Book review: Spend 'til The End

Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire by Laurence J. Kotlikoff and Scott Burns.

My wife spotted this book at the library and brought it home, suggesting (based on the title) that it might be a sort of anti-Wise Bread that I could read and mock.  When I started reading it though, I found it wasn't.  In fact, it's an outstanding personal financial book:  It offers the best framework for analyzing household finances of any book I've read.

The book is based on three ideas.  Two of the ideas I agree with wholeheartedly.  The third idea is actually the most important, but I agree with it perhaps three-quarters heartedly--and that's enough that the book still works for me.

The ideas are:  

  • Maximize your spending power.  That is, allocate your financial means to meet your financial ends.  (It doesn't mean to let your financial ends overwhelm your non-financial ends, just that it's silly to have financial means that go unallocated or financial ends that are underfunded when others are overfunded.)
  • Price your love.  By this the authors mean, roughly the same thing I mean when I say live in accordance with your own values.  All the things you want to do have costs attached to them--either actual expenses, or else trade-offs such as reduced earnings if you choose to do what you love rather than what would earn you the highest income.  Figure out what those expenses and trade-offs come to in dollars, and use that knowledge to live the life you'll find most satisfying.
  • Smooth your living standard.  This is the one I only three-quarters agree with.  Financial advisors continually warn that people aren't saving enough for retirement--pointing out that their free-spending ways now will result in them eking out a meager existence later.  Fewer people do the reverse--eke out a meager existence now so that they'll be able to live high on the hog when they're old--so not as many people feel obliged to warn against it, but that happens too.  The authors' point, though, is to do neither.  Based on how you want to live and what your prospects are for making money, figure out what standard of living you can support over your entire lifetime, and aim for that mark right along the way.

Personally, I think a gradually rising standard of living is likely to be more satisfying than a level one, but the authors aren't really disagreeing with that.  They're mainly concerned with the big breakpoints in standard of living--before and after retirement, for example.  (I've covered my own thoughts on this topic in my article Should your standard of living rise?)

The value in these ideas is that they provide a framework.  With these things in mind, you're in a position to analyze all sorts of financial questions.

Using their framework, they often come up with results that are counter to conventional wisdom.  For example, the usual rule of thumb is that young folks should invest in stocks (giving them the best opportunity to let the long-term higher rewards of the stock market work in their favor) and then gradually ramp down the stocks (because folks nearing retirement have fewer years to recover from a bad year in the stock market just before or just after retirement).  Their analysis is quite different.  

A young worker probably makes just enough to support a comfortable standard of living.  Besides that, a young worker probably has a very small cash cushion against something like losing a job.  So, a young worker should have a low savings rate (so as to support a reasonable standard of living) and should put most of that savings into cash (focusing on building up a better cushion rather than maximum lifetime return).  Someone mid-career with good emergency fund plus a healthy investment portfolio can afford to invest heavily in stocks without risking either current or future standard of living.  Someone approaching the end of their career wants to ramp down the stock market exposure, because their earnings are at higher risk (old folks are more likely to lose their jobs and less likely to quickly find another).  Someone who has just retired probably wants to ramp it up again, because they now have a very safe stream of income from Social Security and can bear the risk.

They provide worked examples of many, many issues that financial advisors and financial writers deal with:

  • Should you go back to school?  
  • Should you convert your IRA to a Roth?  
  • Are you saving enough?  
  • Do you have enough insurance?  

They provide answers to these and many other questions, but the answers are almost beside the point.  What's valuable is the analysis--and, even more important than the analysis, the framework for doing the analysis.  In Spend 'til The End Kotlikoff and Burns provide the underpinnings of that framework.  I recommend it highly.

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Guest's picture

Kotlikoff and Burns are Big Names so many readers will already be familiar with them.

As a lifetime near-minimum-wage earner, I have never enjoyed either a comfortable standard of living or the ability to save.

My standard of living has already been smoothed out of necessity.

What would Kotlikoff and Burns recommend for older workers like me?

Philip Brewer's picture

Seriously.  Marrying someone who earns about as much money as you do significantly improves your standard of living (on the principal of "two can live as cheaply as 1.6 or thereabouts").  Having a first child helps as well (mostly due to the earned income tax credit and other government assistance).

They crank the numbers in some detail in the book.

Guest's picture

* Should you go back to school?

Probably, but I have no money and cannot get financial aid,
so it's very unlikely to happen.

* Should you convert your IRA to a Roth?


* Are you saving enough?

Definitely not, but I'm doing the best I can living on fumes.

* Do you have enough insurance?

Possibly. I'm not sure that I have anything that needs to
be insured.

Guest's picture

There is no possible way you can save money by having children. They will ALWAYS be more expensive than any tax breaks you may receive. Have you looked at health care coverage lately? My state requires 3 vaccinations this year for my 18 month old child, and insurance covers ONE. I end up paying $185 each for the other two completely out of my pocket.

That's one tiny example, but you get my drift. It will never be a financial benefit to have children.

Aside from that, shouldn't there be other reasons for having children other than to save a buck or two? What happens when you realize you are losing money on the child?

Philip Brewer's picture

I haven't done the calculations myself; I'm just reporting on what Kotlikoff and Burns had to say.  They describe a poor couple, each making $10,000 a year, living in New Bedford, Massachusetts.  (They quote the Lizzie Borden poem.)  Here's what they have to say:

The birth of a child, notwithstanding an extra mouth to feed, would actually raise their individual living standard from $6,571 to $8,264 each.  That's a 26 percent increase!

What's the difference?  Once little Lucky shows up, Lou and Lucy get a $3,416 federal income tax refund and pay only $21 in Massachusetts state income taxes rather than the $360 and $283 they had been paying.  In addition, they get food stamps worth $4,400.

Guest's picture

I don't know. That sounds like it makes sense for people who are making 10 grand each, but if you are making more than that, does the percentage of benefit decrease as your salary goes up? Of course it also ignores other possible benefits . . . like being able to squeeze money out of Grandma and Grandpa to help with bills . . .

One biggie; It also totally ignores the cost of daycare . . . HELLO! . . . or more likely in this couple's case, the cost of having one parent stay home and watch the kid. How about if they dont have insurance? Doctor/dentist bills for a kid are out of control! Also, a couple with a child might find that they need a car to handle having a child, versus relying on public transportation, another significant expense.

Not having read the book this idea seems rather suspect.

Guest's picture

@ Philip Brewer:

This reminds me of the book Cheaper by the Dozen. The more children you have, the lower the CPC (cost per child) is, since they all live in the same house, share the same resources etc. :-)

Philip Brewer's picture

@ LiveWellSimply:

Almost.  They claim, though, that you get essentially all the benefit for the first child.  A second child is a step back (although still ahead of a childess couple).

As I mention above, the whole analysis depends on the relationship between dollars spent and cost of living being pretty much the same for a child as for an adult.  I don't know if that's true.  Guest doesn't seem to think so.

Guest's picture

So they're claiming that it costs LESS than $1693/year (about $141.00/month) out of pocket (the difference in the income figures) to raise a child? On what planet is that the case?

food, clothing, healthcare, childcare, higher insurance premiums-- ALL of it for under $141 a month?!?!?

Philip Brewer's picture

They're not looking at changes to the need for spending at all--they're just claiming that there's more money per person to spend:  The child is living better (in the sense that more dollars per year are being spent on him or her) than a single person grossing $10,000 a year--even a bit better than a couple grossing $20,000 a year.

Perhaps it would be illegal, immoral, or even impossible to raise a child on that amount of money.  I don't have any kids, so I simply don't have the data to express an opinion.  I'm just reporting on what the book said.

Guest's picture

If both parents are working, one will now have to stay home. There goes a ton of income!

If one parent does not stop working, they will have to pay for daycare (which costs wayyyy more than $141 a month).

Health related costs, new equipment (stroller, high chair, clothes that they grow out of in about 2 months, toys, crib), etc.

Sooo yeah, no idea how anyone could think getting married and having a kid would help financially. Getting married, yes, having a kid, no.

Guest's picture

As the eldest child myself I can confirm that I cost my parents way more than my other siblings. With the first child it is all about trying unknown things including day care, cloth and food while with other kids parents often use their experience and can save some money. Overall I think children cost a lot, definitely more that $140 a month!

Philip Brewer's picture

The essence of the book's approach is that you want to go for the highest, stable per-person spending that you can manage.  (That is, stable in the long run--you don't want spending now that leaves you poorer in the future.)

It really doesn't look much at whether these decisions affect the need for spending in ways that mean that more dollars per person don't leave you ahead.

Having said that, I think the book is well worth reading--the sort of adjustment in per-person costs that the book doesn't make is pretty easy to make yourself.  Grasping the essential notions of the book gives you a framework for thinking clearly about the financial issues that face you and your family.

Guest's picture

whoops, I didn't mean to turn this into a discussion centered on the finances of having children. My post was only addressing one thing mentioned in the book, and it obviously contains much more information.

I do appreciate the article and am glad you are sharing this with us.

Guest's picture

I read this book the other week, really enjoyed it to be honest!