E$Planner - Another Tools worth adding to Your retirement Toolkit

I have just read a book co-authored by Laurence J. Kotlikoff and Scott Burns entitled the book, “Spend ’til the End”. A more explanatory sub-title is, “The Revolutionary Guide to raising your living standard - today and when you retire”.

I know of Scott Burns from his financial commentary on the Web and he also created the couch potato portfolio for investing which has gained popularity.

I did know much about Mr Kotlikoff though. He is an economist who has used his economic knowledge and skill to co-developed a software program called E$planner. It is built around a system called “consumption smoothing” which I find very interesting.

It’s the “when you retire” that got me interested at first. I was a little put off by the title initially because I thought it was irresponsible, but after I read the first couple of chapters I realised that the theory of “consumption smoothing” was worth learning more about.

Mr Kotlikoff debunks the idea of limiting your spending in retirement to 4% of your retirement nest egg. This got my attention because it concerned me that I had to but static limits on what I planned to do in retirement. There are too many things that can occur in live that may mean spending more or less at different times.

The main premise behind the theory of consumption smoothing is to balance our living standard throughout our lives such that we neither hoard nor overspend. It is an acknowledgement that at times we will have to spend and at other times we will not spend as much. This makes sense to me so far.

It is an holistic approach to our finances and may bring real benefits to us in our retirement. Take a look at the ESPlanner Presentation and see what you think. ESPlanner takes into account:

“All household economic resources, housing expenses and plans, retirement accounts, special expenditures, taxes, Social Security benefits, real estate holdings, Medicare premiums, and a host of other key factors.”

He talks about consumption disruption which is when we fail to target the right amount to spend at any one time in our lives.

ESPlanner tells you…

• how much to spend, save, and hold in life insurance each year.
• how retiring early, switching jobs, building retirement accounts, moving states, downsizing, refinancing, having kids, paying tuition, … will affect your living standard.
• how investing affects the variability of your future living standard (requires ESPlannerPlus.)

Mr. Kotlikoff maintains that done correctly consumption smoothing is really financial planning done correctly and can lead to a higher standard of living throughout your life.

There are four versions of the standard program. The version for the individual is only $149.00. This is recommended for most people. The Plus Version is $199.00 and includes some Monte Carlo simulation software which allows you to test on how a households living standard can vary with current and planned future investment strategies.

While the software is written around the US financial, tax and social security system, the ideas are universal and could be applied anywhere. If nothing else if will give you yet another perspective on your retirement planning.

Before purchasing the software take the time to go through the presentations and the documents on the website. Understanding what consumption smoothing is all about and how to apply it could to my mind certainly raise your standard of living and probably reduce your fears of outliving your retirement nest egg.