Retirees who are spending too much of their hard-earned retirement money need to understand the consequences, warn financial advisors who participated in a Financial Advisor magazine retirement survey.
“What do they think is going to happen if they continue to withdraw 10 percent a year from their portfolio?” asks Gale K. Zumpano of Members Financial Services in Tuscaloosa, Ala.
Zumpano tries to get clients to see the consequences for themselves rather than telling them to stop spending so much, then they can work out steps to make necessary changes together.
That is one solution to overspending proposed by the nearly 1,800 advisors included in the 2014 FA Retirement Survey. This is the fourth in a series of stories on the results of the survey.
“It can be a delicate operation to get clients back in line if they are spending too much,” she says.
“But most people who seek help from a financial planner are looking for direction and want to be responsible,” says Jim Butler, president of Butler Associates Financial Planners Inc. in St. Louis. “If they want help, we make a list of where they are spending their money and then we prioritize.”
Most advisors report that the majority of their clients are spending within their means. Slightly more than one quarter of advisors say 90 percent of their clients are spending in a way that is sustainable for their investments. Another 27 percent say 80 percent to 90 percent of their clients are spending in line with their portfolios.
The FA survey also shows that 19.6 percent of advisors have between 70 percent and 80 percent of their clients who are spending appropriately. An almost equal number, slightly more than 10 percent each, have 45 percent to 60 percent or 60 percent to 70 percent spending within their means. Only 6.6 percent of advisors have 40 percent or fewer of their clients spending sustainably, according to the FA survey.
Carol Alexander, executive vice president at Retirement Investment Advisors in Oklahoma City, Okla., says most of her clients who are overspending are doing it because they are not paying attention to daily costs.
“Some people just do not have good spending habits. Unless people want to change those habits, they are not going to manage to do it,” says Alexander who has more than 90 percent of her clients spending appropriately.