Posted with audio link on Forbes.com. When Robert Merton, MIT finance professor and Economics Nobel laureate, speaks, we should listen. Fifty years ago, Merton, together with Fisher Black and Myron Scholes, developed the Black-Scholes-Merton option pricing formula. When these three finance geniuses derived their remarkable equation, there was no formal option market. These days,
"Unlike standard nominal Treasury bonds as well as TIPS, RSBs would pay only a coupon, i.e., a steady stream of real income with no terminal principal payment. All RSBs would have a 20-year maturity."
If I understand this correctly the RSB is a fixed term full payout annuity. It is equivalent to being the lender on a 20 year amortizing mortgage (disregarding the inflation adjustment).
If I understand this proposal correctly:
If I buy a $1,000 20 year conventional bond with a 5% coupon. I will receive annually interest payments of $50 and $1,000 at the end of 20 years. (assuming no inflation adjustments)
If I buy a $1,000 20 year RSB, I should receive $80.24 annually. $50 of interest and $30.24 of principal in the first year. Again, assuming no inflation adjustments.
If our worry is outliving our savings, isn't 20 years too short? More than a quarter of 70 yros will outlive a 20 year stream. 30 years at age 70 gets you to 100. less than 2% of 70 yros live to that age. Those numbers from Table 1 71 NVSR #1.
Share this article with everyone you know, particularly your members of Congress and ask everyone you share with to do as you do. best, Larry
"Unlike standard nominal Treasury bonds as well as TIPS, RSBs would pay only a coupon, i.e., a steady stream of real income with no terminal principal payment. All RSBs would have a 20-year maturity."
If I understand this correctly the RSB is a fixed term full payout annuity. It is equivalent to being the lender on a 20 year amortizing mortgage (disregarding the inflation adjustment).
If I understand this proposal correctly:
If I buy a $1,000 20 year conventional bond with a 5% coupon. I will receive annually interest payments of $50 and $1,000 at the end of 20 years. (assuming no inflation adjustments)
If I buy a $1,000 20 year RSB, I should receive $80.24 annually. $50 of interest and $30.24 of principal in the first year. Again, assuming no inflation adjustments.
If our worry is outliving our savings, isn't 20 years too short? More than a quarter of 70 yros will outlive a 20 year stream. 30 years at age 70 gets you to 100. less than 2% of 70 yros live to that age. Those numbers from Table 1 71 NVSR #1.
Fabulous!!
How do we make this happen? What has to happen for this to come to fruition and be offered to Americans?