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The nest-egg philosopher

According to Laurence Kotlikoff, you may need to save much less than your planner tells you.

Interview by Josh Hyatt, Money Magazine senior writer

(Money Magazine) -- The country's personal savings rate is negative, yet economist Laurence Kotlikoff wants to protect Americans from oversaving. Huh?

Before you pass judgment, consider that Kotlikoff has consulted for the likes of the World Bank and Chinese government, authored several lauded economic tomes and devised out-of-the-box approaches to problems from Social Security (invest contributions in global index funds) to health care (give vouchers based on medical history).

So when the Boston University professor philosophizes on financial planning and challenges the conventional ideas of how much nest egg is needed, he's worth a listen.

Q.: Do you really think we're saving too much?

A.: I'm not saying everybody is oversaving. What I am saying is that online calculators advise most people to save too much. The same is true with the software that planners use. They start with the assumption that you need 70 percent to 85 percent of your current income to maintain your lifestyle in retirement.

Q.: That's what my planner tells me. What's so wrong about it?

A.: You can't just look at your current level of spending and set that as a target. If you're at your earnings peak and you go with that, you'll end up cutting your living standard now so you can live better later, when what you really want is to maintain your living standard as you age and face life's contingencies. I've seen scenarios in which people are told they need four times too much.

Q.: So you're saying my adviser is wrong?

A.: The calculations required to give you an even standard of living throughout your life are highly complex. A lot of variables are involved, like when you'll pay off the mortgage; when you'll send the kids to college; the consequences of taxes and Social Security. It's about mathematic technique and economic analysis. Planners aren't trained in this stuff.

Q.: So we'll start getting our advice from ... economists?

A.: This is the beginning of a revolution: Over time, I think we'll take over the role of giving financial advice, and people will turn to us to map out their routes. We'll show the way.

Postscript: The average American is on track to replace 58 percent of his or her income in retirement, according to Fidelity. Top of page