Money Management Edition

“I’m still young! 

Isn’t it too early to plan for retirement when I haven’t even settled in my career??”

Let us answer that. It’s NEVER too early to plan for retirement.

Being aware of your current financial status and expenses is important. Why? 

With everything that’s happened in the last couple of years, people have a lot of concerns. 

Numerous laws have been signed, expired, and signed again to help out with numerous families that were affected by the pandemic. Jobs are lost, employees were laid off, and more people are working on multiple jobs to make ends meet. 

At this point, it is impossible to know how the economy will be like in the next couple of years. Are we about to face another recession caused by the pandemic? Will the economy pick it up?

For Prof. Laurence Kotlikoff, it is important to plan for your retirement to overcome the threats facing the US economy. Prof. Kotlikoff is a Professor of Economics at Boston University and is a New York Times best-selling author. In 2014, The Economist named him one of the world’s 25 most influential economists. His company, Economic Security Planning Inc, aims to preserve and raise families’ living standards with powerful, cutting-edge software.

Join us on The Free Retiree Show as Prof. Laurence Kotlikoff discusses how to plan for your retirement to overcome the threats facing the US economy. With hosts, wealth manager Lee Michael Murphy, career advisor Sergio Patterson, and attorney Matthew McElroy.

What You’ll Learn:

  • How to plan for your retirement to overcome the threats facing the US economy
  • The current threats in the US economy
  • Tax reform plans that can make a difference in the country

[00:00:00] Lee Murphy: Ladies and gents, welcome into your favorite podcast. Talking all things, career money and business, the free retiree show. I’m your host wealth manager, Lee Michael Murphy. And I’m alongside interview coach and Silicon valley mentor, Sergio Patterson. What is up everyone and Silicon Valley’s favorite attorney Matthew McElroy.

What’s going on for today. This episode, we’re going to be talking about what is going on with the economy. With everything that’s happened last couple of years, people have a lot of concerns in March of 2020 Congress passed the cares act, which provided 2.2 trillion of economic stimulus. And Congress issued the first moratorium as part of the cares act.

The CDC stepped it after the expiration of the cares act and more time to issue its own moratorium, which has been extended numerous. Shortly after president Joe Biden came into office. The 1.9 joint [00:01:00] American rescue bill was signed and passed into law. And recently president Joe Biden extended the eviction more time outs October, and this was a move done to help roughly 6 million families with roughly 15 million people within them who are behind on rent.

So guys, are you guys concerned with everything that’s going on? What are your guys.

[00:01:24] Matt McElroy: I think that there’s a lot of moving parts and I don’t fully understand all of them. And so hopefully today we can get a little bit more insight on ~what’s ~what’s really going on.

[00:01:34] Sergio Patterson: There’s been a lot of money printed over the last couple of years, so. It’s going to be interesting to see what happens in the kind of trickle down impact.

I think it helped a lot of people out, but,~ um, ~my concern ~is, ~is what happens when it goes away. ~Um, ~and what do people do, right? ~Like what ~what’s going to happen.

[00:01:47] Lee Murphy: Yeah. So for this discussion guys, we have an amazing guest for you.

We are privileged to have world renowned. Professor Laurence Kotlikoff Laurence is a professor of economics at Boston university. [00:02:00] In 2014. He was named by the economists as one of the world’s top 25. Most influential economists. He’s been associate professor at Yale. He’s attended Harvard and the university of Pennsylvania.

He has very popular articles that you see all over the web,~ uh,~ financial times, Bloomberg Forbes. The economist Yahoo Huffington posts. And he’s also, co-authored a New York times bestseller get what’s yours, the secrets to maximizing out your social security.

And he’s been the coauthor of 16 books and his next book Money Magic. And economist secret to more money, less risk, and a better life is coming out January. Are you guys just pumped to have the professor on today?

[00:02:44] Laurence Kotlikoff: Yeah,

[00:02:44] Lee Murphy: that’d be interesting.

I think it’s a good timing, right? Yeah, exactly. Everyone’s got a lot of questions and that we got one of the best to come on and present for us. So we’re going to take a quick break. But before we do so, makes you like our show. Share us. If you have questions for us [00:03:00] finance related career related, legal related, or even a question for the professor, send them to

We’re going to take a quick break, but when we’re back, when we say now with professor Laurence Kotlikoff.

Welcome back in to the free retirees show. We are sitting down with the man, the myth, the legend. Professor Laurence Kotlikoff, how are you doing today?

[00:03:22] Laurence Kotlikoff: Great, great to be with you guys.

[00:03:25] Lee Murphy: It’s an honor, and a privilege to be sitting down with you. I’m a big fan of your work. I know the guys are as well.

We love what you’re doing in the world of economics. So thank you for joining. Yeah, no,

[00:03:35] Laurence Kotlikoff: no, my pleasure and honor. And anytime. Yeah, let’s go.

[00:03:41] Lee Murphy: So professor, first question, current state of the US and the global economy. What is your take on it? There’s all these articles that come out every single day.

Everyone’s got a different perspective, guests. ~Um, ~but none with the credentials that you have, so want to hear, like, what’s your thoughts on everything that’s [00:04:00] happening right now? And then we’ll get your take on the path. You think we’re headed down.

[00:04:05] Laurence Kotlikoff: So, ~uh, ~things are pretty fragile, ~you know, ~where the Delta variant ~and, ~and,~ um,~ with the thing raging out of control, we have something like a hundred thousand close to a hundred thousand new cases.

I think our peak was maybe. 200,000. ~Uh, ~we have still have about 5 million fewer people employed than we did at the beginning of ~uh, ~the pandemic. So, ~you know, ~the big,~ uh,~ wild card here is, are we going to be able to get this back under control? Now, fewer people are dying, but a lot of people are.

Hospitalized ,~ uh, uh, ~and clearly the vaccinated or getting infected. ~Uh, ~

~ ~The economy right now is because we don’t have this under control. W we don’t have a game plan is very fragile and you could have the tourist industry you go back to is, ~you know, ~where it was restaurant industry,~ uh,~ Tramp people will not be driving.

Transportation will go down and,~ uh, you know, ~retail. ~Uh, ~so we could see another major decline in the economy. ~Uh, ~and we had around a 30% [00:05:00] decline in that. The second quarter of 2020. So it’s very dangerous. And then you’ve got the fed, having printed a huge amount of money, as you were saying.

~Um, ~and,~ uh,~ Lee that,~ uh,~ and,~ uh, I~ I guess, ~um, ~Sergio,~ uh,~ We have been,~ uh,~ you had just four trillion dollars worth of spending against COVID. We’ve had another 4 trillion. We’re about to spend another 4 trillion between the infrastructure bill and ,~ uh, uh, ~the additional spending bill that the Democrats have, those $8 trillion.

Most of this is being deficit financed. ~Uh, ~and so what the treasury does, it says, well, we have to pay for this stuff to send people checks. We have to ,~ uh,~ build bridges. So rather than tax, we don’t have enough taxes. We’re going to just print up orange pieces of paper, which are called bonds, sell them to.

I’m going to sell them to Matt. He’s going to give me money. I’m going to use that to grow, why that ~bridge ~bridge or do the transfer payment. ~Uh, and, ~and so now a different man has [00:06:00] gotten the money back,~ uh, , uh,~ so the amount of money has gone from orange favors going to matte green. Paper’s gone from Matt to me, the government I’ve down, take my green paper and put it back in the economy.

We have,~ uh,~ the same amount of green paper out there, but we have more orange paper. Matt still holding the orange paper. Then the fed prints some green paper and buys and swaps it for the orange paper. Now we have more green paper than we had to begin with. We have the bridge being built and is being built by printing green paper.

That’s money creation. That’s the way it works mechanically. And this honk is convoluted process is so that none of us can really see what’s going on. Now. It was can really understand. Now we have printed a six fold increase in the money supply. It has happened since 2008. And in addition to the speed at which money is circulating as slowed and more than half.

So we have the prospect right now, the capacity. To have a 12 fold increase in the price level, and you’re [00:07:00] starting to see inflation takeoff. Now a lot of that is supply ~chain ~chain issues, but,~ um,~ we’ve had five and 5.4% increase in prices. And Sergio has kind of raising a question. How’s this all going to get paid for?

Well, anybody has money. He just lost 5.4% of the purchasing ~power ~power. They just suffered a tax over the last year. ~ ~5.4%,~ uh,~ of their purchase of the value because they’re getting, they’ve gotten nominal dollars and they’re now worth 5.4% less in terms of hotdogs. ~Uh, ~if you Matt, if you own bonds, you’re the lawyer, right.

And you probably had ~the, the, ~the big net wealth, right. So you would probably have some long-term government bonds there where you lost 5.4% in real terms from those bonds this year. ~Uh, ~just over the last 12 months, this month could come in at 8%. If they, I don’t know. How much it will be, but it could be very high number.

And now what happens? So, ~um, ~when inflation gets into people’s heads, Like I have a small, ~you know, ~a software company and we have this [00:08:00] terrific financial planning software.

It might be able to talk about,~ uh,~ that help people, but we haven’t taken any price increases for five years on our main project . And now I’m saying, look, prices are going up. I just gave my guys a raise, but they just lost them through inflation. ~Um, ~so I have to, I can’t keep my prices where they were.

And I also know, and this is a key thing that other people are raising prices and therefore my customers will not get upset with me. If I raise prices, they’ll understand where I’m coming from. So we now have, is a setting where everything is opportunistic price increases. So, and that could have,~ uh, you know, ~kind of a producer vicious cycle where people see prices going up.

They go up even more than expected maybe. And then people start saying, well, I need to take another price increase. And another one. And you’re on prep pal, who was the chairman of the fence. Can say, well, we’re not going to let him prices go up beyond 2% a year, but they’re already gone up five and a half, five, and a [00:09:00] quarter of 5.4% in the last year.

So he doesn’t have control. And at some point he’ll lose credibility. He should have already. He’s a lovely guy, a brilliant person, a great chairman of the fed, but the fed doesn’t have a. You’re kind of a immediate control of wall where the fed has is very blunt instruments that could produce a recession, but we’re to have kind of, we’re heading towards a recession right now as I speak.

So that’s not going to help. So he might be right. We might have another recession. Prices may not go up or they may go up any further or much further. And then,~ but,~ but ultimately it would get back to surgery’s point, which is that we’ve been printing so much money running so much debt,~ um,~ that the round for inflation, the foundation for inflation for really hyperinflation has been laid.

I’m not a registered Democrat or Republican. I ran actually ran for president 2016 as an independent, as a [00:10:00] writing candidate in order to write a platform,~ uh,~ to specify how I thought we should fix the country.

[00:10:05] Matt McElroy: That was all really great. I mean, one of the things you talked about was the, ~you know, ~that we might be heading towards a recession,~ um,~ like what do you think would trigger that?

Like ~what would, ~what would be ~the, ~the straw that breaks the camel’s back on.

[00:10:14] Laurence Kotlikoff: ~Uh, ~I think it’s really there’s Delta. I think it’s the Delta and the Lambda that’s possibly coming. I mean, ~you know, ~we have a hundred thousand, 90,000 last time I looked,~ uh,~ new cases a day. It was down to maybe 10,000, a few months ago.

So from 10 to, this is exponential growth right now. Anybody who ~doesn’t ~doesn’t have a vaccine and,~ uh,~ and even people that do have a vaccine or walk around without a mask on at this point, given the Delta, given to that, to vaccinate, people can get infected and the non symptomatic, they are putting other people’s lives at risk.

And that wasn’t the case two weeks ago. I understand the situation, but the last two weeks things have changed dramatically.

And we now have to realize that [00:11:00] we can be killing people, literally killing people.

[00:11:03] Sergio Patterson: Professor, you mentioned,~ uh,~ we were talking about how you were writing candidate and I was looking at your plan and I probably would have voted for you if I saw this,~ uh,~ I saw this plan to be honest.

~Um, ~I was curious, the real tax reform really stood out to me. ~Um, ~this is one of the first slides. Solid tax reform plans that I’ve seen, like, I’d be curious, like how feasible or real do you think this could be, where you talk about eliminating, ~you know, uh, ~personal income tax, corporate income tax. Those are some pretty big, ~you know, ~revenue, generators.

I was just curious, just to learn more about the real tax reform

[00:11:34] Laurence Kotlikoff: in your time. Yeah, sure. Well, let me just say in general, that economist has been studying this, there’s 20,000 economists. ~Um, ~and when it comes to building a bridge over,~ um,~ the Hudson river, the federal government,~ uh,~ the core of our army Corps of engineers so forth, that would be involved.

They would get civil engineers, people that are really. ~You know, ~experts in building bridges, who’ve done it to design the bridge in Congress. We have fives on my 550 members on a single [00:12:00] PhD in economics, so, and nobody with any background in public finance. So, so you can imagine, ~you know, ~so we have a complete,~ uh,~ Byzantine system with all of these different subsystems of taxes and ~benefit programs, ~benefit programs, and bed taxes, because you earn more money and use your fruits too.

That’s a tax, you lose your Obamacare subsidies, ~you know, ~and then the tax system includes benefits like the earned income tax credit. So it’s a mess. And what we want to have in the end is the right amount of revenues. So we don’t endanger, ~you know, uh, ~basically,~ uh,~ expropriation. Our children beyond what we’re already doing, which is horrendous people like, ~you know, ~annoying say my children.

I’m thinking about you guys actually cause you’re 70 and you guys were probably 30 of what it looks like.

[00:12:50] Sergio Patterson: That’s about it. That’s actually, that makes me feel good. I’m 36

[00:12:53] Lee Murphy: generous. Well, we appreciate it.

[00:12:56] Laurence Kotlikoff: the,~ uh,~ so, so what we need to do is [00:13:00] get them out and get the right amount of revenue. We have three criteria, you have the right amount of revenue,~ uh,~ having the system be. At least as progressive as the current system, at least is fair and equitable. And actually the super rich need to pay their taxes.

That’s so we have to go beyond the current equity. We have to absolutely make sure that the super rich pay that they pay zero taxes right now in ways I can explain it quickly if you want. ~Uh, ~I mean, we’re talking about billionaire, not talking about 900. There are 20 million millionaires out there, but the billionaires pay nothing because they have very simple way to do it.

They just want, I’ll tell you they borrow against their wealth. And so ~they, ~they invest in things that have capital gains, accrued capital gains that they never realized they never sell those assets. So they never realized the capital gains on their taxes. So the money accumulates and they just borrow against those assets to pay for their yachts and their other consumption.

And they borrow at low rates because they got a lot of wealth, so they’re very credit worthy. [00:14:00] And then when they die, they leave the money to their kids. We know capital gains tax to what’s called a step up in basis. This is how the super rich, absolutely avoid taxes. This is why Donald Trump has, is afraid to reveal his tax returns because.

He hasn’t paid taxes. Well, we know now that from the New York times revealing. Then for many years, he didn’t pay any taxes. This is one of the many tricks, but this is a principle trick and it’s a fair legal, it’s a legal term. It’s a ~trick ~trick. It’s not a fair one, but it’s a legal trick that,~ um,~ or let’s leave on the sense.

Perfectly legal. ~Um, ~anyway, so we need fairness. We need the right render amount of revenue, but we also have to have work incentives. There was an article about marginal taxation that shows as the poorest, 20% of our country are marginal tax brackets of 70% or higher.

So Matt, if you’re facing a 70%. Marginal tax, where every dollar you are, you lose in benefits. You lose in tax, extra federal income taxes. [00:15:00] You lose in state income taxes, you lose an excise taxes, you losing sales, taxes, all these taxes, a net of the benefits that ~you ~you’re also losing benefits.

Potentially you’re getting benefits. ~Um, ~in some programs you actually get benefits. If you’re poor enough here and enough money. ~Uh, ~at the beginning you get benefits. So it was a subsidy non-detect anyway, 70%,~ uh,~ tax rate or higher. When you work, suppose you’re in a 90% marginal tax rate. Matt, when you go to work tomorrow, you go surfing right.

You to do something.

[00:15:34] Matt McElroy: Yeah, definitely.

[00:15:38] Laurence Kotlikoff: Or you’d say ~on the, ~on the government’s Dole, because ~you know, ~if you were in more money, you’re gonna lose it. So it’s not worth working. So we have to get these margin tax rates now. So back to Sergio’s question the best way to tell.

~Uh, uh, ~ all public finance economists agree is to tax consumption and you can have a retail sales tax. You’re going to have a, what’s called a value added tax, which [00:16:00] every developed country except the U S has,~ uh,~ which is actually very much likely a corporate tax. So it could be our Republican members of Congress.

~Um, ~they would buy something if it had a different name. ~Uh, ~because they don’t really understand why they’re opposed to the value added tax excepted. The Europeans have it accepted somehow is connected with French fries. And,~ uh,~ so if we call the value out of check something else implemented the same way,~ uh,~ and again, it’s very similar in terms of implementation to where the corporate tax rate, you could take their us corporate tax, and immediately turn it into the value added tax and just call it the corporate income tax or revise for rent.

So now we have, let’s say a retail sales tax. ~ ~federal retail sales tax, the federal value added tax. And then what’s called a progressive consumption cashflow tax. And how does that work? Well, all the money that you get in from any source, well, that’s all the money you invest. ~Uh, ~the difference in a given year is your consumption.

So I would tax [00:17:00] that cashflow consumption measure at progressive rates. So I’m to a hundred thousand dollars, you pay nothing beyond that. You’d pay marginal rate up to about 30%. So we would be taxing every, the super rich everybody’s,~ uh,~ the rich, the consumption, the spending of the rich and a 30% rate.

And we would tax them on their worldwide. Consumption not just on their domestic unit. So somebody goes to Antigua and lives there on their yacht. Well, we were tax,~ uh,~ all their spending that they’re doing in Antigua, including the value of me imputed rent on ~their, ~their rent, that during effect paying themselves when the shot.

So a large part of ~the, ~the spending of people, the consumption is on housing. So people have these, ~you know, ~five mansions and each one of them they’re in effect, paying rent to themselves because they could otherwise be running it out. So, so there, so that’s a [00:18:00] form of,~ uh,~ consumption services. We have to impute that very simple thing to do.

Our national income accountants have been doing it for about 50 years in terms of measuring our GDP. So it’s trivial. We can fix this overnight. All I need to do is be president for a couple of weeks and we’ll have a fixed. Now. The last time I ran, I was clearly too young. So,

[00:18:26] Sergio Patterson: you can fix our COVID problem and tax two weeks.


[00:18:30] Laurence Kotlikoff: awesome. Banking in about a day and afternoon.

We can fix security, healthcare. Can you throw healthcare in there? Yeah. I wrote a book called the healthcare sector. ~Uh, ~and have written a lot of, and then it’s also disgusting that in the you’re higher, this is not, and it’s not just me. I’m not like some miracle worker. I just am old enough to have watched it all.

And I’m interested enough problems. ~I, ~I study lots of issues like right now are trying to work on carbon taxes this morning, [00:19:00] global carbon taxation and how to do it. Right. And, but I also am a humble enough to know. I don’t know anything. ~Uh, ~I don’t know everything. So I have to talk to other economists and see what they think.

So I’ve in writing this book, I asked all the top health experts. What’s your reform plan? ~Uh, ~banking. What are you guys think here? The finance, the banking experts. ~You know, ~how should we fix those trees? So I looked at all the different reform plans and it’s not that my proposals are necessarily a consensus view.

Generally. I,~ um,~ I don’t go with a T a crowd, but I go, ~you know, ~if somebody said something that I actually had wrong or. Had a better idea. I went with that. So these proposals, I think are the best economics has to offer. They’re not the best Kotlikoff has to offer, but the best economics has to offer. And we should be paying attention to the civil engineers when we’re building the bridge across the Hudson.

It’s that simple

[00:19:58] Lee Murphy: professor.

I want to ask you [00:20:00] about the longterm impact right now, with everything that we’ve done and people are concerned with their retirements right now, just because we’ve printed a lot of money. Does it matter? Does it not matter? I mean, I think you and I talked in a previous discussion about modern monetary theory,~ um,~ and you had some pretty strong opinions on it, but you know, there’s a, there seems to be two ways of thought right now, some people are really scared of everything we’ve done.

And there’s some people that like, well, we just printing money. It’s fine. ~You know, we’ll, we’ll, ~ we’ll figure it out, but how do people plan for their retirement and ~what do you, ~what do you think the long-term impact is banned from everything that we’ve

[00:20:32] Laurence Kotlikoff: done? Oh, okay. Well, let me ~just, ~just really quickly on modern monetary theory, I will call it stupid monetary dribble flurry here.

These people don’t know anything. I talked to him to that very top. I have to be with these people ~and, ~and, ~you know, ~I can tell the economists from thousand feet away and these people are not economists. These people are,~ uh,~ hucksters. So. Let’s just better as for retirement,

[00:21:00] how you plan for your retirement.

The key thing is we have to take into account, ~uh, uh, what economics~ what economics says, which is entirely different from what wall street is selling. The snake oil they’re selling is that you have to look at your resources, your current and future earnings, your 401k, ~uh, ~your negative resources, things you have to pay for like your house and mortgage,~ uh,~ putting her kids through college, any off the top fixed expenses.

And basically you look at all this stuff and also incorporate the taxes and you figure out a smooth living, stand up ~a plan, ~a plan, so that you’re going to have a stable living standard. If you live to your maximum major life, which is where most people’s lives. So economics is a very clear going back a hundred years, that what we’re focusing on, what we need to focus on is consumption, smoothing, having a smooth living standard per household member.

That’s precisely what my company’s . I’m gonna plug in your resources two seconds. They, half a second later comes back. ~Here’s your, ~here’s your spending path? Here’s your saving path?

~Uh, ~[00:22:00] now let’s figure out safe ways to raise it. Let’s think about intelligent ways to deal with stress. ~Um, ~so that you get higher benefits over your lifetime. Let’s think about how to handle your retirement accounts. So you get higher, lower taxes. Let’s think about things like Roth conversions, prepaying, your mortgage, whether you should take, whether you should go to this college, can you afford it or not?


[00:22:17] Sergio Patterson: professor, that’s a really good point. We have a lot of listeners in that demographic. We’ve had some people talk about the mistakes made around


money, the debt you go into. So ~I ~I’m aligned with you there. that could be a whole another show.

But ~that’s, ~that’s a tough situation for a lot of kids

[00:22:31] Laurence Kotlikoff: every Sunday, whenever,~ uh,~ while the topics here, I mean, banking is a same topic. What happened? What really happened in the great recession? ~Um, ~do we really have a handle on what went on there? ~Uh, ~ I think everybody’s got the wrong idea.

~Um, ~and the brothers are very simple fix for banking, healthcare. How do you fix healthcare? Very simple fix. I mean, each of the proposals that I ran on is 10 bullets and most. ~Um, ~because I realized that if you’re going to communicate to the [00:23:00] public, you can, and you can’t put out a very complicated plan.

They’ll never get adopted or that we’ve got screwed up, but you keep it very simple and it doesn’t have to be complicated to fix elder. It can be 10 simple things. And anyway,~ uh,~ back to retirement, there’s lots of ways that people can get a higher living standard by and I losing money and not making dumb mistakes about going to college.

Dumb mistakes, about how to repay your student loans,~ uh,~ and,~ uh,~ dumb mistakes about your career choice. Dumb mistakes about jobs,~ uh,~ dumb mistakes about not participating in 401ks, dumb mistakes about taking social security way too early, dumb mistakes about investing,~ uh,~ at,~ uh, uh, ~too much risk,~ um,~ without understanding how risky it is and being sure that the stock market is safe in the long run.

That’s one of the dumbest mistakes out there. There’s absolutely no evidence of that. Indeed. All the evidence points the other way. ~Um, ~so part of it, ~you know, ~part of it,~ uh, ~there’s a whole lot of tricks for how to make money,~ uh,~ safe ~without, ~without even [00:24:00] putting any money in the stock market.

I’m just talking about making money safely. This is what he comes to, brings to the table that,~ um,~ because we have this technology now. They can figure out your living standard, but then, ~you know, ~internally in the program at robo optimizes your living standard, but then you can also manually try things to get your living standard or higher, or this path or your living standard.

And it’s all, ~you know, ~just using the tax system and benefit system housing,~ uh,~ decisions,~ uh,~ state income tax, where you live career choices. ~Um, ~so yeah, I think, yeah. And now, ~you know, ~to the question that you’re, I know what I want to talk about it, here are the next set site, a different segment, but so Australia is in terrible trouble and yeah, we need to be saving a lot more than we think, and we have to stop making dumb mistakes about retiring early.

The baby boom generation showed up in retirement. Having felt that the government having taken like a [00:25:00] 15.3% of their pay for in social security, FICA taxes for Medicare and social security and the employer putting in money in the 401k, if they could to contribute,~ uh,~ participate that those two entities.

Those two father figures, we’re going to take care of them in retirement, but they were wildly wrong. And now with these very low interest rates that the fed has manufacturing, real rates. So all these people were retiring early. Thinking that somehow life has made for them because they did the right thing.

They participate in the 401k, they pay their social security. Now retirement is secure. It’s not, they have like three years of earnings on average in terms of the net wealth and they’re facing penury and all that. Yeah. Poverty and old age of,~ uh,~ so they should really be if anybody’s still out there working in their young sixties or late [00:26:00] fifties, and you’re thinking about retiring early, forget about it.

~Uh, ~it’s financial suicide, unless you’re one of these, ~you know, ~super wealthy people,~ uh,~ Don’t do it. That’s one of the things, ~you know, ~the mat, the book is very hard nose, but you know, it’s coming from a good place. So it’s gonna,~ um, you know, ~I S one of the chapters is called marry for money. ~Uh, uh, you know, ~who writes a book that says marry for money, right?

~Uh, ~well, I did.

[00:26:24] Lee Murphy: Yeah. So economic base financial plans. ~You, ~you seem to be a big advocate of that. Do you think that this is an answer to the future retirement planning problems that we may

[00:26:35] Laurence Kotlikoff: face? Yeah, you can see exactly what’s going on. If you retire, if you tell the program you’re going to retire at 60, it says, Hey, you’re living Stanford’s down here.

Well, let’s run another case profile where I retired 65. Hey, it’s up here? It’s 15%. 20% higher. And I’m running this at age 30. It’s third, 20% higher from age 31. I don’t need to save it. If I retire at 60, I have to save a, bundle [00:27:00] a huge amount,~ uh,~ because I’ve got five more years of retirement to finance.

So this is a way of having a higher living standard right away with planning to retire later. I think there’s something a little deeper here. ~Uh, ~it’s going on? Why is it that we are all that so many people were screwing up this decision and the reason I’m coming at this from this angle, Is it, this is one of the many topics that economics kind of covers that you wouldn’t necessarily ever think about in your daily conversation if you’re not an economist, but think about the fact,~ um, ~that,~ uh,~ Lee, that you’re now, let’s say I’m going to make you 35.

Okay. Thank you. That helps me. All right. 35. The question is, do you really give a damn about yourself when you’re 85 or do you think of that person as some other person who’s not somehow disconnected? You may psychologically say that 85 year old, hasn’t done a damn thing for me and is not going to ever do a damn thing for me.

So. [00:28:00] I’m not going to do a dancing for him and that, but you have to realize you’re the fiduciary ~you’re, ~you’re the parent of that 85 year old version of you, of Lee. And you have to take care of it. And most people are, seem to think that the 85 year version of them is not, that it’s just connected is some different person.

And,~ uh,~ we call this in economics, other selves, people who think that they have multiple cells that they have. The current self, but then they’ve got this other personality and effect in their body. That’s going to be there, but they don’t treat them as them. And that this like a game between the two parties inside their head, it’s almost like a model of schizophrenia.

And that is, we have people getting, ~you know, ~Writing theses all the time and a whole lot of work done on this,~ uh,~ under the title hyperbolic preferences and some of our things, it goes back ~for, ~for a decade, like 60 years of research on this particular topic. You’d [00:29:00] never hear about it. Maddie, have you ever heard of this?

Right. So ~when you, ~when you think about it, it starts, ~you know, ~shining a light, ~you know, ~the light bulb goes off. Gee, I really have to be responsible. I have to worry about that person. That person’s my child. If you like,~ uh, I’m, ~I’m totally responsible for that person. And if you put it that way and now maybe you start to,~ uh,~ to change your plans.

But you can also think about, I mean, think about a lower stress job,~ uh,~ where you work longer. Does that produce as much lifetime spending as a high stress job where you’re work shorter, it might lower your taxes because you’re not in a, so high tax bracket. You’re not comping all your income into this high tax bracket.

You’re S you’re low and you’re smoothing out your tax breaks. That’s basically the idea of using retirement accounts to try and,~ uh,~ leverage these raw in,~ uh, and, ~and deductible counsel, 401k, the IRA, traditional IRA to try and get a [00:30:00] smooth living standard. I started some of the tracks brag and not to pay and,~ uh, you know, a, ~a high rate, 35% rate.

~Uh, ~this year and a zero rate the day you were after retire. That’s crazy. You want to have your income tax on average may be at like 20%. And ~that’s that’s, ~that’s what the four, so there’s lots of things. So we can on the planning can do this. Conventional planning can do none of it. Conventional planning can only send you down the wrong path because it’s based on a methodology that has no connection whatsoever to economics has no connection to consumption.

Smoothing. It’s all built around how to sell product to. The public from wall street.

[00:30:42] Lee Murphy: That makes a lot of sense. Everything you said.

I mean, basically we have to be conservative. B,~ uh,~ thinking that we’re going to get, ~you know, ~to the moon with an everything’s going to go just peachy. Cause you know, history shows us that there’s a lot of risks when it comes to investing ~and, um,~ and you can’t plan your retirement out. Like [00:31:00] everything’s going to go.

Great. And your portfolio is just going to keep killing it.

[00:31:05] Laurence Kotlikoff: Just on that, just a really quick idea that we’ve been talking about in my book, it’s called,~ um,~ upside of investing. So upside investing,~ uh,~ is a way that I think most middle class people like us should be thinking about how to invest, which is,~ uh, Uh, ~put a certain amount of money, ~you know, ~say in the stock market and you,~ uh,~ you have some there you’re going to add to it.

And then you have a plan for when you’re going to check it out. Then you forget about it and everything else you invest in. Absolutely save inflation, index bonds, or bonds, which are even better, a way to invest safely. And I’m actually, before you do that, you pay off your debts, the smartest investment, the safest investment today, the highest yield investment is paying off any sooner loans, car debts, mortgages,~ uh,~ consumer credit card debt says an absolutely.

A clear way to, to make a killing in the market [00:32:00] is just pay off your desk. But if you’ve got, if you’re kind of debt free after that point,~ uh,~ then,~ uh,~ investing in a safe,~ uh,~ inflation index bonds, which unfortunately right now are yielding basically a negative return, but it keeps your money at least safe from inflation.

So you don’t lose four or five and a half, 5.4% every year. ~Uh, ~anyway,~ uh,~ now you’ve got afforded your living standard. And the,~ uh,~ the money having a stock market. Once you take it now and you invest it safely, so now you can permanently raise your living standard. So this is called upside investing.

Here’s your floor. And then at some point, if there’s any money left in the stock market and we’ll Austin, it could go to zero, but very on lively. You start to have a higher living standard ~and, ~and for this period,~ uh,~ your living sound basically goes up like that and then it’s flat. So these are all upside trajectories.

So the key is to have to treat putting money in the stock market, like investing in the casino. I started going to the casino. When I go to the, I’ve been to the [00:33:00] casino a couple of times in Vegas is there. I had to go to a convention. So, ~uh, ~went with ~my, ~my wife. And what we did is we left our wallet and they room the hotel room.

We took a hundred bucks each. We spent a couple hours losing it all and then gained back by leaving our money in the hotel room. We were securing our living center. That’s our living center floor, the money the casino had. We made anything. We would have not spend it until we left the casino until we got all the money out of the stock market.

So this is,~ uh,~ playing the stock market. Like we play the casino. So are you secure living standard and then everything else is upside. I think that’s the way to think about it. ~Um, ~and so if you want to have a higher living standard floor, you can’t put as much in the casino. You can’t put as much in the stock market.

And this is a way to think about this very simply,~ uh,~ and never see your living standard drought. Of course, if you. If you become disabled, if you lose your job, if you have to help your sister [00:34:00] who becomes disabled,~ uh,~ life has all kinds of downs as well as ups. So nothing’s for sure, but this part of your life, you can see, you can basically rationalize and get stuck.

[00:34:12] Lee Murphy: Well said ~professor ~professor, thank you so much for coming on our show today. ~Uh, ~your students are very lucky. ~Uh, ~we’re very lucky to have you on,~ uh,~ but ~you’ve, ~you’ve been an amazing person to listen to.

[00:34:22] Laurence Kotlikoff: Well, ~um, ~and,~ uh,~ it just, ~you know, ~It’s like, ~if, ~if you’re hearing about how to build a bridge across the Hudson, I find we’re hearing about it.

I would be sitting here fascinated, but I’m not the only guy that can do that. ~You know, ~there’s zillions of, so engineers, plenty of terrific economies out there. We just don’t get much air time because most of us are all too nerdy to talk to the public.

[00:34:42] Lee Murphy: Hey, I didn’t even get you even get my vote for president at this point.

[00:34:45] Laurence Kotlikoff: Okay,

you guys would be my campaign team.


[00:34:49] Lee Murphy: we go. And that’s the only bad decision you probably made all day professor. So thank you so much for listening. You’ve been listening to the free retirees show so long for now.[00:35:00]


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