"Financing Retirement: Collective and Individual Approaches"

Professor William F. Sharpe, 1990 Nobel Laureate in Economic Sciences

As life expectancy increases around the world, it becomes more and more important to provide for retirees – those who no longer work full time. This requires procedures for transferring goods and services from workers, who produce more than they consume, to children and the elderly, who consume more than they produce. Typically this is accomplished with some combination of social contracts and financial contracts. In stable agrarian societies such transfers may be made within a family. In more industrialized societies with lifetime employment, governments and employers may both play major roles. But in many countries, urbanization and mobility have led to increased reliance on financial instruments and institutions, with each individual responsible in large part for financing a substantial portion of his or her retirement. To be effective, such systems require educated and responsible citizens as well as trusted and transparent financial instruments and institutions. Experience to date suggests that in most countries these requirements have been only partially met. This lecture will address these issues and suggest ways in which societies might better allocate resources and risks among generations.