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BLOG: Dollars & Sense: Humberto Cruz: New financial planning software [The Kansas City Star, Mo.]
[September 26, 2009]

BLOG: Dollars & Sense: Humberto Cruz: New financial planning software [The Kansas City Star, Mo.]

(Kansas City Star (MO) Via Acquire Media NewsEdge) Sep. 26--I keep the family financial records current and organized. Still, it took me nearly two hours to find and enter the copious and detailed information requested by the financial planning software I just tried.

It was by far the most exhaustive and at times exhausting personal finance program I've used. But it was also the most thorough, earning my faith and respect.

The program I used is developed by Economic Security Planning, Inc., a company headed by Laurence J. Kotlikoff, professor of economics at Boston University.

Unlike other programs that merely ask a few quick questions, ESPlanner software doesn't assume we will spend a set percentage of our pre-retirement income in retirement.

Such assumption has never made sense to me (if anything, our spending in retirement would relate to how much we spend while working, not to how much we earn). Even so, our future spending will depend on many factors, including whether we're paying for children's or grandchildren's college educations or have a mortgage, and the kind of lifestyle we want. ESPlanner considers a multitude of real-life variables to recommend annual spending, saving and insurance targets to achieve a stable lifetime standard of living for each person in the household.

Rather than splurge today and starve tomorrow, or scrimp unnecessarily now, the program's goal is "consumption smoothing" -- basically, consistently spending the most we can every year in line with our resources and without going into debt.

That makes more sense to me than what Kotlikoff denounces as "sales-driven" financial planning. That's being told we need to save huge amounts to generate a pre-determined income in retirement, and the way to do it, of course, is to buy financial products sold by those advising us.

By contrast, ESPlanner software can calculate the implications on our living standard of a variety of decisions, such as having another child, getting divorced, retiring early, making gifts to children, contributing to charity or taking Social Security benefits at a certain age, and adjust our annual spending, saving and insurance targets.

"This stuff is serious business," said Kotlikoff, whose firm does not sell any financial products other than the software "and never will," he said. The program is continually being tweaked with new features and updated to include current tax rates and Social Security rules.

Four versions of ESPlanner software exist, from a free online ESPlannerBASIC (still more comprehensive that any other free program I've seen) to more advanced ESPlanner, ESPlannerPLUS and ESPlannerPRO (for financial planners) available for purchase and download here [] I used ESPlannerPLUS, which costs $199 with free program updates for one year ($50 a year for updates afterwards) and includes so-called Monte Carlo computer simulations showing how investment choices can affect the variability of our living standard. Although the ESPlanner Web site states that "anybody can use ESPlanner and understand the results," I strongly recommend trying the free basic version first. It's sophisticated enough to show the impact of changing jobs, having children, downsizing your home and many other lifestyle decisions. Unlike the paid versions, ESPlannerBASIC does not let you save the information you input.

By the way (I'm sure this is no surprise to many readers), both ESPlannerPLUS and the basic version found that my wife, Georgina, and I can afford to spend nearly twice as much each year as we are spending now until age 100, even if we never collect another penny from work. You can be sure we'll put that finding to good use.

Send questions or comments to Humberto Cruz at [email protected] or c/o Tribune Media Services, 2225 Kenmore Ave., Buffalo, NY. 14207. Personal replies are not possible.

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