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How to Help Your Clients Who Are Overspending in Retirement | Kol Birke

Do you have clients who are overspending in retirement? Chances are, you do. Perhaps they can’t say no to helping their kids, or they understandably want to enjoy their money before their health fails.

Or they might be motivated by any other of the common reasons for “bad” financial habits. Whatever the cause, there are a number of straightforward techniques you can use to help encourage positive change when talking to clients about sticking to their retirement plan. 

In this article, we’ll discuss how confirmation bias, identity, and inertia can lead to less-than-rational choices and bad financial habits. We’ll also address how these potential obstacles can be turned into opportunities to create breakthroughs with clients. Understanding what's behind a client’s financial decisions, such as the impulse to overspend, will improve your chances of making a difficult conversation go well.

Behavioral Coaching Techniques to Motivate Clients

Here are three opportunities for advisers to harness the power of simple behavioral principles to help the overspending client:

1) Combat confirmation bias. Confirmation bias is part of our basic neural wiring. Most likely there to make the brain operate more efficiently, this behavioural trait leads us to heavily value information that confirms our existing beliefs. For example, say you believe that BMWs are reliable cars and Audis need a lot of repairs. Every time you hear of an Audi in the shop, the instance will be recorded indelibly in your mind, while mentions of BMW breakdowns will be more readily dismissed.

Similarly, confirmation bias can affect your clients’ financial thinking. For instance, if clients believe they’re likely to spend far less in retirement than you suggest, you’ll find it very difficult to convince them otherwise. One way to combat a confirmation bias like this is to show curiosity about what your clients believe and why. Ask curious questions that force them to confront some of their own beliefs. This time-tested tactic—the Socratic method of using inquiry for education—is powerful because we’re more likely to change our opinions when we’re doing the talking, rather than when someone else is telling us what to do.

If your clients aren’t worried about overspending because they believe that their expenses will drop in retirement, you could ask questions like:

  • What leads you to believe that retirement costs less than life before retirement?

  • What factors in your life are similar or different from the experiences of your parents’ generation?

  • Would those factors cause your retirement to be more expensive than life before retirement?

  • If retirement turns out to be more expensive, how would that impact your lifestyle?

If you want to make a statement that goes against a client’s belief, ask permission first. This way, you’ll have a better chance at opening the client’s mind to the new data. For example, you might say:

  • “Would it be useful to hear what percentage of my clients end up spending more than expected?”

  • “If I had a different sense of how much you might need later, would you want to hear about it?”

Even if the client declines your offer, you’ve planted a seed that will likely take root in his or her mind. Later that night, the client might wonder, “What did my adviser mean that I might spend more later?” This is a client who is now ready to listen.

Leverage This Bias: Since confirmation bias means that individuals are likely to continue believing what they already believe, one opportunity is to find a deeply held belief in your favor—and latch onto it. For example, if clients believe in treating kids equally, frame the need to reduce their support for one child as being more equitable to another child or other children. If they’re concerned about their health as they age, point to rising health care costs. Rather than trying to change beliefs from scratch, you might find that piggybacking on preexisting beliefs is a better way to motivate clients.

Keeping Best Practices in Mind

As you undoubtedly know, despite your best intentions and educational efforts, you don’t have control over your clients’ behavior—it’s their responsibility to change. You can guide their behaviour and give them tools for managing retirement finances, but, ultimately, their success or failure is in their hands. For your protection, be sure to let clients know when their spending is unsustainable, and always document your conversations.

  • Kol Birke, CFP®, is managing principal, corporate strategy and financial behavior specialist, at Commonwealth Financial Network.


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