This is the third in a series of interviews with author Laurence Kotlikoff. In this interview we discuss his new book entitled ” Spend ’til The End-Raising Your Living Standard in Today’s Economy and When You Retire.” Larry discusses with me what he refers to as an economic-based , three part prescription for personal financial health: maximize your spending power, smooth your living standard, and price your love.
So just what does Larry mean when we are going to maximize our spending power. It means making a host of decisions regarding education, career, job, location, housing, mortgage, retirement account, insurance, portfolio, tax and Social Security among others, that provide you with more money—potentially a lot more money–to spend for the same effort. As Larry states making the right choice doesn’t take any more time or effort than making the wrong one, but the consequences for your living standard can be spectacular. The same holds for choosing between jobs, mortgages, retirement accounts and so on.
Smoothing your living standard means spreading your spending power evenly over time so you never need worry about running out. In Larry’s economic based approach vs. a traditional financial planning approach they call this spreading of your spending power over time consumption smoothing. It is based on the law of diminishing returns–the well-known proposition that you can have too much of a good thing. Smoothing your consumption also means protecting your living standard–making sure it stays relatively steady in good and bad times.
So you all must be wondering what pricing love means, I know that I was? Pricing love doesn’t mean selling your firstborn for ready cash. It means knowing what it costs, measured in terms of your living standard, to do things that you’d really love to do. These include taking a wonderful but low-paying job, retiring early, having kids, buying a vacation home, getting divorced, signing up for an Alaska cruise, moving to Arizona, and contributing to charity, among many other things. Pricing your passions is critical to getting the most out of your spending power.
If you would like to learn more about author Larry Kotlikoiff and his book please click here to be directed to his website. If you are interested in his on-line software to assist you in calculating the various scenario’s for planning your financial future, please click here to be directed to the ESPlanner website.
I hope you enjoy this interview with a brilliant man with a mind for economic planning.