Once you’ve guided clients into retirement, you have to make sure they don’t outlive their money. Yet retirees who grew up during the Depression may spend frivolously in response to a lifetime of penny pinching.

What’s more, many recent retirees have a hard time reining in spending because it takes time to adjust to the change in income levels.

Spendthrift clients risk burning through assets too quickly, losing homes or not being able to pay for health-care costs that aren’t covered by their provinces of residence.

Retirees will resist being told they can’t spend all of their hard-earned cash, so here’s how to broach the topic.

Case study: Suzanne the spender

Suzanne may be two years into retirement, but her $9,000 in monthly spending hasn’t changed from the days when her business provided a healthy income. Suzanne has RRSPs and a TFSA, which put her taxable income between $60,000-and-$80,000 most years. Yet her true annual profit from the company was typically between $100,000 and $120,000.

She’s also forgotten she used to write off meals out and her luxury car. At this pace, the $800,000 she got from selling her company—parked in GICs—won’t last a decade. Thinking her business would provide for a healthy retirement, she did not seek financial advice until now. What do you do?

How to help Suzanne

To illustrate the gravity of the situation, outline what she’ll have left when her $800,000 runs out. “If [a Suzanne] says ‘I can’t cut,’ I say, ‘If you can’t reduce your $150,000-a-year spending now, how are you going to reduce expenses to $25,000 when all you’re left with is CPP, OAS, and a small income from RRIFs?’ ” says Heidi Pullem, who specializes in retirement planning at ZLC Financial Group in Vancouver.

Show Suzanne how much she can spend annually based on existing assets. If the projection shows she’ll run out of money at 78, or she needs to live on $65,000 a year instead of $90,000, it will be difficult for her to kid herself.

Introduce rigour

William Jack, CFP, CPCA, FCIA, a fee-for-service retirement advisor in Toronto, has his clients detail all assets and liabilities in a 12-page questionnaire.

The document also includes open-ended questions such as, “Describe your vision for retirement,” “Describe how your lifestyle will change after retirement” and “Do you have any specific financial goals?”

Clients must also supply up to 27 documents, including bank statements, income-tax returns, wills, and investment documents. Jack says they usually know property values, mortgages, and how much they spend on utilities and vehicles.

But when they must write in groceries, clothing, entertainment, vacations and other activities, “It’s often answered vaguely and sometimes left entirely blank at first,” says Jack. So, he suggests clients minimize cash use for between two-and-six months so their spending is tracked on bank and creditcard statements.

Then, fill in a cash-flow spreadsheet to highlight trouble spots. Advisors sometimes focus on low-hanging fruit, like coffee-shop spending, when eliminating or reducing larger-scale spending will net more significant results. You don’t need to know how much she spends at Starbucks if the $1,000 a month on restaurants is the real problem.

Compare Suzanne’s monthly income and spending and if there are gaps, spell them out. Ask the client, “Where is that extra $1,000 a month coming from?” This leads to discussion of growing credit-card debt, dwindling investments or even pockets of money she hasn’t disclosed.

Read: Stress-testing your retirement plan: “How big is my cushion?”

Then, emphasize future costs. Early retirees often think they can spend freely until their late 70s, expecting expenses to fall dramatically as their lifestyles slow. What they forget is late-in-life care costs can easily meet, and exceed, early retirement expense levels.

Suzanne might be able to spend more early in retirement if she adopts a modest lifestyle through the middle years to prepare for end-of life care costs. “In that middle season, their capital may even be growing to rebuild a reserve for the third season when support and care costs rise,” says Brian Weatherdon, CFP, CLU, CPCA, at Sovereign Wealth Management Inc in Burlington, Ont.

A lifetime annuity started in the client’s mid-70s and guaranteed until age 90 could lock in an income later in life.

One of Weatherdon’s clients sold most of his business at 67, and he and his wife sold their home to travel season by season, renting as they went. “His plan was to come back to Canada at 75, buy a modest house in a retirement community like Elliott Lake, live on a much smaller budget, and eventually move back to the Oakville area to have better access to care and community,” Weatherdon says.

Talking about those types of scenarios can help Suzanne see that heavier early retirement spending is possible, as long as there is an exit plan. Ask Suzanne, “How do you see yourself scaling back?” This strategy allows clients to propose their own solutions, suggests Weatherdon.

Worst-case scenario

A home-equity line of credit can be a source of emergency funding, but should be treated as a consequence rather than an option (make it clear to clients that this move diminishes what their heirs will inherit). Suzanne may also have to take on some consulting work to close her income gaps. In addition to generating needed revenue, it lets her use a business to absorb some of her expenses.