In a special reprise edition of the Lifetime Income Series, Jim welcomes Robert Merton, Distinguished Professor of Finance at MIT Sloan School of Management and recipient of the Alfred Nobel Memorial Prize in Economic Sciences in 1997. Professor Merton has written extensively about a coming crisis in retirement planning. He notes there are three sources of funds for retirement; pensions, government (Social Security and Medicare) and personal savings. The problems arise when a growing number of retiring Baby Boomers don’t have a pension and haven’t saved much for retirement in their 401(k) accounts. And the government is clearly not able to increase its payment structure in a system that is already trending toward insolvency. The good news/bad news scenario for Baby Boomers is that they are going to live longer than any prior generation in history. The challenge is how to fund a long retirement at a reasonable standard of living. Professor Merton makes the point that our approach to saving is all wrong. We need to think about monthly income, not net worth.
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