For years, Boston University economics professor Larry Kotlikoff has advocated for consumption smoothing — essentially creating a sustainable living standard that “smooths” out over a person’s lifetime. He’s even created a software solution that gets the job done.
But the advisory community has overall ignored the economist’s top counsel: that economics-based planning replace traditional financial planning. That could be changing.
The Retirement Income Industry Association recently named Kotlikoff, 58, the winner of its Achievement in Applied Retirement Research award in acknowledgment of his influence in the field of retirement income management and financial planning. (Disclosure: Research Editor Gil Weinreich chaired the committee that selected the award-winner.)
PROFESSOR OF ECONOMICS, BOSTON UNIVERSITY
PRESIDENT, ECONOMIC SECURITY PLANNING
“Financial planning done right is rocket science and what they’re using is 14th century medicine when we have penicillin.”
With retirement income planning now in the national spotlight, RIIA Chairman Fran?ois Gadenne said consumption smoothing, ignored by most academics, is likely to emerge as a hot topic.
“He’s tackled a problem that’s central to the topic of retirement, not so central to the topic of wealth accumulation,” notes Gadenne.
“He’s got the academic piece and for the last 20 years he’s been trying to implement his idea in a startup in a software package. Net net, that makes him a pretty interesting guy — a guy who is involved with two interesting things that may be coming at the right place at the right time.”
Kotlikoff says much of the traditional financial planning being done today is faulty because it focuses on selling products rather than helping people raise their living standards. As well, he adds, it often involves setting spending targets that are too high and putting investors in risky assets.