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{"id":2034,"date":"2011-03-15T21:20:44","date_gmt":"2011-03-16T02:20:44","guid":{"rendered":"http:\/\/www.calculatinginvestor.com\/?p=2034"},"modified":"2011-04-22T22:01:10","modified_gmt":"2011-04-23T03:01:10","slug":"a-nobel-laureates-thoughts-on-the-future-of-defined-contribution-plans","status":"publish","type":"post","link":"https:\/\/www.calculatinginvestor.com\/2011\/03\/15\/a-nobel-laureates-thoughts-on-the-future-of-defined-contribution-plans\/","title":{"rendered":"A Nobel Laureate’s Thoughts on the Future of Defined Contribution Plans"},"content":{"rendered":"

Robert Merton Discusses a Framework for Improving Defined Contribution Plans<\/h4>\n

The MIT World <\/a>website is a great source for interesting lectures on many topics including finance and economics.\u00a0 In this lecture, Nobel Laureate Robert Merton discusses a framework for the defined contribution (DC)\u00a0plan of the future.<\/p>\n

This video\u00a0includes a long introduction, and Merton makes some opening remarks about the financial crisis.\u00a0\u00a0His discussion of retirement plans starts about 17 minutes into the presentation.<\/p>\n

Merton suggests that the DC plan of the future should\u00a0require investors\u00a0to make\u00a0three simple\u00a0decisions which will in turn drive the investment choices which are made (for them) within their portfolio. The three \u201csliders\u201d which investors can adjust to control the decisions made in their portfolios are contribution level, number of working years, and minimum acceptable retirement income (i.e. a risk adjustment).<\/p>\n

An interesting take-away from the presentation\u00a0is Merton’s suggestion that risk be evaluated in terms of an asset’s volatility when valued in “annuity units”. Merton’s point is that many investments we perceive as “safe” would appear less safe if we translated them in the units that really matter\u2026i.e. how much are they worth in terms of income at retirement.<\/p>\n

I am not completely sold on Merton’s plan because, as a\u00a0“do it yourself”\u00a0investor, I don’t want to lose control of my investment decisions.\u00a0 Also, I don’t trust that the\u00a0money management industry\u00a0will provide a solution which keeps costs low.\u00a0 Nevertheless, it is interesting to see how Merton frames the retirement problem, and I would be very interested to see some portfolio construction tools which\u00a0determine an asset allocation based on\u00a0the\u00a0three inputs\u00a0he proposes.<\/p>\n

<\/object><\/p>\n

For those interested in this topic, here is an article written by Merton <\/a>which covers some similar ground.<\/p>\n","protected":false},"excerpt":{"rendered":"

Robert Merton Discusses a Framework for Improving Defined Contribution Plans The MIT World website is a great source for interesting lectures on many topics including finance and economics.\u00a0 In this lecture, Nobel Laureate Robert Merton discusses a framework for the defined contribution (DC)\u00a0plan of the future. This video\u00a0includes a long introduction, and Merton makes some […]<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/posts\/2034"}],"collection":[{"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/comments?post=2034"}],"version-history":[{"count":32,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/posts\/2034\/revisions"}],"predecessor-version":[{"id":2645,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/posts\/2034\/revisions\/2645"}],"wp:attachment":[{"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/media?parent=2034"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/categories?post=2034"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.calculatinginvestor.com\/wp-json\/wp\/v2\/tags?post=2034"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}