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A New Retirement Bond

Retirement investment products are failing too many investors, according to a group of researchers, but there may be a better way. Most retirement investors seek both income and capital preservation, says Lionel Martellini, director of EDHEC Business School and its Risk Institute, but current asset classes and products are giving these investors too little of either. Below is the link to the full proposition.

This is interesting indeed because it suggests that pre-retirement that individuals have access to a bond that makes deferred annuity payments way into the future, similar to a defined benefit plan but without being linked to any employer sponsor. For deep into the future, say an annuity that pays for 20 years 30 years from now, pricing an annuity that hedges payment risk is complicated on an individual without access to pooling arrangements. There is also the complication of projecting current risk free scenarios deep into the future, the amount needed to save is just too much given the low yields.

This piece though is a step in the right direction, it gives the individual ownership of their retirement well-being. I can replicate such a bond at the wholesale level however to get access to the appropriate yield levels at a retail level is very difficult given the transaction and management fees involved. Therefore one should consider blend this idea within a bespoke fund arrangement which can be done however regulatory hurdles exist.

Take care.


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