdrawal requirement. Carefully constructed plans can easily crumble when actual withdrawals exceed the scheduled limits. Retirees’ budgets are facing increasing pressure with factors such as increasing life spans, rising health care costs, and supporting adult children. Managing spending is important to ensure your clients are not cutting too deep into their nest egg, leaving a weak financial future.
On Wall Street provided a slideshow covering nine methods advisers can used to help prevent clients from overspending in retirement. Read more about each method by viewing the On Wall Street slideshow:
9 Ways to Keep Clients From Overspending in Retirement
By Larry Barrett
March 9, 2012
- “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.” - “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.” - “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.” - “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.” - “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.” - “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.” - “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.” - “…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?” - “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.”
