SOLFIS: an innovative and affordable retirement investment vehicle

 Arun Muralidhar, inventor of the SOLFIE, on managing financial risk

With the declining availability of defined benefit pensions, the risk of having enough income in retirement is falling on the individual shoulders of a larger percentage of the workforce. In order to retire, not only does a person have to be good at one's profession, he or she also has to be good at investing. The current reality, however, is that only one-half of U.S. families have more that $5,000 saved for retirement. That certainly will not be enough--and the societal burden of caring for the elderly poor may become a larger problem. Fortunately, an MIT-trained person (whose profession is investing) has invented a financial product that could help prudent individuals provide for their own retirements.   

Marketplace interviewed Arun Muralidhar, co-founder of Mcube Investment Technologies, about his proposed investment vehicle, pronounced almost like "selfies": SOLFIS (Standard-Of-Living Forward-starting Income-only Securities). These would be government bonds that would pay the purchaser $5 per bond, each year for 20 years. This would presumably create a defined-benefit retirement income from age 65 to age 85 (at which point the retiree would need to have another source of income). To have a realistic income of $100,000 per year in retirement, a future retiree would have to buy 20,000 SOLFIS over his or her working life.

In current market conditions, a single SOLFIS would cost a 25-year old $15, and this amount would increase if the purchase was made closer to retirement. The concept is supported by Nobel Laureate Robert Merton--but can it become a reality? 

Source: "An invention aimed at revolutionizing retirement savings," by David Brancaccio, Marketplace Morning Report, December 8, 2017.

Follow up

  • What is a defined benefit pension? Why have they fallen out of favor with businesses? Would this type of pension be an attractive job benefit to you? Why or why not?
  • The SOLFIE does not yet exist. What, according or Mr. Muralidhar, would be an ideal first step to possible implementation? What hurdles would exist in the process of getting this implemented?
  • What are the pros and cons of this type of investment vehicle for: a) the federal government; b) purchasers? What are the major risks and benefits?
  • Summarize what Arun Muraldihar has to say about the corporate management of risk (in the video above). Would you say that he takes a realistically conservative approach to investments? Explain.