This article gives great food for thought, and I think I’m going to check out Burns’ book.

Thanks!

(Why is there no option for saving your personal info on this site?)

~JM

A second problem I have with it is the complexity of both the calculation and the assumptions that go into it. For the assumptions, not only do you have to guess what your income will be, you need to guess what inflation will be, what interest rate you’ll be able to get on your borrowing, what interest rate you’ll be able to earn on your investments, what tax rate you’ll pay on both wage income and investment income, what age you’ll retire, and what age you’ll die. And for the calculation, if it’s going to be accurate you’ll probably need to figure out all those things on a yearly basis, and as a calculation of some of the other factors (for instance, how much debt you have may affect what interest rate you can get.)

On the other hand, I did a back-of-the-excel calculation, and if you make some admittedly “generous” assumptions (e.g. ignore inflation; interest rate is the same for borrowing or investing) you might be able to smooth your income with only a tiny hit to your lifetime spending (about 1%).

In the meantime, I’ll enjoy spending a bit of money to take 2 weeks of vacation (one week at the beach, one week in DC showing my kids our nations history) plus 6 more mini vacations to allow our family to enjoy doing things such as kayaking, whitewater rafting, mountain climbing, caving and any other adventure we can get ourselves into. We’ve also added a deck to our house and bought a large screen TV to enjoy all the movies we watch at home.

Now, don’t get me wrong.. we do it ALL frugally, within a planned budget. We also hunted down deals and found everyway to cut expenses for the trips. All told we got almost 5 weeks of vacation for about $5000. It’s a nice chunck of change to add to our retirement savings that would have nested me over $40,000 dollars in the 25 years I have till I turn 60… but ask me if it was worth $40,000 dollars to connect with my children in such a special way while they are still at an age to appreciate it… and I’ll say it was worth so much more.

So yes… I only save my dutiful 10% into my retirement accounts which will still net me 1.7 million to retire at age 60, which is more then enough for me to live the kind of lifestyle I envision for retirement even without SS or pensions. If those remain solvent long enough.. I can still continue to travel the globe until my body finally gives out. In the meantime… I’m still going to live it up today, just within my means and without sacrificing what I want down the road.

Someone who dies at 65 gets a bum return on their Social Security “investment” if they DON’T take the payments early.

J.D. you do this for me I just wanted to Thank you.

Right now my long-term financial planning is wholly focused upon pension-related threads, so a lot of the ideas here are really pertinent.

Their advice seems to be “be precise”. Be precise and you may not need to save as much. Be precise and you may be able to spend more.

Now, unless, they have shown that the conventional advice is just so overly conservative as to make any sane person say “wow, that’s clearly overstating the risk”, I’m not sure how this book differs much from any other thoughtful advice.

Consumption smoothing is a wonderful sounding concept, but is it really that useful? Another reader said it right. Most people should probably be reducing their consumption in order to smooth out their lifetime curve. I can’t imagine there are many who fall into the over-saving category.

I have a tough time believing that there are many over-savers out there that are leaving as hermits (and hating it) with dreams of living as kings 50 years from now.

I’ll give them props for telling people that the blunt-instrument type answers like (you need to replace 85% of your present income) probably lead people to save more than they probably need or just simply be working with a plan that has less precision than it could have.

And I definitely agree with the idea that dying with a pot of gold isn’t the plan.

But the real answer should be this: what do you need to live? Not how much money do you want or desire, but what do you need to have a good life. Figure that out and then get comfortable with it. Then figure out what is its price tag. If you are below that income level, then develop a plan to get there. If you are above that income level, then discern what you want to do with that extra money (i.e., raise your standard or save that money to offset the need to work as much in the future).

In other words, if I knew from the start that I was going to earn one million dollars total in my lifetime, I’d know how much I could afford to spend every year. But I don’t know that, so consumption smoothing doesn’t make much sense to me. It’s an exercise in predicting the future.

Despite this, I think it is a useful tool on some levels. For example, I continue to have problems allowing myself to live a little with my money. I could derive more pleasure if I were to actually use my money to do some things. (Just this weekend Kris finally convinced me that yes, we can afford a vacation, dammit.) It doesn’t do much sense to hoard money until the end of your life where you’re least likely to be able to use it.

The point is that most people would not perceive dying with a fortune as a wonderful option. Many would argue that if you die with a fortune after spending your life denying yourself things so that you can save money, you never got to reap the rewards of all your scrimping and penny pinching, and that’s sad. Perhaps for you or some others, you enjoy scrimping and saving as almost a kind of game or hobby (I know a few who this is true for), in which case perhaps the goal is to die with a fortune and let someone else enjoy the inheritance.

The idea of consumption smoothing is to try to keep your standard of living more of a ’smoothed’ trajectory rather than jumping up too fast or keeping yourself down too long. I think most people are viewing consumption smoothing as interesting because it might tell them that they should spend more. As Scott rightly points out, this is only true for a small group of people. No one wants to believe they are part of the group who need to lower their standard of living.

Anyway some people also would argue that becoming a big spender late in life could backfire on you because late in life you might be too ill or infirm to enjoy it, or you might be dead by then. I do agree with you that I’d like to have the option to be a big spender later in life, rather than just making the classic mistake of saying “spend it all now, because you might not live to see retirement anyhow!”

How exactly does having those wonderful options mean I am “over-saving”?

Scott Burns is way off base on this book.

I do have to admit to disagreeing with Mr. Burns on the value of Robert Kiyosaki’s work. The number of sales of his “Rich Dad” series alone contradicts Mr. Burns’ comments.

And, while I do believe that everyone is entitles to their opinions, I do have a problem with Andrew Tobias. I find him to be a bit over-simplistic, and take issue with the titling of his writings–”The Only…” is a very misleasing title, and directly points to my dislike for over-simpifying anything, not just finances. Without getting into too much detail here, I’ll just point to my blog post called Financial advice is not a one size fits all proposition for anyone who is interested in my problem with it.

Regardless of my views, you did a fantastic job, and I look forward to more!