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

Vol. 18, No. 4, 2020

Robert C. Merton and Arun Muralidhar

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.