How can advisors guide overspending retirees

While financial advisors are happy to guide clients to a comfortable and enjoyable retirement, some wind up finding those same clients taking their post-work spending a little too far. 

In a report by the head of retirement research at PGIM DC Solutions David Blanchett, about 1 in 10 retired households spends almost twice what they should per year.

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In a 2024 survey by the Employee Benefit Research Institute, among 3,600 retirees aged 62 or older, 68% incurred credit card debt and 31% said their spending exceeds the amount they can afford. 

“So what’s happening is unexpected expenses, maybe because your parents can’t afford their well-being and you have to supplement their needs with your own finances,” said Brad Pistole, the president of Trinity Insurance and Financial. “But it may also be because you or a spouse have a health issue, so boom, you’ve got all these expenses that aren’t being covered by your health care.”

However, for some, overspending is attributable to social pressure and entirely preventable. 

“If they have a social circle where their friends or colleagues spend a lot of money, they try to keep up with that,” said William Shafransky, the senior wealth advisor at Moneco Advisors. “People will justify expenses over time. You fast forward down the road 10 years, they’re spending a lot more money than they were just a decade prior.”

Retired clients could be carried away with the wealth they’ve accumulated and could struggle to understand the impact of their excessive spending.

“They’ll spend $80,000 on a car and people are buying a second home, vacation home, lake house or a boat, and that may be something they can’t afford because they’re not working anymore,” Pistole said. “But they want it, so they take out loans and that can get them in trouble.”

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Other retirees might also want to support their children. Jeremiah Winters, CEO of Founders Grove Wealth Partners, said that many retirees save just enough for themselves, but could spend beyond their plans when their children need financial support.

“I’ve seen it where grown children have gotten into a pickle,” he said. “And it’s hard when you’ve grown accustomed to your lifestyle and then you want to help another family member.”

Clients are visual learners

It could be hard for clients to understand the consequences of overspending if advisors only verbally explain it to them. Winters said he helps clients visualize the pattern and impact of their spending using financial planning tools such as eMoney.

He tries to meet with clients at least two to four times per year to ensure they are staying on track and offer advice on clients’ spending habits based on their income.

“We’re now in the decumulation stage. I’ll dovetail into the financial plan and show them within the modeling what the projection looks like,” Winters said. “But I’ll show the worst-case scenarios, where if they spend additional $5,000 per month, here’s the detrimental impact to the plan in the long term.”

Helping clients visualize their money could also give them more assurance to purchase things they value, especially if they have been living too frugally. 

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“If people are ‘over-funded for retirement,’ then I encourage them to go on that trip, go buy that vacation property, go have fun,” Winters said. “I’ll model it out and say ‘let’s go spend that additional $10,000 a year.’ I’ll show them again on the financial plan that ‘yes, you can afford this and the plan is still fine.'”

‘Sometimes it’s not from your own lips’

Sometimes the warnings from advisors are not enough to convince clients. Taylor Hart, the president of Steadmont Advisors, said that’s when he will involve family members, but advisors need to be careful about who they include because it could raise privacy concerns. 

Hart recounted that he involved a client’s family member after the client was spending an inheritance too quickly. Eventually, this helped convince the client to place their money into a trust. 

It’s important to ask for permission from the client in these situations. Advisors could think about the names clients bring up in conversations, ask if they could get the family member’s contact information and explain that their goal is to simply help ensure everything runs smoothly. 

“Sometimes it’s not from your own lips, and maybe from somebody else in their life that you can help to influence them,” Hart said. “You have to be sensitive to the client, but also sometimes you have to be strong in your direction — sometimes it’s trying to figure out a way to rewire their brain a little bit.”

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Pistole agreed and said that this could be extremely helpful when advisors are working with older clients with declining cognitive abilities, where involving people like beneficiaries could help clients better understand their financial situations. 

What if the client still doesn’t listen?

Advisors should meet with clients multiple times and issue multiple warnings if the financial situation isn’t ideal. 

Ryan Salah, the partner at Capital Financial Partners, said that sometimes if clients are considering taking on a loan, advisors could present financially ideal options and loop in accountants to help evaluate them. 

However, advisors should understand that there’s only so much they can do to bring clients onto the right path. If clients continue to make risky financial decisions despite multiple warnings, advisors may need to send letters to protect themselves from potential legal liability. 

Christopher Brooks, a wealth advisor at Tobias Financial Advisors, said that these clients need to sign a letter acknowledging that they’ve received multiple warnings from their advisor and that continued disregard could lead to severe financial losses.

“Ultimately, the most empowering thing that a client can do is know where they’re spending their money,” Brooks said. “If they don’t know where they’re spending their money, they can get in trouble.”