Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • July–August 2014
  • Article
  • Harvard Business Review

The Crisis in Retirement Planning

By: Robert C. Merton
  • Format:Print
  • | Pages:8
ShareBar

Abstract

Corporate America began to really take notice of the looming retirement crisis in the wake of the dot-com crash, when companies in major industries went bankrupt in large part because of their inability to meet their pension obligations. The result was an acceleration of America's shift away from employer-sponsored pension plans toward defined-contribution (DC) plans—epitomized by the ubiquitous 401(k)—which transfer the investment risk from the company to the employee. With that transfer has come a dangerous shift in investment focus, argues Nobel Laureate Robert C. Merton. Traditional pension plans were conceived and managed to provide members with a guaranteed income. And because that objective filtered right through the scheme, members thought of their benefits in those terms. Ask a member what her pension is worth and she'll reply with an income figure: "two-thirds of my final salary," for example. Most DC schemes, however, are designed and managed as investment accounts with the goal of accumulating the largest possible pot of savings. Communication with savers is framed entirely in terms of assets and returns. Ask a saver what his 401(k) is worth and you'll hear a cash amount and perhaps a lament to the value lost in the financial crisis. The trouble is that investment value and asset volatility are simply the wrong measures if your goal is to secure a particular future income. In this article, Merton explains a liability-driven investment strategy whose aim is to improve the probability of achieving a desired retirement income rather than to maximize the capital value of the savings.

Citation

Merton, Robert C. "The Crisis in Retirement Planning." Harvard Business Review 92, nos. 7/8 (July–August 2014): 43–50.
  • Find it at Harvard

About The Author

Robert C. Merton

→More Publications

More from the Author

    • 2021
    • Faculty Research

    No-fault Default, Chapter 11 Bankruptcy, and Financial Institutions

    By: Robert C. Merton and Richard T. Thakor
    • 2015
    • Faculty Research

    Customers and Investors: A Framework for Understanding Financial Institutions

    By: Robert C. Merton and Robert T. Thakor
    • Journal of Portfolio Management

    Tribute to Paul A. Samuelson

    By: Robert C. Merton
More from the Author
  • No-fault Default, Chapter 11 Bankruptcy, and Financial Institutions By: Robert C. Merton and Richard T. Thakor
  • Customers and Investors: A Framework for Understanding Financial Institutions By: Robert C. Merton and Robert T. Thakor
  • Tribute to Paul A. Samuelson By: Robert C. Merton
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College