Target practice

Economics-Based Planning
The Number: Retirement Planning Gone Wrong
Laurence J. Kotlikoff, 01.22.10, 12:50 PM ET

"What's your number?" This is the standard question posed by conventional financial planning which asks, in essence, "How much money do you need to retire?"

But it makes no sense to me or other economists I know. When asked this question, my immediate response is "$1 trillion." I figure that will get me by. But then I realize that hitting that target would be rather tough--actually, downright impossible.

On the other hand, if push came to shove, I could live on the street and panhandle, so maybe $0 is all I really need in retirement assets. But that's not right either. I don't want to splurge now and starve later. Nor do I want to starve now and splurge tomorrow. What I really want is a smooth living standard over time. That's what we economists call consumption smoothing.

Economist Laurence Kotlikoff wants financial planners to get new tools.

By ELLEN UZELAC

For years, Boston University economics professor Larry Kotlikoff has advocated for consumption smoothing — essentially creating a sustainable living standard that “smooths” out over a person’s lifetime. He’s even created a software solution that gets the job done.

But the advisory community has overall ignored the economist’s top counsel: that economics-based planning replace traditional financial planning. That could be changing.

Don't stop now
Studies showing retirees may have saved more than needed aren't likely to apply to baby boomers

by Teresa McUsic

The Savvy Consumer

Just how much should you be saving for your retirement?

Several economics professors have suggested in recent studies and newspaper articles that some Americans are, in fact, saving too much.

But others say that doesn't apply to Baby Boomers, who like to spend more than their parents did.