SeLFIES: A New Pension Bond and Currency for Retirement
There is a looming retirement crisis, as individuals are increasingly being asked to take responsibility for their own retirement planning and a majority of these individuals are financially unsophisticated. They cannot perform basic compounding calculations and do not understand the impact of inflation, both critical aspects of retirement planning.
Yet, these individuals are being tasked with the responsibility for three complex, interconnected decisions: how much to save, how to invest (with many additional decisions), and how to decumulate one’s portfolio at retirement.
Compounding these challenges, current financial instruments and products (e.g. T-Bills, TIPs, or Target Date Funds) are risky because they focus on the wrong goal - wealth at retirement, as opposed to how much retirement income can be guaranteed to support pre-retirement standard-of-living. Moreover, annuities are complex, costly, and illiquid and seldom used.
Without financial innovation and a change in the metric for measuring retirement success, many individuals will retire poor – a financially and socially undesirable outcome for any country.
This paper, written by Robert C. Merton, a professor at the Massachusetts Institute of Technology, and Arun Muralidhar, the founder of AlphaEngine Global Investment Solutions, presents an easy, quick and efficient solution for countries to address all these challenges and improve retirement security by creating and issuing an innovative new bond – SeLFIES (Standard-of-Living indexed, Forward-starting, Income-only Securities).
The SeLFIES bond is a single, liquid, low-cost, low-risk instrument, easy-to-understand for even the most financially unsophisticated individual, because it embeds accumulation, decumulation, compounding and inflation-adjustments. SeLFIES is good for governments too, as the bond lowers the risk of individuals retiring poor, improves balance sheet management, and funds infrastructure. The paper also discusses key design aspects of SeLFIES to show how they can ensure longevity risk protection and hedge standard-of-living risk, a key unmanaged risk globally today. Additionally, the paper by concludes by demonstrating the universality of the SeLFIES design as well as by showing how it serves a useful purpose by becoming the “currency of retirement.”
Read SeLFIES: A New Pension Bond and Currency for Retirement.
Opting Out of Social Security: An Idea That's Already Arrived
Under current law, workers can partially opt out of Social Security and reduce Medicare tax liability by accepting compensation in forms exempt from payroll taxes. Changing forms of compensation has an ambiguous effect on a worker's lifetime consumption possibilities. With respect to Medicare, all households are better off since they reduce tax contributions to a fixed benefit. For Social Security, the effect is ambiguous since the tax reduction implies future benefit reductions. Analyzing a hybrid reform proposal that requires workers to place exempted earnings and foregone payroll taxes in a personal retirement account,, the author David P. Richardson of TIAA Institute, finds that all workers can increase retirement resources.
Read Opting Out of Social Security: An Idea That's Already Arrived.
More research about retirement
Promoting Financial Literacy Among High School Teachers: A Lifetime Gift of Wisdom
A Theoretical Examination of Cash-Back Credit Cards and Their Effect on Consumer Spending
Employment Stability and the Role of Sectoral Dominance in Rural Economies
The Gender Gap in Housing Returns
How People React to Pension Risk
The Impact of BMI on Mental Health: Further Evidence from Genetic Markers
Public-Sector Compensation over the Life Cycle
Asset-Liability Models and the Chinese Basic Pension Fund
Private Pensions: IRS and DOL Should Strengthen Oversight of Executive Retirement Plans
401(K) Plans: Labor and IRS Could Improve the Rollover Process for Participants
Who Takes Advantage of Tax-Deferred Savings Programs? Evidence From Federal Income Tax Data
The Economics of Ageing—What Do You Face?
The Causal Effect of Retirement on Health: Understanding the Mechanisms
Depositor Protection and Bank Liquidity Regulation: Distortions Affecting Superannuation
Medical Spending, Bequests, and Asset Dynamics Around the Time of Death
G-Learner and GIRL: Goal Based Wealth Management with Reinforcement Learning
Design of Mysuper Default Funds: Influences and Outcomes
Retraites : Leçons des réformes belges (Pension Reform: Lessons From the Belgian Experience)
Insurance against Long-Run Volatility Risk: Demand, Supply, and Pricing
Pension Superpowers and Financial Markets in the Sino-American Century
Disclosure Obfuscation in Mutual Funds
Are Homeownership Patterns Stable Enough to Tap Home Equity?
Hedging Longevity Risk in Defined Contribution Pension Schemes
On the Maximization of End-of-Loan Homeowner Wealth Using a Hybrid Security
Sharing of Longevity Basis Risk in Pension Schemes With Income-Drawdown Guarantees
The Retirement-Consumption Puzzle: New Evidence from Personal Finances
Teacher Preferences, Working Conditions, and Compensation Structure
Does the Business Cycle Affect Utilization of Long-Term Care among the Elderly?
The Contributions of the Center for Retirement Research at Boston College: 2008–2017
Social Security Research at the University of Michigan Retirement and Disability Research Center
Social Security and Financial Security at Older Ages
Social Insurance for the Elderly
401(K) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts
Fingerprints: An Impressionistic and Empirical Evaluation of Richard Posner's Impact on Contract Law
Health and Employment Amongst Older Workers
Can Low Retirement Savings Be Rationalized?
Retirement, Intergenerational Time Transfers, and Fertility
Reconciling Form 1040 and Form 1099-R Data
Decoding Retirement: A Detailed Look at Retirement Distributions Reported on Tax Returns
Beware of the Employer: Financial Incentives for Employees May Fail to Prolong Old Age Employment
Dynamic Incentives in Retirement Earnings-Replacement Benefits
The Retirement Migration Puzzle in China
Poverty Reduction Among Older People Through Pensions: A Comparative Analysis
Assessing the Impact of Financial Education Programs: A Quantitative Model
The Risk of Financial Hardship in Retirement: A Cohort Analysis
Financial Distress among the Elderly: Bankruptcy Reform and the Financial Crisis
Mortgage Foreclosures and Older Americans: A Decade after the Great Recession
Paying it Back: Real-World Debt Service Trends and Implications for Retirement Planning
Is Rising Household Debt Affecting Retirement Decisions?
Financial Well-Being of State and Local Government Retirees in North Carolina
Elder Financial Abuse: Fiduciary Law and Economics
Social Determinants Status and Hypertension: Results from the China Hypertension Survey
Is Mutual Fund Family Retirement Money Smart?
Understanding Debt in the Older Population
Optimal Default Retirement Saving Policies: Theory and Evidence from OregonSaves
There is a looming retirement crisis, as individuals are increasingly being asked to take responsibility for their own retirement planning and a majority of these individuals are financially unsophisticated. They cannot perform basic compounding calculations and do not understand the impact of inflation, both critical aspects of retirement planning. Subscribe for full article