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| Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire | 
 enlarge | Authors: Laurence J. Kotlikoff, Scott Burns
Publisher: Simon & Schuster
Category: Book
List Price: $26.00
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New (31) Used (8) from $14.90
Avg. Customer Rating:  14 reviews
Sales Rank: 20763
Media: Hardcover
Number Of Items: 1
Pages: 336
Shipping Weight (lbs): 1.2
Dimensions (in): 9.2 x 6.2 x 1.3
ISBN: 1416548904
Dewey Decimal Number: 332.024
EAN: 9781416548904
ASIN: 1416548904
Publication Date: June 10, 2008
Availability: Usually ships in 1-2 business days
Condition: CHARITY SALE!! New--minimal shelfwear. 100% of the proceeds benefit the literacy efforts of Books for America.
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Product Description
Rich or poor, young or old, high school or college grad, this book, written by economist Laurence J. Kotlikoff and syndicated financial columnist Scott Burns, can change your life for the better! If you follow the advice in this book, it will raise your living standard (possibly by a lot), improve your lifestyle, and help you spend 'til the end. And it will completely transform your financial thinking, turning every bit of conventional financial wisdom on its head. If this sounds like a revolution in financial planning, you got it. So do The New York Times, The Washington Post, The Wall Street Journal, USA Today, Time, Consumer Reports, and other top publications that have been featuring the authors' economics-based "consumption smoothing" approach to financial planning. Spend 'Til the End substitutes economic wisdom for the "rules of dumb" that currently pass for financial advice. In the process it indicts the investment and financial-planning industry for giving most people saving and insurance targets that are much too high and then convincing them to invest in risky mutual funds and expensive insurance policies. The result is that most people are scrimping and saving during the years when they could be spending and enjoying their money -- and with no sure payoff. Easy to read, this book is packed with practical and often shocking advice on whether to work, how to pick a career, which job to take, where to live, what sort of house to buy, how much to save, when to retire, which kind of retirement account to use, whether to have kids, whether to divorce, when to take Social Security, how fast to spend down your assets in retirement, and how to invest.
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| Customer Reviews: Read 9 more reviews...
 Interesting but too erratic read why. July 14, 2008
35 out of 36 found this review helpful
Kotlikoff is a very interesting writer/economist. His previous book The Coming Generational Storm: What You Need to Know about America's Economic Future is a must read for anyone interested in the actuarial position of Social Security. Now, Kotlikoff and Burns focus on financial planning. To investigate it, Kotlikoff developed a sophisticated program (ESPlanner). Its underlying methodology is "consumption smoothing" that consists in evening out your discretionary income over your lifetime.
Per the authors, the financial service industry ignores consumption smoothing methodology for several reasons. First, it is really complicated. It includes many variables (mortgages, change in member of households, AMT, Social Security benefits taxation, etc...). Second, it reduces retirement savings needs. Third, it reduces the investment risk you need to incur to reach your goals. Thus, consumption smoothing would cut into the sales of financial products.
The authors spare no one in the financial service industry. The mutual fund managers don't earn their fees as 70% of them routinely fall behind the stock indexes. And, the 30% that beat the market change every year. Thus, the 30% who beat the market are just Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Hedge funds don't have a chance to make up for their high fee structure (1% management fee; 20% of returns). Insurance salesmen care more about their commission than your finances.
The authors are at their best when dealing with the intricacies of Social Security and Medicare. They explain unique strategies to maximize consumption smoothing such as Social Security double dipping. Similarly, you can come ahead by giving to a Charitable Gift Fund because it markedly reduces your taxes on Social Security benefits. They stress how rapidly Medicare premiums are rising and how we should boost savings even during retirement to withstand that fiscal shock.
Many of their other recommendations make good sense. Those include holding stocks in taxable accounts and bonds in tax advantaged ones (IRA, 401k) to lower your tax burden. They recommend using index funds instead of regular mutual funds to save on costs and boost returns. Diversify your 401k holdings away from your employer's common stock to reduce your own portfolio risk. They also suggest that marriage is a good deal from a tax standpoint in most cases. Their chapter on how to hedge against potential increase in taxes and inflation and upcoming cuts in Social Security benefits is very good. Their chapter on long term care is excellent.
But, some of their investment advice is less sound. Kotlikoff recommends inflation indexed Treasuries (TIPs) as a safe investment that is guaranteed to keep up with inflation (just as Robert Shiller did in Irrational Exuberance). But, on an after tax basis TIPs are unattractive. The yield they offer above inflation is really low (< 1.5% for 10 year TIPs). When inflation is higher than 3% you incur negative real returns after tax. This is because the entire return (inflation + yield) is fully taxable by the IRS. Also, TIPs with longer maturities offer little extra yield that does not compensate for the increase in interest rate risk. Thus, with TIPs it is questionable you can preserve capital let alone grow it. As a better alternative, I suggest medium term Munis.
Occasionally, they make errors. Upon retiring, Kotlikoff recommends converting your 401k into a Roth IRA because you may hit the 28% AMT that is lower than the 35% maximum tax rate. But, you don't "benefit" from the AMT because your tax liability is always the higher of the AMT or your regular taxes. Also, Kotlikoff suggests people's living standards go up when home prices fall because they save on insurance premium and property taxes. But, they don't. Insurance premiums are based on the replacement costs of the house. And, property taxes are based on assessed value. Replacement costs are always lower than the home market value. Assessed value almost always is lower too. Thus,in the majority of cases declining home prices will not save you money.
The authors make other questionable statements. Supposedly, on a consumption smoothing basis, a plumber maintains a higher living standard than a doctor. I don't believe that. Also a college education supposedly provides little financial benefits vs just high school. Meanwhile, figures from the US Census indicate that college grads make nearly twice as much as high school grads. I ran the numbers and calculated the NPV of a college education was several hundred thousand dollars. Also, they suggest that having a second child cost either little or is a cost saver. That's pretty hard to believe too.
Occasionally, the authors appear to contradict themselves. Late in the book, the authors share that per the Employee Benefit Research Institute 56% of retirees spend either the same or more than their pre-retirement level. This contradicts the authors' position that the financial service industry advocated replacement rate of 70% of pre-retirement earnings is too high. The mentioned survey instead suggests it may be too low.
In another chapter, the authors oversell the concept of annuitizing assets and reverse mortgages. That's where they push consumption smoothing too far. By annuitizing your assets and getting a reverse mortgage, you wipe out your estate leaving nothing for the next generation.
This financial planning book is a bit too erratic. To build a robust foundation, I recommend instead The Random Walk Guide To Investing.
 Conventional Financial Advice is bad for your Financial Health June 12, 2008
24 out of 34 found this review helpful
Spend til the end is a must have book that examines, diagnoses and prescribes cures for the illogical and ill advised financial advice inflicted on ordinary americans by the army of brokers, dealers,wealth managers and financial planners (aka sales people) carrying fancy titles such as CFA, CFP, CFC, CIMA etc. It exposes the advice given by these sales people who prescribe Financial "Rules of Dumb" for savings and investing, which results in unnecessary oversaving or undersaving, consumption disruption, and risky investing. Spend til the end offers a better approach, Consumption Smoothing, which if followed, allows individuals to maximize their spending power, smooth their living standard and price their passions. The subject of Consumption smoothing will be new to most without significant studies in Economics. But the tenets of consumption smoothing, that individuals want to maintain their standard of living over time will resonate with most readers. Read this book, and buy a copy for your financial planner. If your planner is not willing to educate herself about consumption smoothing, the advice they prescribe is not good for your financial health. Fire them! One major light bulb moment after reading this book is that individuals need to diversify all of their resouces, not just their financial assets. This means individuals should take into consideration their non financial assets, such as the ability to earn a living, Social Security, and Medicare. You will not see headlines about this approach on the cover of your favorite financial magazine, because those magazines have one goal in mind, to sell more magazines. Leave the magazine on the shelf and read this book. You will improve your life.
Kelvin
Chicago, IL
Some Outside Reviews June 21, 2008
17 out of 20 found this review helpful
There's been some very good early press on this book. See, for example, the Washington Post article (copied below) as well as this comment in a recent article in the New York Times:
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Even if the parents have money left over, the ones who didn't have custody of the children may be less inclined to pass an inheritance on to them. "The ties that parents have with kids and their interest in supporting them could well be weakened by the fact that they haven't spent much time with them," said Laurence J. Kotlikoff, an economics professor at Boston University and the co-author of "Spend 'Til the End," which gives readers a new way to think about financial planning.
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http://www.nytimes.com/2008/06/21/business/yourmoney/21money.html?em&ex=1214193600&en=6425b01af144e3d7&ei=5087%0A
from the Washington Post:
SPEND 'TIL THE END The Revolutionary Guide to Raising Your Living Standard -- Today and When You Retire By Laurence J. Kotlikoff and Scott Burns | Simon & Schuster. 319 pp. $26
With a different view of spending, economics professor Laurence J. Kotlikoff and financial writer Scott Burns stress that what matters is not how much one spends but rather the standard of living that it enables. In their new book, Spend 'til the End, they argue that most people could achieve and sustain a higher standard of living throughout their lives.
This book's greatest contribution may be the inclusion of often overlooked topics, such as the timing of payouts and deductions. The authors analyze when, how and in what order to start taking payouts from various retirement savings plans, as well as when and whether to choose your own or spousal Social Security benefits. Making the wrong choice could significantly increase your tax bill and reduce the tax benefits of charitable contributions and other deductions now and for years -- or decades -- to come.
Another neglected topic they cover is the problem of outliving your money. Kotlikoff and Burns advocate making spending decisions based on the maximum age to which you might live, not the lower, average life expectancy that most financial planners use.
How can a consumer optimize his standard of living? Kotlikoff and Burns tout their software program "ESPlanner," which is available online for a fee. They claim that the late Nobel Prize-winning economist Franco Modigliani endorsed it. Whether their software lives up to the authors' promises is never proven. What is shown is that Kotlikoff "is president of the company and has a financial stake in the software."
Income Smoothing 101 August 10, 2008
12 out of 13 found this review helpful
A little background on myself before I start the review: I have read over 200 books on investing, so I count myself lucky if I learn 1 new thing for each new book I read. I have read quite a few columns by Scott Burns and generally agree with him on his ideas. I have read several papers and articles by Kotlikoff. I have not read any prior books written by either of these gentlemen. I have been a fan of index fund investing since 1990.
Before I read this book, I was also aware that Kotlikoff sells his own software package ESPlanner for $150 a copy plus $50 annual update fee ($200 for Monte Carlo version plus $50 annual update fee).
My first comment is that my perception is that Kotlikoff wrote the majority of this book. I base this upon the early writings of Kotlikoff and Burns that I have read.
I have long known that index funds usually beat roughly 70% of the actively managed funds in any given year......and my gut intuition is that similar statistics apply to the latest rage.....hedge funds. Kotlikoff points this out in a slightly different way saying that if 70% of mutual funds with the managers paid 1% of assets per year and 0% of the profits can't beat their appropriate index.......then there is no way a hedge fund charging 2% of assets per year and taking 20% of the profits will ever beat out index funds.
Kotlikoff also expresses the lack of financial literacy of Americans in a new way. I already knew that almost all Americans received no education in investing in our high school and college system. I used to get a kick out of the periodic investment tests that Money magazine used to give to average Americans..........and they consistently received grades of F on the test.
Kotlikoff asks how well Americans really know the subjects they are taught in our educational system, like geography. He points to surveys where these percentages of 18-24 year olds can not find these countries on a world map:
11%..............US
29%..............Pacific Ocean
58%..............Japan
69%..............England
85%..............Iraq
Kotlikoff says that if Americans don't really learn geography in an educational system designed to teach them geography.......then how will they ever learn basic investing skills.
Kotlikoff does devote quite a bit of time to behavioral finance.
Kotlikoff blasts the financial planning traditional rule-of-thumb that people should assume they will need about 80% of the income in retirement that they had their last working years. He argues that using the 80% rule causes too many people to save too much and some people to save too little. He criticizes the source of the 80% rule, the AON-Georgia State studies because they take survey income just prior to retirement, and then adjust it to retirement spending. He argues this methodology is not accurate enough and the financial products industry wants an 80% rule-of-thumb because they make more money based upon higher savings and investments.
Some pundits of Kotlikoff's idea the 80% rule-of-thumb is really the rule-of-dumb....argue that the 80% rule-of-thumb may be too low because future retiree health care costs are rising so much faster than inflation.
I have long advocated that some group should survey Americans just prior to and then during their retirement years. All of the financial data must be corroborated using financial statements since most Americans have no idea of their specific spending or investing lives. Such a study would be expensive........and maybe that is why it has never been done (to my knowledge).
I was a little surprised at Kotlikoff's statistic that 33% of homeowners get no federal tax break on their property tax and mortgage interest.......because these do not exceed the standard deduction limits.
Kotlikoff argues that everyone should pay off their mortgage. I completely disagree with this recommendation. For his financial analysis, Kotlikoff only uses bonds as the investment you would make if you did not pay off your mortgage. My calculations, and calculations done by many others......show that one is likely to earn 2 to 3% after-tax on the spread between the cost of the money (mortgage cost after tax) and the return of the money (60:40 portfolio in low cost index funds)after-tax. Once you get close to retirement, many people pay off their mortgage to give them peace of mind in retirement.........I have no argument with this if it gives you peace of mind.......but financially it is not the best decision.
Kotlikoff also presents the little known option of starting to withdraw Social Security, then later stopping the withdrawals........paying the government back......and then collecting higher payments for the rest of your life. From a behavioral finance point of view, I doubt many people would ever take this option. I also know of one case where this was done recently...........and it took an incredible amount of paperwork hassles to get it completed.
Kotlikoff also suggests using an income smoothing approach to get fairer divorce settlements. A few years ago I had personal experience helping a family member through a much contested divorce process. I was surprised to learn that the law does not require the use of net present value to fairly divide defined benefit pension plans. The law in Illinois only requires that the two parties reach an agreement which both parties think is equitable.......and the judge had to agree it is equitable. The customary practice in the courts of Central Illinois is to value pensions based upon the current cash out value of the pension........and not on the present value of the pension. In theory, I have no problem applying Kotlikoff's income smoothing approach to divorce........but in reality.....it will probably not be accepted in a contentious divorce battle.
Before reading this book, I was aware of using a charitable gift fund (e.g. from Vanguard) as an estate planning tool. I was not specifically aware that in many cases it gives the donor a higher lifetime net income after tax. I will be checking this concept out a little further through other sources.
I disagree with Kotlikoff's assertion that conventional financial planning recommends that your asset allocation to stocks versus bonds should change dramatically over time (e.g. using the Rule of 100). Bengen's work, the Trinity Study, and many others have shown retirees should hold at least 50% stocks in their portfolio to protect against inflation. Of course, if your portfolio is more than large enough to support your retirement living expenses, then you don't have a need to take as much risk and you could drop below the 50% stock allocation.
Kotlikoff argues that people's asset allocation should be adjusted about 4 times throughout their lives based upon changes in human capital and Social Security payments.
Another widely accepted rule-of-thumb that Kotlikoff blasts is the 4% safe withdrawal rate rule. It says that one should not withdraw more than 4% of your portfolio (with an annual inflation adjustment) to prevent outliving your money. The 4% rule is also based upon a 30 year retirement period and having at least 50% stocks in your portfolio (Bengen and Trinity Study).
Kotlikoff blasts the 4% SWR rule because it ignores pensions and Social Security. I completely disagree with this assertion. What idiot would ignore the retirement income from pensions and Social Security? Here is a typical application of the 4% SWR for a 64 year old couple who plan on retiring next year:
Current income........$100,000
Income Needed at Retirement......80% of $100K = $80K (this is 80% replacement rate rule)
Income from pension.......$40K
Income from SS............$28K
Income Shortfall.....$80K - $40K pension - $28K SS = $12K
The 4% SWR says you need a portfolio equal to 25X the amount of income you need to generate. So this couple needs a portfolio of 25 x $12K = $300K.
Kotlikoff also points out the well known phenomena that just because the historic return of stocks has been 10% per year.....you can not withdraw 10% of your portfolio each year. The reason is the sequence of returns may cause you to outlive your money. If the stock market has a Bear market during the first few years of your retirement, then your portfolio does not have time to recover to acceptable levels. William Bengen pointed this out back in 1994.
So if Kotlikoff's income smoothing approach is the best thing since sliced bread, then why has virtually none of the traditional financial planning industry accepted it? Why don't the Vanguard or Fidelity web sites offer an ESPlanner equivalent calculator? Kotlikoff would argue it is not accepted because if it was.......people would not save and invest as much........and the financial industry would lose profits.
I think there are several reasons his income smoothing approach has not been better accepted. One reason is there are already alterative financial planning software packages used by planners which give the same information (see May 2005 issue of Financial Advisor magazine story IS ESPLANNER+ BETTER? By Joel P. Bruckenstein)
Kotlikoff assets that traditional financial planning methodologies result in many people saving too much money and some people saving too little. With our US national savings rate now at 0%, do we really want to tell people they don't have to save as much for retirement? I also assume (I have never used ESPlanner) that ESPlanner requires some time by the user to enter more data than traditional web site planning calculators. With the US citizen's short attention span (witness 8 second sound bites on TV)......how many people will take more time to enter data into ESPlanner versus a quick Vanguard or Fidelity calculator?
Kotlikoff does correctly argue there are too many variables involved in retirement planning for the average person to consider. I would argue that Kotlikoff's ESPlanner might give a false sense of security to its users.......because there is no way to know future asset class returns, correlations between asset classes, inflation, tax policies, life spans, etc. It may be a better trade-off for people to quickly use a conventional web site calculator with a Monte Carlo analysis and get a general idea of their condition versus spending a lot of time on ESPlanner. I would also agree with Kotlikoff that the 80% replacement ratio is too general a rule-of-thumb.....it is probably close enough for people just starting their working careers.......but once you get within 5 years of retirement.....you should determine your real spending needs in retirement. You can use TurboTax to project exactly how much income you will need to have in retirement.....considering your pension, Social Security, and investment income.
Over-all, this book was readable. Time will tell if Kotlikoff's income smoothing approach will gain traction as a new tool in the financial planning toolbox.
Other good books on investing are shown below:
Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pro's
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
I'd gladly pay you Tuesday for a hamburger today June 20, 2008
9 out of 17 found this review helpful
I am naturally frugal, so my instinct is to aggressively over-save. However, their idea of consumption smoothing, and the corresponding metaphor of "law of diminishing returns" is spot on. For years, I didn't give much thought to what happens to a nest egg as one ages, other than happy compound interest. However, the threats of uninsured medical care, assisted living and nursing homes loom to strip property at warp speed. At least in my case, as a single person. Which means there is a fairly good chance that I will not get to pass on my assets to my relatives, or favorite charity. I don't really have much desire to "consume" more per se. With substantial self-discipline, I might could trade in my humble Ford for a BMW, and take an annual European vacation. Or better yet, maybe I should get married to have someone help me with consumption smoothing. :-)
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