Spend til The End – Economics Guide - Laurence Kotlikoff
Retire Richly. Retirement Finances. Spend Til The End. Laurence Kotlikoff and Scott Burns. Man and Woman on swing
"Spend ’til the End" by Laurence Kotlikoff and Scott Burns advocates for an economics-based approach to retirement finances, retirement planning and financial planning, centered around three core prescriptions. Kotlikoff and Burns argue that traditional methods, which rely on asset decumulation based on individuals setting arbitrary targets for retirement age for retirement expenses, are fundamentally flawed. The book promotes "consumption smoothing" as the economic science's prescription for retirement finances. Kotlikoff and Burns critique the financial industry, viewing its advice and tools primarily as sales mechanisms designed to sell products.
RATINGS FOR SPEND TIL THE END BY LAURENCE KOTLIKOFF AND SCOTT BURNS
Goodreads 3.7/5.0
Amazon 4.2/5.0
SPEND TIL THE END KEY THEMES OF SMOOTHED LIVING STANDARDS DURING RETIREMENT
Smooth Living Standard Over Time. The core message of the book is that true financial health is about achieving a smooth and stable living standard throughout your life, regardless of earnings fluctuations, retirement, or unexpected events. This isn't just about maximizing wealth, but about ensuring you can sustain your family's spending power from now until the end. The authors argue that consumption smoothing is the ultimate goal and the precise target that an economics-based approach to financial planning seeks to achieve. It means being able to "spend ’til the end" in a predictable way, balancing present and future needs.
Conventional Advice Is Wrong. A central, provocative claim in the book is that virtually all conventional financial wisdom is simply wrong. Rules of thumb, like saving a certain percentage or targeting a specific retirement income replacement rate, are dismissed as "rules of dumb". The authors argue that the financial industry, including large, well-known companies, is primarily focused on selling products rather than helping you smooth consumption. This focus on sales leads them to promote dangerously high saving targets and risky investments that cause major disruption in your living standard.
Planning Is Too Complex for Simple Tools. The book emphasizes that proper financial planning is an incredibly complex undertaking. It involves considering numerous interrelated factors like household demographics, taxes, benefits, earnings, assets, and lifestyle decisions. Attempting to set targets or make decisions based on simple rules, calculators, or even your own intuition is virtually impossible and prone to major errors. The authors contend that achieving a truly optimized, smooth living standard requires sophisticated computational tools that can process all these variables, which have only recently become accessible.
“Waiting to take Social Security can dramatically raise your living standard”
“Maximize your spending power”
SPEND TIL THE END CHALLENGES CONVENTIONAL FINANCIAL PLANNING, SUGGESTS CONSUMPTION SPENDING TARGET DURING ASSET DECUMULATION PHASE
The Three Commandments of Economics: These are the foundational principles presented for achieving personal financial health:
Maximize your spending power: This involves making decisions that result in the highest possible lifetime consumption.
Smooth your living standard: This is the central concept, aiming for a stable level of spending power throughout life, adjusting savings, insurance, and investments dynamically. It is described as economics' prescription for financial health.
Price your love: This means evaluating the financial cost, in terms of forgone living standard, of lifestyle choices and passions.
Critique of Conventional Financial Planning: The book launches a strong attack on conventional methods, arguing they are "simply wrong", "failed miserably", and constitute "financial malpractice". Key criticisms include:
Asking individuals to set their own retirement spending targets is "virtually impossible" and the "toughest part of the entire financial planning problem".
Using current spending to set future targets is flawed because current spending is often not the smoothed optimal level.
Even small targeting mistakes (e.g. 15%) lead to "huge mistakes" in saving and insurance recommendations.
These mistakes result in "major disruptions" (e.g. 25% or more) in living standard throughout life—the "hallmark of traditional financial planning".
The industry uses "wildly high saving and insurance recommendations" and unrealistic replacement rates (like TIAA-CREF's 80%) to encourage purchasing financial products, not smoothing consumption.
Conventional tools and planners "pimp risk" by encouraging investment in higher-return, risky securities to meet these unrealistic targets, exposing individuals to significant downside risk. The use of Monte Carlo analysis is described as a misuse to "con you into buying high-cost and high-risk investments".
Consumption Smoothing as the Target: Unlike conventional methods where consumption is a target one sets, in the economics approach, consumption smoothing itself is the target. It provides a precise figure for sustainable spending by integrating all economic resources and obligations over a lifetime. The book uses simplified examples, starting with a drug dealer, to illustrate how income, assets, taxes, benefits, and life events affect the optimal smooth spending path.
Financial Pathology: The authors dedicate a section to discussing how "Homo Americanus is not Homo economicus". They argue that everyone is "financially clueless" and many are "financially sick". Causes include financial illiteracy, following bad advice, designed neglect by the industry, overconfidence, compulsive behavior influenced by emotions (highlighted by neuroeconomics and behavioral finance). The book presents examples of self-destructive behavior like borrowing too much, gambling, failing to buy enough life insurance, and ignoring 401(k) matches. They even suggest some people oversave or overinsure.
Counter-Intuitive "Financial Mind-benders": The book highlights several conclusions that run contrary to popular belief, derived from the economics framework:
Setting retirement spending targets is problematic.
Stock holdings should fluctuate with age, not just decline.
Having children might lower life insurance needs.
Maximizing retirement contributions might be undesirable.
Waiting for Social Security can significantly raise living standard.
Mortgages offer no tax advantage for many.
Implementing the Economics Approach: The book posits that modern technology, specifically personal computers, makes the complex calculations required for consumption smoothing feasible for individuals. It heavily references and provides examples using ESPlanner™, a software program developed by economists, describing it as the "first publicly available personal financial-planning software program developed by economists" and the "first commercial consumption smoother". While acknowledging that other such programs exist and will follow, ESPlanner is presented as a tool that embodies the economics approach and helps readers understand its principles and apply them.
PERSPECTIVE OF LAURENCE KOTLIKOFF AND SCOTT BURNS, AUTHORS OF SPEND TIL THE END
The authors, Laurence J. Kotlikoff and Scott Burns, bring distinct but complementary backgrounds to the topic. Laurence J. Kotlikoff is an economist, having received support for his research from Boston University for a quarter century. This deep academic background in economics, including research on saving, bequests, altruism, and life-cycle planning, clearly forms the theoretical foundation for the book's economics-based approach, particularly consumption smoothing. He is also the president of Economic Security Planning Inc., the company that markets the ESPlanner™ software, giving him a financial stake in the tool used for the book's examples.
Scott Burns brings a perspective from journalism, having been a syndicated columnist. His background likely contributes to the book's stated goal of being written in "plain English" and its accessibility, aiming to make complex economic concepts understandable to a general audience. He is explicitly stated as not having a financial stake in ESPlanner, which adds a layer of perceived objectivity regarding the software itself, positioning the book more as a sales pitch for the economics approach rather than just the specific product. Their combined expertise allows them to marry rigorous economic theory with practical, accessible advice, though they acknowledge the gap between theoretical perfection (Homo economicus) and real-world behavior (Homo Americanus).
“Setting one’s targets correctly is virtually impossible”
“Rules of thumb are rules of dumb”
SPEND TIL THE END PROVIDES COMPREHENSIVE, ECONOMICS-BASED INSIGHT ON RETIREMENT FINANCES AND ASSET DECUMULATION
Strong Theoretical Foundation: Unlike many personal finance books offering rules of thumb, this book is explicitly grounded in economic theory, particularly the life-cycle model and consumption smoothing. This provides a coherent and rigorous framework that is presented as superior to conventional methods.
Direct and Unflinching Critique: The authors are unafraid to call out the conventional financial planning industry, labeling its methods as "wrong," "failed," and even "financial malpractice" driven by product sales rather than client well-being. This provides readers with a critical perspective on widely accepted advice.
Accessibility: Despite dealing with complex economic concepts, the book aims for "plain English" with "no geek talk or equations". It uses relatable (and sometimes humorous, like the drug dealer or the financially challenged economists) examples and metaphors to illustrate key ideas.
Focus on Living Standard: The book correctly frames financial health in terms of a sustainable and stable living standard (consumption) rather than abstract metrics like portfolio value or achieving arbitrary savings goals. This aligns financial planning with the ultimate goal of money: to support a desired lifestyle over time.
Comprehensive Scope: While focusing on consumption smoothing, the book touches upon a wide range of critical financial and lifestyle decisions, including career choice, education, retirement timing, housing (rent vs. buy, mortgages), risk management (insurance, investments), and even the financial implications of relationships (marriage, divorce, children).
Acknowledgement of Behavioral Factors: The book refreshingly acknowledges that people are not perfectly rational. It discusses financial pathology and its causes, integrating insights from behavioral finance and neuroeconomics. While the core solution is economics-based, recognizing these human elements makes the diagnosis more relatable and realistic.
Empowerment through Technology: By highlighting that modern computing power allows individuals to perform sophisticated economic calculations themselves, the book empowers readers to take control of their financial planning without necessarily relying on potentially conflicted professional advice.
SPEND TIL THE END USE OF DATA AND SOFTWARE MAY CHALLENGE SOME READERS
Potential for Over-quantification: While "pricing your love" is framed as a way to make informed choices, focusing solely on the financial cost of deeply personal decisions (like marriage, children, or leisure) might feel overly clinical or even off-putting to some readers who prioritize emotional or non-financial values above all else. The book acknowledges that these decisions aren't solely financial, but the emphasis is on quantifying the financial aspect.
Complexity of Inputs: The sources themselves highlight the numerous factors involved in proper planning (household demographics, earnings, taxes, benefits, assets, liabilities, risks, etc.). While ESPlanner or similar software handles the computation, gathering and accurately inputting all this detailed personal data can be time-consuming and potentially challenging for the average reader. The book notes that operating "in the dark" is a cause of financial pathology, implying data gathering is crucial but doesn't dwell on the practical difficulties involved.
Dependence on Software: While claiming the book isn't just a sales pitch for ESPlanner, the heavy reliance on examples derived from ESPlanner and the assertion that implementing the economics approach was previously "impossible to implement... from a computational perspective" and requires "the right software" suggests that the book's prescribed implementation is heavily tied to specific technology. Readers without access to ESPlanner or similar tools may understand the theory but struggle with practical application, although the authors suggest examples in the book and online can help. The statement that all consumption-smoothing programs will yield the same result is reassuring regarding the theory, but accessing a program is still presented as necessary for precise, personalized application.
"Gallows Humor": While intended to be accessible, the "sobering survey, spiced with gallows humor, of financial pathology" and blunt statements like "we are all financially sick" might be perceived as overly harsh or discouraging by some readers, potentially alienating those already struggling with financial anxiety.
“Financial institutions aren’t your friends”
“The financial services industry is trying to sell you a product”
WHO SHOULD READ SPEND TIL THE END BY LAURENCE KOTLIKOFF AND SCOTT BURNS?
This book likely appeals to most people, other than super-rich and financially destitute. Readers may be worried about their financial future and whether they are saving, insuring, or investing correctly. They may have found conventional financial advice confusing, contradictory, or ineffective and so are seeking a fundamentally different approach to personal financial planning. The book uses a quantitative, analytical approach for personal finances and may interest those that are interested in understanding the economic theory behind personal finance. While the book aims for simple language then some topic is inherently complicated so the book may be optimal for readers that have at least modest financial literacy.
HOW DOES SPEND TIL THE END COMPARE WITH OTHER RETIREMENT FINANCE BOOKS?
The book pushes back against the conventional financial planning industry's output, including advice from popular figures, publications, and institutions like Suze Orman, Jane Bryant Quinn, Fidelity, Vanguard, and TIAA-CREF. It contrasts its economics-based approach with the "rules of thumb" and targeting methods common in this sphere.
The authors reference and draw upon the work of prominent economists and researchers in related fields, such as Zvi Bodie (investing, risk management), Douglas Bernheim (financial literacy, behavioral economics), David Laibson (behavioral economics, designed neglect, compulsive behavior), and researchers on fiscal policy and Social Security like Jagadeesh Gokhale and Kent Smetters. They also mention sociologists and legal experts who discuss related issues like spending pressure and debt, such as Juliet Schor and Elizabeth Warren.
The book is different from similar books in the following ways:
Economics as the Sole Guiding Principle: While many financial books might incorporate some economic concepts, this book makes economics—specifically consumption smoothing—the explicit, foundational, and overarching framework. It asserts that this is the only scientifically valid approach to personal financial health.
Consumption Smoothing as the Target: Unlike conventional methods that ask you to set a spending target, this book argues that the smooth, sustainable level of consumption is the inherent target determined by your resources. This reframes the entire planning process.
Holistic Resource View: The book emphasizes planning based on total economic resources, including not just financial assets, but also human capital (earnings potential) and government benefits (Social Security, Medicare, etc.), viewing them as nonmarketable assets similar to bonds. This differs from approaches that focus primarily or solely on managing a portfolio of financial assets.
Blunt Criticism of the Industry: The level and nature of the critique against the conventional financial planning industry, calling it misleading and harmful, are unusually direct and strong. This sets it apart from books that might offer alternative strategies but don't fundamentally dismiss the conventional approach as incorrect.
Integration of Human Behavior (while maintaining the economic core): While the solution is economic, the book's detailed discussion of "financial pathology" and the reasons behind poor financial decisions provides a more realistic starting point than books that simply assume rational financial behavior.
Emphasis on "Pricing Your Passions": Framing lifestyle decisions in terms of their impact on a smoothed living standard ("pricing your love") is a unique and actionable way to connect financial planning to personal values and choices.
“Fire your broker”
“Conventional financial planning is simply wrong”
SPEND TIL THE END - LAURENCE KOTLIKOFF - RETIREMENT FINANCES - CONCLUSION
"Spend ’til the End" is a provocative and illuminating book that offers a truly different perspective on personal finance. By discarding conventional rules of thumb and arbitrary targets in favor of an economics-driven framework centered on consumption smoothing, it presents a rigorous method for achieving a higher and, crucially, more stable living standard throughout life. Its blunt critique of the financial industry forces readers to question commonly accepted advice, while its discussion of financial pathology provides a relatable context for why people struggle with money. While implementing its recommendations precisely may require utilizing sophisticated software, the book successfully lays out the theoretical groundwork and provides numerous examples that can fundamentally change how one thinks about saving, spending, insuring, and investing. It delivers on its promise to be a "revolutionary guide", making a compelling case for an economics-based approach as the path to genuine financial health.
FREQUENTLY ASKED QUESTIONS ABOUT SPEND TIL THE END BY LAURENCE KOTLIKOFF AND SCOTT BURNS
What are the "Three Commandments of Economics" for personal finance that the book introduces?
The authors present a three-part prescription for personal financial health, which they term the "Three Commandments of economics". These core principles are maximize your spending power; smooth your living standard; and price your love.
Following these prescriptions is said to help you live a more relaxed and happier life by achieving a higher and more stable living standard and a better lifestyle. The book argues that achieving these goals, particularly maximizing spending power and smoothing living standard, requires "pricing your passions". They state that these concepts, while perhaps having foreign economic lingo, are familiar and represent the "bottom line" of economics regarding your living standard.
Why do the authors claim that conventional financial planning is fundamentally "wrong"?
The book strongly asserts that "virtually every bit of conventional financial wisdom you’ve heard over the years is simply wrong". The authors argue that conventional financial planning has "failed miserably in securing the financial health of tens of millions of Americans". A major reason for this failure is that conventional planning asks individuals to set their own retirement spending targets. The book contends that setting these targets correctly is "virtually impossible" and is the "toughest part of the entire financial planning problem".
They illustrate that using current spending to set future targets is flawed because current spending almost surely differs from what you should be spending based on consumption smoothing. Furthermore, even small mistakes in setting these spending targets (e.g., 15%) can lead to "huge mistakes" in saving and insurance recommendations, resulting in "major disruptions" (e.g., 25% or more) in your living standard throughout life. This "consumption disruption" is called the "hallmark of traditional financial planning".
The authors also criticize conventional tools and planners for using "wildly high saving and insurance recommendations" and "high replacement rates" (like TIAA-CREF's recommended 80%) to encourage purchasing financial products, rather than helping you smooth consumption. They argue that the industry is "trying to sell you a product," not trying to help you, and that financial institutions aren't your friends; they are "pimping risk" by encouraging investment in higher-return securities to meet those unrealistic targets, which exposes individuals to "much more downside risk".
What is "Consumption Smoothing" and why is it so central to the book's approach?
Consumption smoothing is the central economic concept and the "single most important thing" the book teaches. It is described as economics' prescription for financial health. The goal of consumption smoothing is to achieve the "highest sustainable living standard" possible, but crucially, one that is also stable over time. This means having a relatively stable living standard by adjusting your spending, saving, insurance, and asset holdings on an ongoing basis based on your wages, current assets, and other economic resources.
The book uses examples, including starting as a drug dealer (to simplify the scenario by avoiding taxes and Social Security), to illustrate how different life circumstances (like unexpected longevity or acquiring dependents) dramatically change the optimal saving and spending plan required to maintain a stable living standard. Consumption smoothing provides a precise figure for how much you can spend each year to keep your living standard stable and as high as possible, abstracting from borrowing constraints and risks. In contrast to conventional planning's targeting approach, consumption smoothing itself is the target.
“Worry about inflation”
“The only truly safe asset is TIPs [inflation-linked bonds]”
ABOUT LAURENCE KOTLIKOFF AND SCOTT BURNS, AUTHORS OF SPEND TIL THE END
Laurence J. Kotlikoff is a New York Times Best Selling author; a William Fairfield Warren Professor at Boston University; Professor of Economics at Boston University; Fellow of the American Academy of Arts and Sciences; Fellow of the Econometric Society; Research Associate of the National Bureau of Economic Research; and President of Economic Security Planning Inc, a company specializing in financial planning software. Professor Kotlikoff received his B.A. in Economics from the University of Pennsylvania in 1973 and his Ph.D. in Economics from Harvard University in 1977. The Economist Magazine ranked Kotlikoff among the world's 25 most influential economists. Professor Kotlikoff is author or co-author of 21 books and hundreds of professional journal articles. Professor Kotlikoff publishes extensively in newspapers, and magazines on issues of personal finance, taxes, Social Security, healthcare, deficits, taxes, generational policy, pensions, saving, and insurance. Professor Kotlikoff has served as a consultant to numerous international organizations including International Monetary Fund; World Bank, Harvard Institute for International Development; and he Organization for Economic Cooperation and Development. Professor Kotlikoff has provided expert testimony on numerous occasions to committees of Congress including the Senate Finance Committee, the House Ways and Means Committee, and the Joint Economic Committee.
Scott Burns is a nationally syndicated personal finance columnist distributed by the Universal Press Syndicate. He is an M.I.T. graduate and the author or coauthor of three previous books. He is also a founder and the chief investment strategist of AssetBuilder, an internet-based asset management firm that delivers optimized risk-measured index portfolios for investors.
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