If you use piecemeal calculators you'll get a set of suggestions that don't add up. The advantage of MaxiFi's integrated financial planning is that all its suggestions and calculations, including federal and state taxes, are absolutely internally consistent. It jointly handles all the factors you mention and more. So, your living standard and life insurance needs must be jointly calculated. But your sustainable living standard (if no one dies) depends on the amount of insurance premiums you'll be paying. You can't decide how much to buy until you know the living standard you need to insure.
Is there an advantage to incorporating them into a single program like MaxiFi?Īll our financial decisions are interconnected.
#Consumption smoothing free
I can find lots of free "single-purpose" planning tools on the internet, tax planners, sustainable withdrawal rate calculators, life expectancy calculators, Social Security optimizers, RMD calculators, asset allocators, etc. Financial planning is supposed to help us make the right financial decisions, not tell us something we don't want to know about something we shouldn't be doing. I can't fathom why anyone would wish to know the probability of financial survival in the context of making three major financial mistakes. The third mistake is assuming you'll spend your targeted amount year after year in retirement whether your assets go through the roof or fall through the floor.Ĭonventional planning's "probability of ruin" Monte Carlo simulations calculate the chance you'll run out of money if you make all three mistakes, i.e., if you a) save the wrong amount each year before retirement, b) spend the wrong amount year after year after retirement, and c) never adjust your annual spending once you retire.
Second, conventional planning assumes you'll keep saving what you are now saving. But even if I guess a "reasonable" number, I'm going to be miles off the level that MaxiFi will calculate. First, it asks people their retirement spending targets. Please explain why you prefer consumption smoothing.Ĭonventional planning is built on three mistakes. Most retirement planning tools measure success with "probability of ruin", or the percentage of simulated future scenarios in which a retiree can expect to not outlive their savings. MaxiFi will budget for this and have you pay for it by spending less ever year before and after the trip. You can also specify special expenditures, like a major trip when you reach 70. The tool will recommend discretionary spending that follows your desired living standard path as closely as possible subject to not putting you in debt. MaxiFi has a Standard of Living Index that lets you tell the program you'd like to have a higher living standard earlier in life and a lower one later on. But spending more at some ages than others isn't inconsistent with "smooth" consumption, is it? My goal is $1 billion.Ī retirement planner recently commented to me that retirees don't all want "smooth consumption" some want to spend more early in retirement. In contrast, conventional financial planning asks you to set a goal for annual retirement spending. It also helps you find investment strategies that limit your investment risk. In so doing, MaxiFi eliminates the guesswork in planning your retirement finances. MaxiFi calculates this directly based on your lifetime resources net of future taxes and gross of future Social Security benefits. Leaving aside issues of investment risk, the core financial planning question is how much to save each year to achieve a smooth consumption ride. Whether retired or still working, rich or poor, we're after the same thing - a highly stable living standard. None of us wants to splurge today and starve tomorrow. It's firmly anchored in human physiology. Kotlikoff, you say that MaxiFi is based on "consumption smoothing", the "proposition that households want to have a stable standard of living through time as well as across good times and bad times." What does that mean to a retiree or to someone saving for retirement?Ĭonsumption smoothing is at the heart of economics-based financial planning. Kotlikoff some questions about his product.ĭr. I have also worked for several years with another online retirement planning tool that is not free but is quite affordable, economist Laurence Kotlikoff's MaxiFi. Overall, I have to say that most were disappointing. I've been working on a research paper with UNC econometrician, Neville Francis for the past year and that has given me the opportunity to look at several free online retirement planners.
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