SeLFIES: A New Pension Bond and Currency for Retirement

11 Pages Posted: 30 Mar 2020

See all articles by Robert C. Merton

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

Arun Muralidhar

AlphaEngine Global Investment Solutions; Georgetown University - McDonough School of Business; George Washington University

Date Written: March 4, 2020


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 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.”

Keywords: SeLFIES, Retirement Security, Currency for Retirement, Standard-of-Living Risk, Financial Innovation, Annuity Puzzle, Target Date Funds, Retirement Income

JEL Classification: G50, G51, G52, G53

Suggested Citation

Merton, Robert C. and Muralidhar, Arun, SeLFIES: A New Pension Bond and Currency for Retirement (March 4, 2020). Available at SSRN: or

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
617 715 4866 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6678 (Phone)

Arun Muralidhar (Contact Author)

AlphaEngine Global Investment Solutions ( email )

Great Falls, VA
United States


Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States


George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

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