Protecting your living standard

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By M.P. MCQUEEN
and Jodi Hilton for The Wall Street Journal

The Hornes of Holliston, Mass., sold this house for a smaller one nearby, but haven't enjoyed the windfall they expected.

Trading down to a smaller home is a retirement-planning staple. According to an April study by the Society of Actuaries, 20% of not-yet retirees say they plan to downsize after the last child leaves the nest.

But it is getting a lot harder to do, even for wealthier people.

A study by the Joint Center for Housing Studies at Harvard University, scheduled to be released on Monday, shows that while mobility has slowed across all age groups during the real estate bust, "mobility rates among seniors have posted the sharpest drop." Trade-downs in March comprised about 8% of total home sales, down from 12% in October 2008, the first year for which there are historical comparisons, according to the National Association of Realtors.

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.

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.

By Peter Coy

Choosing the amount of coverage is hard. The trick is to think like an economist

Life insurance may be the most badly purchased financial product. Some people, unwilling to face the thought of death, never buy coverage at all. Others feel guilty about the prospect of leaving loved ones behind and buy too much. Even those who put their emotions aside tend to fall back on oft-repeated and oft-wrong rules of thumb, such as buying a policy worth five times your annual salary.

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.

CR Tests Retirement Strategies; Test Couple’s Standard of Living Dips When 401(k) Contributions Are Doubled

YONKERS, NY — For many Americans, the dream of a secure and comfortable retirement is slowly receding. Rising debts for health care and housing have made current retirees the fastest-growing age group filing for bankruptcy. And retirement incomes are likely to be insecure as pensions are replaced by 401(k)s, which provide no set benefit.

By ELEANOR LAISE

If one had asked a financial adviser 18 months ago for retirement-planning guidance, there is a good chance he would have run a "Monte Carlo" simulation. This calculation method, as it is commonly used in financial planning, estimates the odds of reaching retirement financial goals.

Kim interviews Dr. Larry Kotlikoff, an economist from Boston University and developer of the financial-planning software ESPlanner. The software is based on the concept of "consumption smoothing."

Listen to the Interview

Length: 29:01

Notes:
2:00 The problems with conventional financial planning -- it typically sets the wrong target for retirement spending and saving.
3:57 Even a 10% mistake in determining your target can lead to huge mistakes in savings amounts, life insurance, etc.

by Laurence Kotlikoff and Perry Mehrling

As we advocated two months back (Bagehot plus RFC: The Right Financial Fix), Uncle Sam is finally starting to sell systematic risk insurance on high-grade securities in exchange for preferred stock. This is a critical function for the U.S. government; Uncle Sam is the only player capable of hedging systemic risk because he’s the only player capable of taking actions that keep the overall economic system on the right course.

The real question now is whether the U.S.