Laurence Kotlikoff, the brash Boston University economics professor and Social Security expert, doesn’t mince words.
“We Americans are financially quite sick,” he writes in his new book, “Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life” before listing all the financial gaffes we Americans make in our lifetimes.
“As a group, we undersave, underinsure, under diversify, pay for bad investment advice, rely on dying early, retire too soon, take Social Security at the first chance, free far too little trapped equity, borrow to invest in stocks, convince ourselves that stocks are safe long-term, live house poor,” he writes.
Marriage, divorce, college, and other lifestyle decisions we make irk him as well. But it’s a lack of savings — especially for retirement — that really gets under his skin.
“Most workers are saving bubkes,” he writes. “Half of today’s working families risk a major living-standard decline in retirement. The share would drop roughly in half were all workers to retire two years later.”
So, he offers his retirement advice in his book, which comes with a title that is a bit of a wink. It’s not abracadabra.
“It’s lifetime budgeting,” he told Yahoo Money. “It’s the economics approach to financial planning … [it’s] not asking what you would like to spend, but here’s what you can spend.”
Here’s what else he had to say in a conversation with Yahoo Money.
Kerry Hannon: Is conventional financial advice about retirement all wrong?
Laurence Kotlikoff: “The financial industry steers people looking for retirement planning advice into a fantasyland. Advisors ask them, how much would they like to spend in retirement? My answer is a billion dollars a day.
Then they ask them how much are you saving? ‘Not so much. Okay Let’s put you into these high-yield funds.’ Your probability of success of not running out of money is higher. And your probability of success of failing is small –that really…
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