According to recent actuarial longevity tables from the Social Security Administration, the very real possibility of people living 20 years or more after they turn 60 is changing the outlook of retirement. For example, a 61-year-old male is expected to live about 21 more years and a 61-year-old female, another 23 years. In other words, outliving retirement assets has become a major concern for a growing number of advisors' clients.

In spite of this awareness, many clients within sight of retirement experience significant disconnects between their expectations and reality. Here are a few statistics gathered from various media sources.1

    43 percent of Americans have less than $10,000 saved for retirement.
    Pre-retirees (age 50-59) expect to live about 21 years after retirement and plan to spend almost 10 percent of their savings in each of those years.
    80 percent expect their standard of living to rise in retirement.
    47 percent of retirees have a written withdrawal plan and only 28 percent have a written budget for spending during retirement.

These stats are astonishing and advisors have the responsibility of educating their clients as well as helping them understand that overspending can be a very real problem. Advisors routinely face this disparity between clients' expectations and their real life behavior, and that disconnect also shows itself in clients' spending habits. In a June 2011 survey conducted by Principal, 73 percent of advisors reported the most common issue that clients fail to be entirely forthcoming about is "living beyond one's means." So how do advisors determine where the real problem lies?

Think about it this way: As human beings, clients are both logical and emotional. Dealing with the logical side is relatively easy for an advisor. It's the emotional, psychological and behavioral side that often presents a challenge. It's interesting to note that James Grubman, Ph.D., psychologist and consultant to wealthy families and to advisors, applied a behavioral model to those who overspend that was previously developed to describe the behavior of drug or alcohol addicts. He proposed that individuals addicted to spending experience the same challenges in attempting to change their behavior as those struggling with substance addictions: denial, ambivalence, preparation, action, maintenance and relapse.

The Emotional Stages
Here are the various stages involved in the process of changing spending habits:

Denial: Advisors should focus on helping the client in the denial stage compare their spending behavior against the retirement goals and dreams they identified during the initial planning process. Maintaining a neutral approach allows you to begin educating the client, who does not want to be judged.
Ambivalence: In the ambivalence stage, clients may acknowledge a problem with overspending and the need to change, but have not yet committed to making a change. You could do a "summary of distributions" showing all spending, with the unplanned spending in red. It may help clients understand how far they have strayed from their budget. Showing the time value of money -- how withdrawing an extra $1,000 per month today impacts their retirement plan in 25 or 30 years -- can help them understand the long-term consequences of overspending.

Some clients may respond to shocking questions you might ask, such as, "What are you going to do when you run out of money?" "What will it feel like to ask a friend or family member for money so you can eat?" Ask them as gently as you can, but it can be a real eye-opener and make them think about their overspending.

At this point, you might want to speak to clients about emotional-based tools such as therapy or more intellectual or logical tools like budgeting. This may increase the likelihood they will follow through to the action stage. Many clients who are attempting to leave addictive spending behind will disclose emotional issues you may feel uncomfortable handling. The best approach is to involve a mental health therapist (in collaboration with your services) who can address the client's emotional issues while you help them pursue good financial strategies.
Action, Maintenance and Relapse: Throughout the entire process, you take on the role of collaborator and help the client think through what should be done if life events -- such as a marriage, divorce or death -- occur that could potentially derail their progress. You should also be prepared for relapses and help your client examine what caused the relapse and the best way to get back on the right path.

The Last Word
It's important to note that not all overspending has its roots in an emotional or psychological need. In some cases, a client may not have learned certain skills that become necessary in retirement. In any case, failing to address overspending tendencies with clients is doing them a disservice. The overspending conversation should begin as part of the overall client discovery prior to developing a retirement income distribution plan.

For more information about client overspending, visit to download a copy of "Talking to Clients about Overspending in Retirement" whitepaper.

1"43% Have Less Than $10,000 for Retirement,"
Salsbury, Gregory,
Retirementology - Rethinking the American Dream in a New Economy, 2010
009 Retirement Fitness Survey, conducted by Richard Day Research
Salsbury, Gregory, R
etirementology - Rethinking the American Dream in a New Economy, 2010

Kirk Hulett is executive vice president of strategy and practice management for Securities America. He is the author of two books on human resources issues for financial planners and investment professionals, Hiring to Grow: A Practical Workbook and Managing for Performance: The Cycle of Success. Hulett is also co-host of the "Advisorpod" practice management series on