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A Six-Component Integrated Approach to Addressing the Retirement Funding Challenge

Title: A Six-Component Integrated Approach to Addressing the Retirement Funding Challenge

Speaker: Robert C. Merton (MIT Sloan School of Management, USA)

Abstract: This paper offers an integrated approach to addressing the global retirement funding challenge, especially in light of the coronavirus shock that has created an unanticipated and unprecedented impact on lifetime income/consumption. It frames the problem in a six-component approach to the funding challenge with an integrated package presented in a transparent, detailed modular fashion, so that any one module can be replaced with a different version and the rest of the system works. This also means that all six components need not be employed simultaneously, but can be done in a secular fashion. Finally, it develops and proposes in detail a new financial instrument, SeLFIES (Standard-of-Living indexed, Forward-starting, Income-only Securities)-- a single financial innovation that provides greatly improved efficiency of implementation to four of the six components. SeLFIES can help complete financial markets and could be a timely innovation given the coronavirus crisis because they are beneficial to governments that seek long-term, local currency debt financing.

Bio: Robert C. Merton is the School of Management Distinguished Professor of Finance at the MIT Sloan School of Management and John and Natty McArthur University Professor Emeritus at Harvard University. Merton’s research focuses on finance theory, including lifecycle and retirement finance, optimal portfolio selection, capital asset pricing, pricing of derivative securities, credit risk, loan guarantees, financial innovation, the dynamics of institutional change, and improving the methods of measuring and managing macro-financial risk. In 1997, Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for a new method to determine the value of derivatives. He is past president of the American Finance Association, a member of the National Academy of Sciences, and a Fellow of the American Academy of Arts and Sciences. Merton received a B.S. in Engineering Mathematics from Columbia University, a M.S. in Applied Mathematics from California Institute of Technology and a Ph.D. in Economics from Massachusetts Institute of Technology and holds honorary degrees from nineteen universities.