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Overspending in RetirementTable of ContentsTalking to Clients about Overspending in Retirement 1Past Behavior Predicts Future Behavior 2Choice #1: Stop Overspending 3Choice #2: Adjust Retirement Goals & Expectations 6Choice #3: Work Longer 8Protecting Your Practice 10Conclusion 11Appendix A: Sample Letter 14About Securities AmericaInside Back CoverCopyright November 2011, Securities America Financial Corporation, all rights reserved.For Broker/Dealer Use Only.

Talking to Clients AboutOverspending in RetirementWith the market declines of 2001-2002 and 2008-2009 and the Great Recessionstill fresh in American minds, and the real possibility of living 20 years or more afterretirement, outliving retirement savings has become a major concern for a growingnumber of adults. Yet despite their awareness, many adults within sight of retirementexperience significant disconnects between their retirement expectations and reality.• 43 percent of Americans have less than $10,000 saved for retirement. i• 59 percent expect to receive a pension but only 41 percent can actuallyidentify a pension to which they are entitled. ii“Accumulating a sizableretirement portfolio doesnot mean a client willbe successful in spendingthat portfolio wisely.”• Pre-retirees (age 50-59) expect to live about 21 years after retirement andplan to spend almost 10 percent of their savings in each of those years. iii• 80 percent expect their standard of living to rise in retirement. iv• 47 percent of retirees have a written withdrawal plan and only 28 percenthave a written budget for spending during retirement. v• 49 percent of Americans are somewhat or very confident they have enoughmoney to live comfortably throughout their retirement years. viFinancial advisors routinely face this disparity between clients’ expectations and theirreal life behavior, and that disconnect shows itself in clients’ spending habits. In a surveyconducted by Principal in June 2011, 73 percent of advisors reported “living beyondone’s means” as the most common issue on which clients fail to be entirely forthcoming. viiAccording to a 2005 article in On Wall Street magazine, financial planners report havingto confront 10 percent to 30 percent of their clients regarding spending. viiiMistakes in investment selection or strategy during a client’s accumulation years can tosome extent be offset by incoming salary or wages. The same is true of overspending,which can be camouflaged by substantial income from a job. During retirement, whennew dollars from a job have stopped coming in, clients may find their retirement portfoliocannot produce an income equivalent to their pre-retirement earnings power. They maybe forced to live according to a budget for the first time in their lives. Unfortunately,success in accumulating a sizable retirement portfolio does not mean a client will besuccessful in spending that portfolio wisely and in accordance with limitations like abudget.1Advisors who engage in retirement income distribution planning do so to help clientsspread their nest egg across their retirement years. Client overspending can threatenthose plans, with significant consequences for the client and the advisor. Clients whospend at an unsustainable rate may be forced to sell their home or take other drasticsteps to survive. Some may blame the advisor for their situation, maintaining that theadvisor failed to warn them of this threat to their retirement income or that the advisoracted inappropriately in creating the plan. Retired clients with no assets can makevery sympathetic witnesses in an arbitration, regardless of whether their own behavior

contributed to the situation. Advisors must address client overspending to protect theirclients and themselves.“The idea of transforming a conservative portfolio … into something much riskier inhopes of capturing 11 percent a year or more horrifies prudent financial planners,”writes Suzanne McGee in her article “Confronting the Overspending Client.” ix “Equallyhorrifying is the specter of what might happen if they refuse: that the client will simplywalk away and take his or her assets to a less scrupulous rival whose eyes are on the prizeof the hefty commission they can make.”Income distribution plans can also be negatively impacted by unexpected expenses,primarily healthcare, which doubles from the ages of 18-35 to the retirement years. xThose unexpected, uncontrollable expenses are outside the scope of this paper. Financialsupport for adult children can also derail income distribution plans but due to thecomplex family relationships involved, is also outside the scope of this paper. For thepurposes of this discussion, overspending refers to a continuous pattern of spending,characterized by difficulty differentiating between wants and needs, that threatens theclient’s retirement distribution plan.Past Behavior Predicts Future Behavior“Patterns of spendingbeyond one’s meanstypically manifest longbefore retirement.”Americans tend to “want it all and want it now,” according to Dan Moisand in his article“The Retirement Spending Debate.” xi “Juxtaposed with the fear of outliving one’s assetsis a concern about never getting to enjoy one’s assets.”Patterns of spending beyond one’s means, however, typically manifest long beforeretirement. Failure to address those tendencies before retirement may not becomeapparent until salary or wage income can no longer camouflage the problem.“People may get by during their working years based on their earning power. There’salways that next paycheck coming in,” said Sharla Jessop, financial advisor withSmedley Financial Services. “During retirement, when they are limited to the budgettheir distribution plan can support, they may have difficulty adjusting and be prone toperiods of overspending.”Spending patterns prior to retirement can also make a client comfortable with carryingdebt. A survey by CESI Debt Solutions found that almost two in five Americans admitto accumulating credit card debt during retirement – and are not concerned aboutpaying it off before they die. xii Such a cavalier attitude toward spending and debt canmake it difficult for clients to see outliving their retirement savings as a real possibility.For advisors, the spending conversation often begins as part of the overall client discoveryprior to developing a retirement income distribution plan. During that conversation,however, advisors may quickly find the need to help clients distinguish between coreexpenses and non-essential expenses – or more simply, needs versus wants. xiii Whileclients may understand the difference on an intellectual level, they may be unable orunwilling to connect that understanding to the presumably positive emotions theyexperience when they spend.2

“Because all clients are human beings, by definition they are both logical and emotional,”said Fritz Brauner, financial advisor with the Brauner Company. “Dealing with the logicalside is relatively easy for an advisor. It’s the emotional, psychological and behavioral sidethat often presents a challenge.”Not all overspending has its roots in an emotional or psychological need. In some cases,it may be a lack of learning a skill set that becomes necessary in retirement.“Overspending can happen for a variety of reasons, and we shouldn’t think the problemwill be limited to those lacking impulse control and self discipline,” said financial advisorSharla Jessop. “Many of our clients always made good money during their careers andas a result saved a lot of money during their accumulation years. This doesn’t mean theyknow how to live on a budget, something that will be critical to success during theirretirement, when their ability to work and earn extra money to offset excessive spendingmay no longer be a possibility.”Clients whose spending threatens their retirement have three basic choices to preventthat from happening: 1) stop overspending, 2) compromise on retirement goals or 3)work longer. Because clients used to years of overspending may not be able to entirelycurb those habits, a combination of these approaches may prove necessary.Choice #1: Stop Overspending“Advisors may inaccuratelyassume clients understandthe need to change or that,once change begins, it willbe easily sustained.”Two schools of thought seem to have emerged regarding how to confront clients abouttheir overspending. Some advisors prefer gentle guidance, while others apply a more“shock therapy” approach by being blunt about the impact of overspending. xiv Theanswer may actually be “both,” depending on the client’s current stage in the behavioralchange process. xvIn the March 2011 Journal of Financial Planning article, “Motivating and Helping theOverspending Client: A Stages-of-Change Model,” coauthors James Grubman, Ph.D.,Kathleen Bollerud, Ed.D., and Cheryl R. Holland, CFP., applied a behavioral modelpreviously developed to describe the behavior of drug or alcohol addicts. xvi Grubmanet al propose that individuals addicted to spending experience the same challenges inattempting to change their behavior as those struggling with substance addictions:denial, ambivalence, preparation, action, maintenance and relapse. The authors suggestadvisors may inaccurately assume clients understand the need to change or that, oncechange begins, it will be easily sustained. By understanding each stage and adaptingtheir communication approach, advisors may be able to more successfully help spendingaddicts change their destructive behavior.DenialAdvisors working with clients in the denial stage should focus on building rapport andhelping the client compare their spending behavior against the retirement goals anddreams they identified during the discovery process. Maintaining a neutral and helpfulapproach provides the groundwork for the advisor to begin educating the client. “Theseclients need to feel understood, not judged, if they are to lessen their defensiveness.”3

Brauner cited one client who faced running out of money well before her life expectancyafter the market declines but resisted reducing her monthly IRA withdrawals. The clientfinally said to Brauner, “So what you are saying is that I am taking a ‘stick-your-head-inthe-sand’approach to my finances.” xvii“The good news,” Brauner said, “is that at least she recognized her behavior for what itwas.”AmbivalenceIn the ambivalence stage, clients may acknowledge a problem with overspending andthe possible need to change, but they have not reached a commitment to do so. xviii Atthis point, logical illustrations of the consequences of overspending – charts, graphs,spreadsheets – may have more impact. A “summary of distributions” showing alldistributions, with the unplanned distributions in red, may help them understand howfar they have deviated from their plan. A calculator that shows the time value of money– how withdrawing an extra $1,000 per month today impacts their plan in 25 or 30years – can help them understand the long-term consequences of their actions.Withdrawing Too Much Too Fast?It doesn’t take very long to deplete even a significant retirement account if youwithdraw too much too fast.$500K$07% Withdrawl Rate6% Withdrawl Rate5% Withdrawl Rate12/3/11 2/28/23 7/31/25 10/31/31Years Income LastedYears Remaining ina 30-Year Retirement12 14 2018 16 10“Advisors should becareful not to push theclient too quickly intoadopting new spendinghabits...”This is a hypothetical illustration and does not predict or project the performance of a specific investment.Advisors should be careful not to push the client too quickly into adopting new spendinghabits, but instead help the client reach the decision to change rather than continuecurrent habits. Ambivalent clients need to have someone acknowledge both sides of theargument in their head and their heart. xixClients in the ambivalent stage may respond more to “shock therapy” statements thanthey did in the denial stage. Some examples of statements advisors use to shock clientsinto change include:• Please indicate the date on this calendar when you want to receive your lastdistribution check.4

• What are you going to do when you run out of money?• What will it feel like to ask a friend or family member for money so youcan eat?• Do you think it will be easier to get a job at age 75 or to cut back a littlenow?• Which of your children are you planning to live with when your moneyruns out? Have you spoken to them to see if that’s going to be okay? Howdo you think that will impact their family?“By asking shocking questions, I want the clients to feel in their gut what it will be liketo run out of money,” said financial advisor Sue Brauner, Fritz’s business partner. “I askthe questions as gently as I can, but you need that shock to get through to the clients.”PreparationAs clients decrease denial and resistance and increase talking about the negativeconsequences of their spending, the advisor can begin moving them into the preparationstage. Getting input from the client on how they can change their behavior will increasetheir buy-in and the likelihood they will follow through during the action stage.In preparing an action plan, clients and advisors may consider emotional-based tools suchas therapy or more intellectual or logical tools like budgeting. For further informationon these tools, please refer to the “Involve a Therapist” sidebar below and the “HelpingClients Prepare a Spending Plan” sidebar on page 7.“Getting input from theclient on how they canchange their behavior willincrease their buy-in andthe likelihood they willfollow through during theaction stage.”Action, Maintenance & RelapseDuring implementation of the change plan, advisors assume the role of partner andcollaborator, providing regular summaries of the client’s progress on both the spendingmodification plan and the overall retirement plan. xx Advisors should help the clientthink through additional actions if life events – such as a marriage, divorce or death –occur that could potentially derail their progress. Advisors should also be prepared forrelapses and help the client examine what caused the relapse and how to get back ontrack.“Just as mistakes are part of learning any new behavior, relapses reveal much-neededinformation about what was not adequately anticipated, what skills need specialattention, and what risks are most likely to derail this individual client.” xxiTipInvolving a TherapistClients who spend out of an emotional need may requiremore help than advisors are willing or able to provide. Spending behaviorsthat evolve out of family conflict may be the most difficult for advisors toaddress. Enlisting the help of a mental health professional may help theadvisor better serve clients’ needs and change their destructive behavior.5

“Many clients who are attempting to leave addictive spending behind willdisclose emotional issues you may feel uncomfortable handling at times… The best approach is to involve a mental health therapist (not insteadof your services but in collaboration with your services), addressing theclient’s emotional issues while still pursuing good financial strategies.” xxiiAdvisors should give thought to how they will incorporate the therapistinto the client relationship. This may depend to some extent on theclient and the situation. Will the therapist be present at client meetings?Will the therapist’s fee be passed on to the client or absorbed as part ofthe advisor’s overhead?Advisors should interview several therapists before involving them inthe client relationship or referring clients to them. The advisor andtherapist should have strong rapport and mutual respect. Therapists witha background in finances may be particularly suitable for working withclients with emotional overspending problems.Choice #2: Adjust Retirement Goals & ExpectationsStephen L. Deschenes labeled the effect of uncontrolled discretionary spending duringretirement as lifestyle risk. “Lifestyle risk relates to how most people want to enjoycertain hobbies and activities during retirement but may have to cut back their standardof living because they haven’t adequately planned for the income needed to support theirdesired lifestyle. Sun Life’s Unretirement Index found lifestyle risk to be a real concernfor a lot of individuals. Eighty percent of those people who plan to work at the age of 67stated it was to earn enough money to live well.” xxiiiWhen one of Brauner’s clients, following significiant drops in his IRA balance in 2000-2002 and again in 2007-2009, refused to lower withdrawals or increase income to avoidthe possibility of running out of money, he told Brauner, “When I retired from thephone company, I promised myself I would never work again.”“He had decided that working again once he had retired was something he was nevergoing to do, no matter how dire the situation,” Brauner said.A retiree who moved from California to Florida told Brauner, “If you live in Florida,you have to have a boat.” The client bought an expensive boat, which came with higherexpenses and less income. When gas prices soared some years later, he couldn’t afford touse the boat and tried to sell it – but couldn’t, as other boaters faced the same dilemmaover gas prices. The client realized too late the need to adjust his retirement expectations– owning a boat – in accordance with the spending rate his retirement distribution plancould support.“Like any skill, livingwithin a spending plantakes practice for thosewho have never done itbefore.”Like any skill, living within a spending plan takes practice for those who have never doneit before. Financial advisor Patricia Laramore, owner of Premier Investment Advisory,uses what she calls a “prenuptial.” She helps pre-retirees create a budget and live within6

it for several months before they retire. By testing the spending plan for several monthsbefore retirement, the client and the advisor get an idea of how realistic the spendingplan will be for the client during retirement.“We ask them to organize six months of expenses and to create a budget based on acertain withdrawal rate from their current retirement savings,” Laramore said. “We havethem pledge to abide by the budget for three months, and if they can, then they canactively consider retirement. At the end of three months, most of them say, ‘What wasI thinking? I can’t retire yet.’”The ability to track income and expenses and balance the two to the greatest benefitseems to be a skill set that has eluded many adults approaching retirement. Longevitytrends, however, demand a more conscientious approach to retirement spending. Becausethe word “budget” might meet with mental resistance from a client, some advisors havebegun using the phrases “written spending plan” or “formal spending policy” to describea thoughtful approach to expenses and spending expectations.“The trend I believe will have the most impact on the clients of financial planners is theincreasing use of formal written spending policies to help educate, set expectations andmanage withdrawals effectively,” Moisand said. xxiv“Advisors who encounterclient resistance tosuggestions for curbingspending may want toenlist the help of theclient’s accountant orestate attorney.”Receiving the same information from multiple sources reinforces a person’s belief in thevalidity of that information. Advisors who encounter client resistance to suggestions forcurbing spending may want to enlist the help of the client’s accountant or estate attorney.The accountant can reinforce differentiation between wants and needs, the importanceof adhering to a spending plan and the consequences of continued overspending. Anestate attorney can help the client understand that uncontrolled spending will jeopardizethe client’s plans for leaving a legacy to their heirs or charitable organizations. The keyis to help the client more solidly feel the disconnect between their current behavior andtheir long-term goals.TipHelping Clients Create a Spending PlanIn the article, “Pre-planning Advice,” author PamelaChristensen lists four steps to budget coaching: gatheringinformation, tracking expenditures, developing and documenting thebudget, and creating a follow-up plan. xxv While many professionals startwith a monthly spending plan, starting with an annual budget may bemore effective. According to U.S. News & World Report, xxvi a study ofcollege students showed they underestimated monthly expenses by 40percent but overestimated their annual expenses by 30 percent – meaningtheir annual budget proved more accurate and conservative than theirmonthly budget.Most processes for creating a spending plan include having the clientwrite down each expenditure. A higher-tech option is for the clientto use only a debit card for one month, then use their bank’s account7

management platform or an account aggregation website to categorizeand total expenses.Another approach is to have the client set as many bills as possible onautopay from their bank account. They then get a set amount of cash,divided per week or per month, to use for discretionary expenses. Receiptsfrom those expenses go in the envelope, helping the client visualize theexchange of cash for those expenses.As the study of college students suggests, a single month’s worth of expensetracking may not provide enough information to address overspendingissues. For emotional overspenders, keeping a diary or journal inconjunction with tracking spending can help identify situations orfeelings that trigger overspending. Developing a realistic spending plan,therefore, may require several months.Just as a sound weight loss plan doesn’t encourage fasting or completelycutting favorite foods from the start, a spending reduction plan may bemost successful when undertaken gradually. Clients may choose a certaintype of expense to reduce or eliminate, like going from a cappuccinoevery day to once or twice a week, or may do better by setting a dollaramount, which works well with the discretionary cash envelope methoddescribed above. As clients maintain their spending plan, they can shiftthose funds to regular deposits to savings or investment accounts.Choice #3: Work LongerClients often reach the decision to delay retirement when they understand the spendinglevel their retirement savings can support. Laramore’s “prenuptial budget” exercisetypically results in clients deciding to work longer and making more conscious decisionsabout their spending.“Planning to worklonger rather than curbspending has its risks,which advisors shouldhelp clients understand.”“It begins to move them emotionally and mentally to be content in retirement,” shesaid. “Until the amount of money available for expenses can create contentment, theclient isn’t ready to retire.”Clients may view working longer or returning to work as the “safety net” if theirretirement funds become uncomfortably low. That expectation may be unrealistic,particularly given today’s employment market, Laramore said.“We work with employees of large companies, who may have taken a large earlyretirement package,” she said. “Many of them were highly compensated and highlyskilled, and they view it as an entitlement to take a year or so off before going back towork. When they are ready to work again, they find they got attached to the incomethey made as a full-time employee of a major corporation. They are shocked at whatpart-time jobs pay. It’s almost an affront to their ego.”8

Planning to work longer rather than curb spending has its risks, which advisors shouldhelp clients understand. According to the Social Security Administration, three in 10workers will experience, before they are ready to retire, a disability that prevents themfrom working. Even a temporary disability can have a dramatic impact on a retirementdistribution plan: a study by Northwestern Mutual found that a 50-year-old forced outof work for two years due to a disability could experience a 30 percent reduction in assetaccumulation by age 65. xxviiSocial Security Disability (SSD), which allows a person to begin receiving theirretirement benefits before full retirement age, will likely not provide an adequate safetynet for advisors’ clients – if clients can even qualify. About 75 percent of SSD applicantsare denied initially, and of those who appeal, about 90 percent of first stage appeals aredenied. xxviii“Those who plan towork longer should besharpening their skills bylearning new technologyand keeping abreast ofindustry trends.”To mitigate the risk that disability will reduce or eliminate a client’s ability to work as longas they hope, advisors should help the client review disability insurance. The numberof years clients have until their target retirement date and their current accumulatedretirement assets could affect the amount of disability coverage needed. Although manyemployers offer disability coverage to employees based on a percentage of the employee’ssalary, clients may need more coverage to offset 1) the loss of income for immediateliving expenses, 2) the loss of money that would have been invested for retirement and3) the depletion of current retirement savings to cover unforeseen expenses related tothe disability.Just as accumulation, distribution and spending should be part of a client’s comprehensiveretirement plan, those expecting to work longer should have a plan for making thathappen. In the 2011 Retirement Confidence Survey, conducted by the Employee BenefitResearch Institute, about 45 percent of retirees said they retired sooner than expected;of those, 63 percent did so because of a health problem or disability and another 23percent because their employer downsized or closed. Advisors can help clients avoidthose obstacles to working longer by encouraging them to address these key areas:1. Health and Wellness: A basic checkup, if not done recently, can help theclient realistically assess their physical ability to continue working. Changesto nutrition and exercise may be in order, along with management ofconditions such as high blood pressure or borderline diabetes.2. Career Management: As the retirement horizon moves closer, clients may beinclined to coast on their past achievements or job skills. Those who plan towork longer should be sharpening their skills by learning new technologyand keeping abreast of industry trends. Maintaining connections to centersof influence – and developing new relationships with younger influencers– should not be left until the threat of job loss looms.93. Part-Time Employment: Clients may want to explore a part-time job orsmall side business while still working full time. They’ll get a realistic viewof the types of jobs available and what they pay. In the case of starting abusiness, mentors to entrepreneurs often suggest getting a structure in placeand a toe in the water before quitting the day job. Encouraging clients to

explore these options may be especially beneficial if the advisor suspects theclient has overestimated what part-time work pays or has underestimatedthe time and energy required to start and run a business.4. Time-Off Between Jobs: Clients who have been with their employer manyyears before taking a large severance or early retirement package may betempted to take a year or two off before getting back into the workforce.Advisors should help clients understand the implications of that longvacation: a gap in employment history, skills becoming outdated and thechance to continue earning while still physically able. In addition, theemployment market may change and jobs may be scarce when the client isready to return to work.For clients who cannot or will not control their spending, working longer may seemlike the answer. Advisors can help clients who make this choice by encouraging them tocreate a “work longer” plan to avoid forced retirement earlier than planned.Protecting Your PracticeIn today’s litigious society, advisors must make every effort to protect their practice frompotential complaints or litigation. As mentioned earlier, retirees who find themselveswithout sufficient funds to live a quality life make convincing and sympathetic plaintiffs,regardless of what led to their current predicament. As with most areas of managing theclient relationship, advisors dealing with overspending clients should document theirconversations, recommendations and actions as well as the client’s decisions and actions.“At our office, when a client calls asking to make an unscheduled withdrawal, those callscome to me,” Laramore said. “The first time it happens, I try to understand. The secondtime, I remind the client that he or she is violating the integrity of the long-term planwe created. The third time, I send a letter saying that due to excessive withdrawals, theclient is unlikely to meet the goals of their retirement distribution plan. We ask them tosign and return it.”“As with most areas ofmanaging the clientrelationship, advisorsdealing with overspendingclients should documenttheir conversations,recommendations andactions as well as theclient’s decisions andactions.”Tools for documenting issues with overspending clients may include:• Unplanned Distribution Letter – Each time the client requests anunplanned distribution, the advisor either asks the clients to sign astatement acknowledging that the distribution is not part of the retirementdistribution plan recommended by the advisor, or the advisor mails a letterto the client reminding them to the same effect.• Distribution Change Acknowledgement Form – Similar to the UnplannedDistribution Letter, this acknowledgement is used when clients want toincrease their monthly withdrawal rate. Some compliance departmentsrequire such an acknowledgement to protect advisors and broker/dealers.“When we tell clients that our compliance department wants us to havethem sign a form acknowledging that their annual withdrawal rate isunsustainable, it really underlines the seriousness of the situation,” said SueBrauner.10

• Recommendation Refusal Statement – At annual reviews, discuss howthe client’s spending threatens his or her ability to maintain an adequateretirement income through their lifetime. Ask them to sign a statementacknowledging they have been informed of this situation and its potentialconsequences, and that they have chosen to disregard the advisor’srecommendations. See Appendix A for a sample letter.• Resignation Letter – When the situation has become too great a risk for theadvisor to continue the relationship, a letter should be sent to the clientadvising them of this decision and requesting that they move their accountto another advisor.Clients who receive one of these forms or letters may be shocked into taking actionto change their spending behavior. Be sure to document those conversations and havethe client sign a statement outlining the action they have agreed to take to cut theirspending. Advisors may want to reconfirm the statement quarterly or semi-annually toensure the client does take action.ConclusionMost advisors will, at some point in their career, face the dilemma of approaching aclient whose overspending threatens his or her retirement distribution plan. Advisorscan help clients understand that having enough income to fully fund their retirementrequires one or a combination of choices: 1) stop overspending, 2) compromise onretirement goals or 3) work longer.Understanding the reasons clients overspend and the stages they go through in changingtheir behavior can help advisors be more successful in helping these clients. Advisorsshould expect some resistance and relapses once clients agree to take action, and beprepared to help clients get back on track.“Understanding thereasons clients overspendand the stages they gothrough in changing theirbehavior can help advisorsbe more successful inhelping these clients.”11Making compromises on retirement goals will likely require helping the client prioritizeexpenses using a budget or spending plan. Like any skill, creating and living within abudget requires practice, which is best undertaken before the client retires. Enlisting theclient’s accountant or attorney to reinforce the impact of failing to make compromisescan emphasize the seriousness of the situation.Because many clients view working longer as a way to avoid curbing spending, advisorsshould help the client create a plan that optimizes their potential to continue working aslong as they need to avoid outliving their retirement funds. Managing health, continuingcareer development and exploring part-time employment or business ownership willlikely be areas where advisors can add value for their clients who choose to delayretirement.Because overspending can severely threaten a client’s retirement distribution plan,advisors should start early in the relationship to document their recommendationsand the client’s actions. Systematic notes, forms and acknowledgements document theadvisor’s attempts to counsel the client and the client’s acceptance or rejection of that

counsel. In the event the client files an arbitration against the advisor, this documentationcan be invaluable in the advisor’s defense.Helping clients change their emotional relationship with money and modify theirspending behaviors can be gratifying for advisors, particularly when those clients canthen enjoy a less stressful retirement. When advisors have the appropriate knowledge,skills and resources, those conversations can be more productive and can lead to deeperclient relationships and higher client satisfaction levels._____________________________________________________________i“43% Have Less Than $10,000 for Retirement,” CNNMoney.comiiSalsbury, Gregory, Retirementology – Rethinking the American Dream in a New Economy, 2010, pp17-18iii2009 Retirement Fitness Survey, conducted by Richard Day Research on behalf of Wells Fargo. Thoseinterviewed – pre-retirees ages 50-59 and young retirees ages 55-70 – had at least $100,000 in householdinvestable assets excluding real estate.ivSalsbury, Gregory, Retirementology – Rethinking the American Dream in a New Economy, 2010, pp17-18v2008 Wachovia Retirement Survey of 2,100 respondents age 55-70 with household assets of $75,000excluding real estate holdingsviEmployee Benefits Research Institute 2011 Retirement Confidence Surveyvii“Advisers’ Two Toughest Words: ‘Save More’, Lavonne Kuykendall, Investment News, July 24, 2011viii“Confronting the Overspending Client,” Suzanne McGee, On Wall Street, May 2005.ix“Confronting the Overspending Client,” Suzanne McGee, On Wall Street, May 2005.x“Tracing Retirement Spending Patterns,” Christine Benz, Morningstar, April 6, 2010.xi“The Retirement Spending Debate,” Dan Moisand, Financial Advisor, April 19, 2011.xii“Dying with Debt: A Dirty Little Retirement Secret,” Cindy Perman, CNBC.com, Nov. 22, 2010.xiii“What is Retirement Income Success?” Stephen L. Deschenes, Life & Health Advisor, April 8, 2011.xiv“Confronting the Overspending Client,” Suzanne McGee, On Wall Street, May 2005.xv“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xvi“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xvii“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xviii“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.“Helping clientschange their emotionalrelationship with moneyand modify their spendingbehaviors can be gratifyingfor advisors...”xix“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xx“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.12

xxi“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xxii“Motivating and Helping the Overspending Client: A Stages-of-Change Model,” James Grubman,Ph.D.; Kathleen Bollerud, Ed.D.; Cheryl R. Holland, CFP, Journal of Financial Planning, March 2011.xxiii“What is Retirement Income Success?” Stephen L. Deschenes, Life & Health Advisor, April 8, 2011.xxiv“The Retirement Spending Debate,” Dan Moisand, Financial Advisor, April 19, 2011.xxv“Pre-Planning Advice,” Pamela Christensen, Financial Planning, June 1, 2011.xxvi“12 Money Mistakes You’re Probably Making,” U.S. News & World Report, Dec. 9, 2010.xvii“Retirement Planning and Disability,” Jennie L. Phipps, Bankrate.com, Sept. 17, 2010xviii“Retirement Planning and Disability,” Jennie L. Phipps, Bankrate.com, Sept. 17, 201013

Appendix ASample Recommendation Refusal StatementNote to advisors: This letter may not be applicable in all retirement portfolio payout situations.Re: Dear :Your current payout rate is % of your portfolio, which is above ourrecommended maximum payout rate of % for portfolios with a goalof providing cash flow for life. A payout ratio above % substantiallyincreases the risk that the cash flow from the portfolio will not last your entire lifetime.In other words, based upon your current payout ratio, there is a high probability thatyou will outlive your current investment portfolio.We recommend that you lower your payout to a % distribution rateimmediately. This will reduce your monthly payout to $, which wouldresult in a net monthly cash flow to you of $ after taxes. New distributionpaperwork is enclosed.Please note that the information contained in this letter is not intended to be tax orlegal advice. We strongly recommend that you consult a tax or legal professional.If you choose not to lower your payout to %, please sign below andreturn a copy of this letter to our office.Sincerely,I hereby acknowledge receipt of this letter and agree not to hold orany of its agents/representatives responsible for the negative impact these excess distributionsmay have on my current financial situation.__________________________________Client signature14

Notes

Your Business Growth ExpertAbout Securities AmericaHeadquartered in La Vista, Neb., Securities America, Inc. is the nation’s seventh largest independent broker-dealer (as rankedby Financial Planning magazine, June 2011, based on 2010 total revenue). For more than 25 years, Securities America’smission has been to foster the success of financial professionals so they can provide quality, objective counsel and servicesto their clients. Advisors benefit from the firm’s industry-leading programs in practice management, advisory services andretirement income distribution, supported by state-of-the-art technology. Founded in 1993, Securities America AdvisorsInc. is an SEC-Registered Investment Advisory firm that offers investment management, financial advice and financialplanning through a national network of independent financial advisors. Securities America received the inaugural ThoughtLeadership Award from the Retirement Income Industry Association in March 2011. Additional information is available atwww.securitiesamerica.com.Prospective Advisors…………………………………………….Branch Office Development at 800.989.8441Corporate Marketing…………………………………………………Deb Hansen at 800.747.6111, ext. 4600Media / Public Relations…………………………………………..Natalie Hadley at 800.747.6111, ext. 4606

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