American retirees have less money, but are spending more.

Over half of American retirees (66%) reported saving money in 2012, says the Employee Benefit Research Institute’s annual retirement survey. But this is down from 75% in 2009, and over half (60%) admitted to having less than US$25,000 in savings accounts and investments. A third have less than US$1,000.

Not only do retirees have less money, they’re also having trouble capping their spending. Securities America, an Omaha-based broker-dealer with a $15-billion advisory division, recently published a white paper called Talking to Clients About Overspending in Retirement. Its goal is to help advisors address the subject of saving and spending limits in retirement.

Bad spending habits start long before the onset of retirement, says the paper. Since your clients always had a steady paycheque coming in during their accumulation years, they were always able to say, “I spent too much this week, but I get paid next week.” Incoming pay can mask severe overspending from one month to the next, causing clients to overshoot their budgets over the course of the year.

For retirees, those paycheques have stopped. So limit their withdrawals so they can’t take extra funds out to cover further expenses.

Overspenders can’t distinguish between wants and needs, says the paper. “For advisors, the spending conversation often begins as part of the overall client discovery. They usually need to help distinguish between core expenses and non-essential expenses.”

The paper cites one study, from the Financial Planning Journal, which likened spendthrifts to drug addicts: “Individuals addicted to spending experience the same challenges in attempting to change their behavior as those struggling with substance addictions. Retirees will deny their poor spending patterns, and often have relapses.”

Granted, retirees want to enjoy their hard-earned assets. They’re afraid they won’t get the chance if they wait too long.

Read: Emotional client? Consider hiring help, for tips on how to deal with common client behaviours

The paper cites a 2011 survey revealing 73% of advisors report clients lie most often about overspending. And, over the last decade, financial planners have had to confront 10%-to-30% of their clients regarding excess spending.

Read: “7 most common lies customers tell” in last week’s social roundup

It’s important to discuss these issues because people who drain their funds may be quick to blame you for their mistakes. Evaluate your relationships and decide which clients will benefit from a hard approach, and which will respond better to light encouragement.

First, tell every client they have three choices: stop overspending, scale back on their retirement goals, or go back to work. Often, a combination is best.

Also, ask your client these four questions:

  • What are you going to do if you run out of money?
  • How would you feel if forced to ask friends or family members for money?
  • Will be easier to get a job at age 75, or to cut back now?
  • Would you be comfortable living with your kids, and is it even an option?

Be careful not to push clients too far, though. Like people on a diet, they may be tempted to revert to old behaviours if curbing spending seems too difficult.

Also, advise them to start evaluating their health, lives, goals and careers early. If they do plan to work longer, they should avoid coasting on past career success. There’s no guarantee, especially in the current economy, that their jobs are stable. They should also start researching possible hobbies or part-time jobs that could bring in extra cash.