“Spend ‘Til the End” by Laurence Kotlikoff and Scott Burns

Spend ‘Til the End” by Laurence Kotlikoff and Scott Burns
Laurence Kotlikoff and Scott Burns challenge conventional financial planning in their new book “Spend Till the End”. They say that conventional financial planning is guaranteed to make you financially sick. By the way, Kotlikoff implemented the approach/ideas in his planning tool ESPlanner ($149) which I did not test drive, as yet.

Their approach is built on three principles: (1) maximize spending power, (2) consumption smoothing (i.e. smoothing the per person living standard over one’s life time), and (3) price your love (know what it costs to do what you love). His definition of consumption (or discretionary spending) does NOT include: savings, life insurance, taxes, retirement account contributions, housing, college, weddings or other special expenses (considered non-discretionary). Whether you agree or not with this definition of what is non-discretionary is, the approach is different.

They start off with a series of “mind-benders” that are then  discusses in the rest of the book; mindbenders like: “poor and middle class should hold relatively more stock than the rich”, “over-saving and over-insuring are risky”, “setting retirement spending targets is asking for trouble”, “diversifying your portfolio is generally a bad idea”. They certainly make you stop and think about what they are saying, and thinking is good after all!

Other gems to whet your appetite into reading the book are:

-financial and insurance companies are pimping risk (using 70-80% earnings replacement rates)

-TIPS are the only safe asset class

-under-savers are pushed to high retirement needs target so they end up over-saving, while over-savers and up under-saving.

-to economists portfolio risk means variability in living standards (not portfolio value); irrespective of how risky your investments, your living standard is safe so long as your assets are small relative to your income and your income is very stable

-target-date asset allocation is all wrong; instead you should have stock allocations differ throughout your life:  low (when young), high (middle age), low (just before retirement), high ( early part of retirement), low (late in retirement)

-a man who dies without life insurance, doesn’t die; he absconds!

-economic schizophrenia is that our future and current selves are actually separate people fighting for dominance (and spending) in our mind- the problem is uncertainty of future needs (longevity, care needs, etc)

-financial snake oil- no hero in sight; instead we are surrounded by hard-breathing packs of financial charlatans

-waiting until 70 to collect social security is the right move for most households

-let Uncle Sam pay for LTC after you checked into a nice nursing home that takes Medicare(give kids the money now and hold enough in reserve to pay for a nice nursing home for a couple of years, Medicaid covers expenses and your kids can still spend money on you)

-two can live for the price of 1.6

-what’s the cost of extra spending today on your annual future spend rate? (e.g. buying a $50,000 car today results in $2,000/year lower spending for life)

-diversify your resources not your portfolio (i.e. include your labor, Social Security and other income)

-spend rate of 4% of initial assets is dumb; 4% of remaining assets is better; consumption smoothing is the best

-investing in risky assets entails a bumpy living standard, even when one’s assets perform well over time

-don’t forget public policy risk (changes in taxes, Social Security, etc)

-on Long-Term Care Insurance (LTCI): for some people (not the super-rich or the low/middle income people) buying LTCI may be the best of a set of bad options (?)

Bottom line: definitely worth reading as it challenges a lot of your thinking, even if you don’t agree with 100% of their conclusions.


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