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Personal public private social security saving accounts

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Personal public private social security saving accounts

  1. 1. How Can the U.S. Transition toPersonal Public-Private SocialSecurity Saving Accounts?Options for risk adverse investors in a post “Great Recession” world + =? Matias Zelikowicz 3-30-2012
  2. 2. Social Security Basic FactsCreated in 1935. It is a social insurance programthat provides benefits to retirees and unemployedFunded by payroll taxes (employees & employers)Represents 39% of income during retirementOrganized as a PAYG-defined benefit plan
  3. 3. Social Security: From Surplus to Deficit
  4. 4. Number of Workers for Every Social Security Retiree Is Falling1940 1950 1960 2011 203542:1 16:1 5:1 3:1 2:1 Source: Social Security Trustees Report
  5. 5. Key Issues for the Current Social Security System• Unsustainable fiscal trends• Demographic trends• Poor returns inside its trust fundObjectives of Potential Reforms• Protect investor’s retirement savings• Increase real returns inside retirement accounts• Transition to a sustainable retirement system for workers
  6. 6. Other Popular Retirement Plans:Defined ContributionDefined Benefit IRA 457/403b 401 (k) Private DB Pensions Social Security
  7. 7. Pension Assets are Shifting Away From Defined Benefit Plans (%) IRAs Defined contribution Defined Benefit Trillions $3.3 $10 $15 1990 2000 2010
  8. 8. Asset Class Performance 1978-2010
  9. 9. Argument for Privatization
  10. 10. The Lost Decade
  11. 11. Cash is not King
  12. 12. Investor’s Challenges With a Defined Contribution Type Plan
  13. 13. Policy Alternatives 1 NO PARTIAL PRIVATIZATION OPTION 2 PPPSSS• Increase payroll taxes to pay • Provides diversification with for the baby boomer insurance generation retirement • Eliminates market risk (MLCD)• Cut benefits for younger • Managed by the Social Security workers administration • Invest ½ of social security taxes• 24 % benefit cut into PPPSSS• 30 % increase in payroll taxes • Pass it on to your children • Account would become private property • Minimizes credit risk (FDIC)
  14. 14. Investment Options Inside PPPSSS AccountsCertificates of deposit that pay a return based on theperformance of a market index, i.e. S&P 500.Provide the safety and security of FDIC insurance.Guarantees principal protection*.Allows investors to participate in the potential market upside ofstocks, commodities, gold etc.Financial Instruments are managed and constructed by AAA ratedbanks.
  15. 15. PPPSSS Investment Options • Guaranteed Return of Principal • Potential Upside Participation • FDIC Insurance • Diversification
  16. 16. In the Future These Will be Your Choices 401K Qualified 403b non-taxable transfer LTCPAYG PPP SSS IRA MLCD U.S.T- Bonds
  17. 17. How it Works? Bond + Call Option
  18. 18. Do I Need to Become a Financial Engineer to Invest in MLCDs?Example: $1000 Investment 4 year S&P 500 Max 64% - Min 2%
  19. 19. How Do PPPs Work? Market Competition Bank Ranked #1 2 Year MLCD S&P 48% Cap A Bank Ranked # 2 2 Year MLCDPPP SSS B S&P 47% Cap Bank Ranked # 3 2 Year MLCD C S&P 45% Cap
  20. 20. 2 Year Gold vs. 2 Year Gold MLCD48% Upside Cap (1970-2010 nominal)
  21. 21. 2 Year Gold MLCD 48% Upside Cap vs. 2Year T-note (1980-2010 nominal)60%50%40%30%20%10%0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2 year t-note MLCD GOLD
  22. 22. 2 Year Gold MLCD 48% Cap Point to Point vs. 2 Year Gold MLCD 48% Quarterly Cap Structure60.00%50.00%40.00%30.00%20.00%10.00% 0.00% 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 mlcd 2 year return Point to Point mlcd 2 year return Quarterly Cap
  23. 23. From Crisis to Opportunity
  24. 24. From Crisis to Opportunity
  25. 25. Thank You+ =

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