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The Nobel Laureates' Guide To Retirement Planning

Jun. 05, 2016 11:29 AM ET17 Comments
Peter Hofmann, CFA profile picture
Peter Hofmann, CFA


  • The views of Nobel prize winners in economics offer a roadmap for retirement planning.
  • Academic debates aside, we can extract some practical takeaways from these experts.
  • The biggest obstacles to implementing the roadmap may be our own human weaknesses.

Every major (and many a lesser) financial institution is offering retirement services these days. Sometimes it's hard to separate advice from marketing. Sometimes the advice you get is contradictory. It's like standing in the middle of Times Square trying to get directions to the Bronx.

Instead of asking the Naked Cowboy, I thought I'd see what the anointed royalty of the realm have to say on the topic. These being the winners of the annual Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Caveat: I did not undertake a comprehensive review of all 76 winners' collected work. Not even close. I welcome hearing about other relevant insights.

I had the following takeaways from my review:

  • If you are not saving for retirement, start today. If you are, save more.
  • Make a plan (simple is better than none).
  • Try to secure a minimum level of inflation-adjusted income in retirement, taking into account Social Security and any pensions. I like I-Bonds and TIPS. Annuities may be appropriate here.
  • Find a level of risk that suits you - dial in equities and other risky assets as your portfolio permits. Adjust over time.
  • Don't obsess, and stay the course.

Here is the blow-by-blow (year of Nobel prize in parentheses.)

Franco Modigliani (1985)

Franco Modigliani developed the life-cycle theory of consumption in the 1950s1, which put retirement savings at the center of individuals' economic activities, with the now simple-sounding proposition that people save for retirement to even out and maximize consumption over their lifetime. It's a rational and straightforward framework. Why, then, do Americans seem to save too little, too late?

Robert Shiller (2013)

Robert Shiller, a devotee of behavioral economics, believes that human foibles result in wildly divergent savings rates among individuals and among nations. The psychological traps we fall in, such as "framing," take us

This article was written by

Peter Hofmann, CFA profile picture
I am a financial advisor and former financial executive with extensive experience in the insurance, banking and asset management industries.

Analyst’s Disclosure: I am/we are long TIPS AND I-BONDS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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