New Way to Plan for Retirement

Sunday, May 3, 2009

by Jay Fitzgerald

Maybe there’s a different way to approach retirement - and a Boston University economist thinks he’s found it.

After the beating 401(k)s and IRA accounts took last year, Laurence Kotlikoff said that maybe Americans have finally realized they can’t count on saving enough money before retirement.

As a result, his company, Economic Security Planner, last month launched a free online software product that he says will help consumers analyze and prioritize their current income and spending patterns.

The goal for consumers should be to “smooth out their living standards,” both before and after retirement, so that there’s no jolt during a transition from work to the Golden Years, he said.

The plan sounds an awful lot like standard financial planning.

But Kotlikoff, who co-authored a book last year called “Spend to the End,” said investors are too often sold a “con job” by “traditional” financial planners who push too aggressivly for people to save more money than they need or can ever accumulate.

Too often financial planners are also trying to get customers to put their money into specific investment products - and not necessarily to really change their financial lifestyles.

Kotlikoff said such advice is a form of “financial malpractice” that consumers need to avoid.

“The savings targets are miles too high,” said Kotlikoff, who’s been gaining widespread notoriety with his sometimes unorthodox ideas during the current financial crisis.

An example of what he says is his “counterintuitive” advice applies to mortgages vs. savings.

Some financial planners say it’s often beneficial to keep paying on a low-interest mortgage and invest the extra money in high-yielding stocks or other products.

But his financial analysis shows that it’s almost always wiser to pay off a mortgage principle as fast as possible - and then to invest, Kotlikoff said.

Consumers need to do a much better job analyzing where they live, the taxes they pay, the cost of living, their projected long-term income and other factors, he said.

In effect, Kotlikoff is saying: Start financially living today the way you likely will retire tomorrow - and you’ll be better off.

“We’re trying to get people to better understand the economic approach to financial planning,” not just saving, he said.

The free software - available at www.esplanner.com/basic - is meant as a beginner’s guide to sort out one’s financials.

Kotlikoff said he hopes people will be encouraged to buy more expensive and sophisticated financial-analysis software, costing up to $199, if they’re impressed with what they find.
Article URL: http://www.bostonherald.com/business/general/view.bg?articleid=1169697