Advisors are gradually shifting their focus from helping their clients make money to spending it. What's driving the shift? The knowledge that many of their best customers — read baby boomers — are winding down their careers and want to enjoy the fruits of their labor. Some advisors see this as the fun part, after years of hard work have been done. But, a closer look is warranted.

Experience tells us this can be a time of high anxiety for retiring clients, and irrational decisions can be the rule instead of the exception. Here are three ways many retirees hurt themselves, and what you can do to help them.

They Pay Too Much in Taxes

Pointing this notion out to people who have filed 1040s for three or four decades will certainly get their heads bobbing in agreement. Yet, a recent Wall Street Journal Online/Harris poll showed that 36 percent of taxpayers over age 55 weren't doing anything to reduce taxes. And the primary step taken by the proactive 64 percent was to make a deductible gift — this is an effective measure to reduce taxes, but it also ensures a more Spartan existence in their sunset years.

What you can do: First, remind clients that they are effectively in control of how much taxes they pay because they are in charge of how much income they receive and when. Whereas in their nine-to-five lives they got a regular paycheck, withdrawals from an IRA can be stopped and started at a moment's notice. Your clients can decide how much to take out, too.

That comes in handy in the next step on the tax front: persuading them to delay taking Social Security (see table). That may mean taking even bigger withdrawals from IRAs today than what would otherwise be needed for living expenses, and paying more taxes in the early going. However, so long as the amount they take out doesn't propel them into a higher tax bracket (i.e., over 25 percent), it will pay off in reduced taxes over the long run.

That's because money taken out now will lessen the amount they need withdrawn from tax-sheltered accounts in the future and, therefore, reduce the chances of clients paying taxes on their Social Security benefits. And, if their adjusted gross income is less than $100,000, the surplus funds taken out of IRAs today can be channeled into Roth IRAs, thus ducking future taxation on earnings and withdrawals, plus avoiding mandatory distributions when clients hit age 70.

How you help them invest their retirement distributions also counts, tax-wise. While many new retirees prefer the warm safety of CDs and treasuries, they do not provide tax breaks. New retirees may do better buying stocks paying qualified dividends or avoiding the tax altogether by purchasing municipal bonds. Although there may be a little more volatility in the portfolio, the after-tax reward should more than offset the investment risk. If taxable fixed income is a necessary component of asset allocation, then at least buy the bonds in tax-sheltered accounts.

They Take Social Security Too Soon

Many new retirees prefer to receive a dollar from the government now rather than wait for two in 2010. Given the alarms of insolvency sounded by both friends and foes of the program, the retirees' eagerness is understandable.

But the threats already at hand are much more real — and insidious. Earnings from a part-time job in retirement, a portfolio generating decent passive income or a normal life expectancy are factors that will really determine how much money your clients will pocket from Social Security.

Right now, if a person under “full retirement age” (i.e., 65 years, eight months in 2006) earns more than $12,480 while collecting Social Security, the benefits will be reduced by a dollar for every two earned above the threshold. And if a retired couple has income from any source that is greater than $32,000 in a year, at least half their Social Security checks will be taxed as income.

Finally, mathematics professor Robert Muksian (prenhall.com/muksian) found that most retirees who delay taking their first check until age 70 have a better chance of “beating the system” than those who begin collecting at 65.

What you can do: Besides making your case for delay, you might want to persuade Social Security-hungry retirees to buy an immediate annuity that pays what they would have otherwise received from the government. You can even time the annuity payments to end as soon as the ones from Uncle Sam begin.

They Eliminate Debt — and Flexibility

The parents of the oldest boomers spent their formative years in The Great Depression, and subsequently developed a disdain for debt. While the succeeding generation isn't quite so conservative, when they are staring into the abyss of retirement, many of them are still ready to exhaust all assets needed to wipe out any liabilities — especially their mortgages.

Conventional wisdom has encouraged this behavior, yet the numbers may not back it up. Worse yet, if retirees zero-out their balance sheet today, they'll have no way to finance an emergency tomorrow. A trip to the bank in the future might force them to borrow at much higher rates — if they can get a loan at all.

What you can do: Compare the cost of their current mortgage with investment alternatives. Many short-term certificates of deposit now pay a higher rate than that of a much-lengthier mortgage taken out a year ago.

Retirees in higher tax brackets may be able to “double dip” by taking the mortgage interest deduction and buying tax-free bonds with money that would have otherwise been used to pay off a home loan. If your clients still insist on paying off their mortgage, recommend opening up a home-equity line of credit to tap in a crisis.

Writer's BIO: Kevin McKinley is a CFP and vice president of investments at a regional brokerage and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future. kevinmckinley.com

A Four-Decade Retirement?

Those fun-loving folks at the American Society of Actuaries already know how long your retiring clients are going to live. Here are the chances that 65-year olds today will see an awful lot of tomorrows:

1 in 2 1 in 4
Male Will live to 85 Will live to 92
Female Will live to 88 Will live to 94
One member of a couple Will live to 92 Will live to 97