As the market dips yet again following another fitful rally, reality has been setting in for most Americans: We’re in a recession—and the gilded age of credit-fueled lifestyles and profits is over. For advisors, conversations about long-term plans are full of near-term adjustments. The silver lining for spendthrift clients: That Ferrari is going to get cheaper.

“The question ‘Should we be cutting back?’ certainly comes up a lot more now with clients,” says Roman Batschynsky, president and founder of Oakwood Financial Network in Troy, Michigan. “A lot of our clients are in auto-related jobs. Many of them have pensions and have been counting on those,” he says. “For years they’ve been comfortable staying aggressive in their equity portfolios so long as they knew the pension was there. That’s changing dramatically, as you can imagine,” he says. “Many of them are reevaluating not only their spending, but their risk tolerance.”

For the average American, times are tough. The September S&P/Case-Shiller Home Price Index of 20 U.S. cities fell 17.4 percent year over year—that is the most on record—and is now down 21.7 percent from its high in July ‘06. On a month-over-month and year-over-year basis, all 20 cities saw declines. Meanwhile, November non-farm employment payrolls declined by 530,000 jobs, the worst decline in six years, sending unemployment up to 6.7 percent—its highest level in 15 years.

Merrill Lynch economist David Rosenberg was already making dire predictions back in September before much of the recent (and biggest declines) in the markets occurred. His 75-page report titled “The Frugal Future” is full of gloomy charts about housing (inventory backlog, delinquency rates rising, more price deflation to come), employment and credit cards (the next shoe to drop?). These days, as the holiday shopping season approaches, the American consumer—one of Rosenberg’s focus points in the report—is in the spotlight. And cowering. Not only does American spending drive 70 percent of U.S. GDP, but 18 percent of global GDP, according to Rosenberg. And, during recessions, the consumer is in duck-and-cover mode. Aside from medical costs and utilities, every other category sees big cutbacks.

“I think people across the board—including our clients—are cutting back. In large part many of them don’t want to liquidate something that’s down to pay for living expenses,” says Chandler Taylor, a principal with St. Louis-based RIA, The Moneta Group. One of his clients is about to set sail on an $85,000 cruise with his entire family, a trip he planned years ago. But he’s not thumbing his nose at the downturn—he would have cancelled the trip if he had cancellation insurance. Taylor says talking about spending can be a touchy subject, so it calls for some tact. “Talking about cutting spending back requires a balance. You don’t want to frighten your clients but you want to be able to discuss it,” he says. “We usually say something like, ‘If you were thinking of cutting back, now might be a good time to do it.’”

Even the ultra-wealthy are reining it in. New York auction house Sotheby’s reported a $52 million loss in mid-November due to “guarantees” it made to sellers on property that sold well below expectation, including a $33 million sale of Edgar Degas’ “Dancer in Repose,” owned by private equity star, Henry Kravis (Sotheby’s guaranteed him $40 million) and 16 post-war drawings owned by former Lehman Brothers CEO Dick Fuld and his wife, which sold for $13.5 million after a $20 million guarantee. According to MasterCard’s “Spending Pulse,” luxury expenditures—jewelry, art, apparel, sports cars, etc.—are down 20 percent. “Luxury brands are definitely feeling the pain,” says Milton Pedraza, CEO of the Luxury Institute, a New York research firm that studies the luxury habits of the wealthiest Americans. “Some brands are marking their products down as much as 50 percent because they have big inventory from planning on a solid year,” he says. Porsche? Sales fell in November to half of what they were in the year ago period. Tiffany, Saks, Nordstrom, Neiman Marcus—all have experienced significant drops in sales. (In the January issue of Vanity Fair, there is a story titled “Profiles in Panic,” which is an anecdotal round-up of how Wall Street’s bigwigs—and their wives—have started to pull back. The story offers this telling tidbit: “The day after Lehman Brothers went down, a high-end Manhattan department store reportedly had the biggest day of returns in its history. ‘Because the wives didn’t want the husbands to get their credit card bills,’” says an anonymous fashion-industry insider quoted in the story.)

Mark Johannessen, a principal of Sullivan, Bruyette, Speros & Blayney, an RIA in McLean, Va., says he’s trying to keep clients focused on their long-term financial plans. “Where does the last 18 months leave them, how does it change the picture, that’s what we’re discussing,” he says. “Does your current $25,000/month lifestyle jeopardize the long-term viability of your plan? Or the $30,000 allotted annually for vacations, does that need to be tweaked?” But he says the discussion goes the other way, too. “Is now a good time to buy anything?” he asks. As consumers across the country pull back and prices—from luxuries like cars to houses—continue to see downward pressure, Johannessen says discussing opportunities with clients is also important. “We have a client that had projected a house purchase in four or five years. Now he might consider buying it sooner, before the market begins to go up again,” he says. Take New York, which has seen relative stability in its real estate prices, where the wealthy are feverishly trying to shed luxury condos: On Streeteasy.com, a real estate research website, listings for $10-million-plus condos in Manhattan have averaged 40 per month in 2008, up from 27 per month in 2007.

For some, the conversation has resulted in business in other areas. For example, Batchynsky says a byproduct of the current environment is that the estate planning side of his business is getting a lot of attention. Why? Parents are increasingly concerned about their kids’ future. “They worked in the pension era, and they’re acutely aware that their kids and grandkids will most definitely not have that to fall back on,” he says. So while they may be planning to tap an IRA they planned to keep for the kids for living expenses down the road, some have set up specially designed irrevocable trusts with a life insurance policy inside that goes to heirs at the death of the second parent. Spend ‘til the end? Not anymore.