About ten years ago, I came across the book “Spend Till The End” by Boston U. economist, Larry Kotlikoff, and well known financial writer, Scott Burns.
From the first page, I was immediately enthralled. They challenged everything, and I mean EVERYTHING, we’ve been taught to believe about financial planning. Now, be advised, I’ve always been a contrarian. So I naturally am drawn to ideas that go against the grain. I have never followed the crowd in anything. One might think I say that with a sense of self-aggrandizement. Trust me, I don’t.
I wish I had it in me to be happy when a band I found early on becomes popular. Or my sports team that I followed when they were barely breaking .500 goes on to win championships. But I can’t do that. You’ll never see me wear any Red Sox paraphernalia today simply because EVERYONE does nowadays. It was so much more fun when no one cared!
But back to the book. Scott and Larry challenge every idea when it comes to conventional financial planning. It’s actually pretty amazing. For instance, below you’ll see direct quotes on whether college is a good or bad investment. Remember, Larry is a professor of economics. He has an incentive to encourage people to go to college. And yet, here he is, basically saying “be careful”.
Scott runs an RIA(Registered Investment Advisor) and yet in the book he talks ad nauseam about the poor investment returns of professional money managers, due to fees if nothing else.
Again, are these guys right in their analysis? That’s for you to decide. But I love the approach. It is so refreshing in its honesty. Honesty and straight answers are what we need more of in financial planning, in my opinion. There is not, and will never be, any one size fits all strategy when it comes to individual HUMAN BEINGS! Remember that always. What works for Joe down the street, may not work for Jane across the way. They are two unique individuals with unique circumstances.
So, below are some direct quotes from the book. Please do NOT take these as endorsements from me. I simply refuse to state if I find these thoughts “correct” or “false”. The reason I post these is because of the uniqueness of the observations.
What other financial planning guides talk like this? Well, I’ll tell you, the answer is ZERO. How do I know? Because I read this stuff…all the time!
Diversifying Your Portfolio is Generally a Bad Idea
Limiting our living-standard risk requires diversifying all our economic resources, not just our financial assets. But most of our economic resources are tied up in current and future labor earnings, Social Security retirement benefits, or other nonfinancial assets. These nonfinancial resources generally are like bonds with respect to their risk properties. So diversifying our resource generally requires concentrating our financial assets in stock, since we already hold so much in bondlike resources.(pages 45-46)
Having Children May Lower Your Need for Life Insurance
With more mouths to feed, less can be put into any given mouth. Life insurance is meant to protect the kids’ living standard when they’re young as well as the spouse’s living standard through the rest of his/her life. But in having more kids, you’re also reducing the level of the spouse’s living standard that needs to be protected. This is part of the reason that life insurance needs can fall with more children. The other is that children come packaged with their own life insurance policies on their parents lives – namely Social Security children’s survivor benefits. (47)
The Rich Have Bigger Savings and Insurance Problems Than Others
Because of its progressive benefit formula, Social Security retirement and survivor benefits replace a much larger fraction of the…earnings of most workers compared to the rich. Stated differently government is doing a lot more saving and insurance through social security for those who aren’t rich than it is for those who are. COnsequently, most households have much less need to save and insurance on their own than do the rich.(48)
Maximizing Retirement Account Contributions is Generally Undesirable
401k and other tax deferred accounts can represent a tax trap. But apart from taxes, contributing to these accounts may require reducing your current living standard in order to raise your future living standard. (48)
Damning the Dead
Premature death is one of the major causes of impoverishment in America. If we want to provide for those we love, life insurance is a great invention and a wonderful tool. Indeed it’s one of the primary tools created to mitigate financial risks and help families recover from terrible events.
Research has found:
Insufficient insurance is the primary cause of poverty among widows
The most underinsured are secondary-earning spouses in households between the ages of twenty-two and thirty nine. (66-67)
Does College Pay?
The College Board is in the business of getting people to college and to get into most colleges you need the to take the SAT – the COllege Board’s sales product.
The College Board claims that college pays by a lot, with the median annual earnings of college grades exceeding those of high school grads by $22,600. But the board’s focus is entirely on the income gains from college. It ignores the expenses associated with attending college.
The real question is not whether college grads earn more once they get to work. The real question is whether they can achieve a higher living standard over their lifetimes given the costs of attending college. The fact The College Board says that college pays doesn’t necessarily make it so.
Borrowing to raise your future future labor earnings is not much different from borrowing to invest in the stock market. It’s risky business. The inability to default on student loans comes courtesy of Uncle Sam, who actively helps loan collectors go after delinquents. The government even goes so far as garnishing Social Security checks to repay past-due student loans! (115-116)
And these quotes are only the first half of the book! I have two more pages of notes I took from the second half of Larry and Scott’s book that I haven’t put in this post. That’s how informative this book is. And why you should go out and get it…NOW!
Just to reiterate, I don’t necessarily agree with everything these guys say. But it’s not about if in my opinion I feel these guys are correct or not, it’s that they challenge the conventional wisdom of the financial planning world. I like that.
I am always concerned when human beings followed the tried path because they’ve assumed it’s the true path. History shows time and again those who take a different approach have bettered the world. It’s those that follow the “tried, if not true” by default that scare me the most. “Everyone says this is the way to do it,” is not a premise of foundational financial planning, not when it comes to YOU and YOUR financial future.
What if everyone was wrong? Will everyone be there to make you whole?