Personal public private social security saving accounts
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This document discusses options for transitioning the U.S. Social Security system to a model of personal public-private social security saving accounts (PPPSSS). It outlines some of the key issues with the current Social Security system, such as its unsustainability given demographic trends. It then presents two policy alternatives: maintaining the status quo by raising taxes and cutting benefits, or transitioning to a PPPSSS model where half of Social Security taxes are invested in retirement accounts that offer principal protection, upside potential from market participation, and FDIC insurance. The document provides examples of how PPPSSS accounts would work using market-linked certificate of deposits tied to market indexes.
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Personal public private social security saving accounts
- 1. How Can the U.S. Transition to Personal Public-Private Social Security Saving Accounts? Options for risk adverse investors in a post “Great Recession” world + =? Matias Zelikowicz 3-30-2012
- 2. Social Security Basic Facts Created in 1935. It is a social insurance program that provides benefits to retirees and unemployed Funded by payroll taxes (employees & employers) Represents 39% of income during retirement Organized as a PAYG-defined benefit plan
- 3. Social Security: From Surplus to Deficit
- 4. Number of Workers for Every Social Security Retiree Is Falling 1940 1950 1960 2011 2035 42:1 16:1 5:1 3:1 2:1 Source: Social Security Trustees Report
- 8. Key Issues for the Current Social Security System • Unsustainable fiscal trends • Demographic trends • Poor returns inside its trust fund Objectives of Potential Reforms • Protect investor’s retirement savings • Increase real returns inside retirement accounts • Transition to a sustainable retirement system for workers
- 9. Other Popular Retirement Plans: Defined Contribution Defined Benefit IRA 457/403b 401 (k) Private DB Pensions Social Security
- 10. Pension Assets are Shifting Away From Defined Benefit Plans (%) IRAs Defined contribution Defined Benefit Trillions $3.3 $10 $15 1990 2000 2010
- 11. Asset Class Performance 1978-2010
- 13. The Lost Decade
- 14. Cash is not King
- 15. Investor’s Challenges With a Defined Contribution Type Plan
- 16. 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)
- 17. Investment Options Inside PPPSSS Accounts Certificates of deposit that pay a return based on the performance 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 of stocks, commodities, gold etc. Financial Instruments are managed and constructed by AAA rated banks.
- 18. PPPSSS Investment Options • Guaranteed Return of Principal • Potential Upside Participation • FDIC Insurance • Diversification
- 19. In the Future These Will be Your Choices 401K Qualified 403b non-taxable transfer LTC PAYG PPP SSS IRA MLCD U.S.T- Bonds
- 20. How it Works? Bond + Call Option
- 21. Do I Need to Become a Financial Engineer to Invest in MLCDs? Example: $1000 Investment 4 year S&P 500 Max 64% - Min 2%
- 22. How Do PPPs Work? Market Competition Bank Ranked #1 2 Year MLCD S&P 48% Cap A Bank Ranked # 2 2 Year MLCD PPP SSS B S&P 47% Cap Bank Ranked # 3 2 Year MLCD C S&P 45% Cap
- 23. 2 Year Gold vs. 2 Year Gold MLCD 48% Upside Cap (1970-2010 nominal)
- 24. 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
- 25. 2 Year Gold MLCD 48% Cap Point to Point vs. 2 Year Gold MLCD 48% Quarterly Cap Structure 60.00% 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
- 26. From Crisis to Opportunity
- 27. From Crisis to Opportunity
- 28. Thank You + =