Consumption smoothing

By Allison Linn Senior writer, MSNBC

Wracked by recession, choked with debt and uncertain about the future, more Americans are asking: Is college worth it?

The question is understandable. Private college tuition and fees have risen 70 percent over the past decade, according to the College Board. That is more than twice the rate of inflation. Public college tuition and fees have doubled in the same timeframe.

But while college debt has proven a financial chokehold for some people, a four-year degree is still great insurance, especially in a tough job market: The unemployment rate for people with a bachelor’s degree or higher was 4.5 percent in July, compared to 10.1 percent for those with only a high school diploma.

Perhaps the greatest lesson of the Great Recession isn't that you shouldn't go to college, but that you should approach it like you would any other investment: with caution.

By Scott Burns

Will we make it through retirement?

That question dominates my e-mail as readers try to figure out how the recession, low interest rates and a dismal stock market will affect their futures.

Without a crystal ball, the best tool is financial planning software. It can be used to explore what-ifs. It can show how higher inflation or lower returns will affect our future standard of living. In this case, I decided to use the free online version of ESPlanner, called ESPlanner Basic. I use the full version for my own planning because I think it's the most powerful financial planning software yet created.

Most financial planners use long-term average returns when they do financial planning. They do this because, like the rest of us, they don't know the future. The averages would call for a return on stocks of about 11 percent, a return on savings of about 5 percent and an inflation rate of about 3 percent.

By Scott Burns

12:00 AM CDT on Sunday, July 18, 2010

Will we make it through retirement?

That question dominates my e-mail as readers try to figure out how the recession, low interest rates and a dismal stock market will affect their futures.

Without a crystal ball, the best tool is financial planning software. It can be used to explore what-ifs. It can show how higher inflation or lower returns will affect our future standard of living. In this case, I decided to use the free online version of ESPlanner, called ESPlanner Basic. I use the full version for my own planning because I think it's the most powerful financial planning software yet created.

Most financial planners use long-term average returns when they do financial planning. They do this because, like the rest of us, they don't know the future. The averages would call for a return on stocks of about 11 percent, a return on savings of about 5 percent and an inflation rate of about 3 percent.

You shouldn't party today and starve tomorrow, says economics professor and author Larry Kotlikoff. But you don't want to do the opposite, either.

By Christine Benz

The Perils of Oversaving
You shouldn't party today and starve tomorrow, says economics professor and author Larry Kotlikoff. But you don't want to do the opposite, either.

Christine Benz: Hi. I am Christine Benz from Morningstar.com. I'm here today with Larry Kotlikoff. Larry is the author of a new book called "Jimmy Stewart is Dead," and he is also the author of another book called "Spend 'til the End," which talks about spending and saving in and before retirement. Larry thanks for joining us.

Larry Kotlikoff: My pleasure.

Benz: Let's start with "Spend 'til the End" and talk about the concept there because it's a contrarian idea. You acknowledge that many people are very under-prepared for retirement but also say some people are over-saving for retirement.

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.

By Humberto Cruz

I keep the family financial records current and organized. Still, it took me nearly two hours to find and enter the copious and detailed information requested by the financial planning software I just tried.

It was by far the most exhaustive and at times exhausting personal finance program I’ve used. But it was also the most thorough, earning my faith and respect.

The program I used is developed by Economic Security Planning, Inc., a company headed by Laurence J. Kotlikoff, professor of economics at Boston University.

Unlike other programs that merely ask a few quick questions, ESPlanner software doesn’t assume we will spend a set percentage of our pre-retirement income in retirement.

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.

Special Report July 2, 2009

After watching their savings evaporate and their net worth plunge, many are giving up on retirement planning. But there are ways out of this mess without winning the lottery

By Peter Coy

The Wall Street Journal * JUNE 8, 2009

The Best Online Tools for Personal Finance
Consumers are paying closer attention to what they buy, how much they save, and where they invest. These resources can be a huge help. Even better, most of them are free.

By SHELLY BANJO

It’s tougher than ever to plan your finances. But it’s also easier than ever to find help on the cheap.

By Arden Dale
Of DOW JONES NEWSWIRES
1 June 2009

NEW YORK (Dow Jones)--Looming tax hikes make it important for retirees who write their own paychecks to rethink the order in which they tap savings accounts.

Conventional wisdom in many quarters is that it is best to use taxable accounts first and let tax-deferred savings compound.

But there are always exceptions, and now "we have to plan knowing tax rates are going up," says Laurence J. Kotlikoff, a professor of economics at Boston University.