The
social security program can be said to be an insurance program most for three
components; the disabled, the retiring and the survivors. The primary funder of
this program in the United States is mostly the taxpayers. In most cases the
beneficiaries get amount according to their income and other financial factors.
However this has been seen to have some negative implications to the Country’s
payroll. Like Social security first began in 1935 it was known that contributions
of 17 workers paid for the benefits of just one retiree. However in future this
is expected to change, in 2035 they expect the ration of contributors to
beneficiaries to be 2:1. This will prevent future losses incurred as a result
of fewer workers contributions. The social security administration is in charge
of administering how much contributions are made towards the social security by
the beneficiaries.
Due to the fear of future financial shortfall
of the social security, there is a proposal to have the social security
privatized. By privatizing it means that each beneficiary will have a personal
account in which he/ she will contribute towards. The idea of privatization
will allow workers to have control over their own retirement through their
personal investment accounts.
Through
privatization he retirees will have freedom to invest their retirement benefits
in stock market as they wish to. The retirees should invest only in diversified
and approved mutual funds and should avoid single stocks or highly volatile
stocks; this will avoid exposing the retirement money to risk. By investing in
the private capital sector the retirees would earn higher returns as compared
to the government invested funds.
For
this to be a reality there must be private investment organization that will
invest the money on behalf of the retirees. The Investment will manage the
contributions that the retirees make and it will be responsible of deciding
whether the retiree benefits are increasing or declining according to the kind
of investment that the retiree choose and according to how thee investment is
fairing in the market.
The
main focus or target of a business operation or enterprise will be both the
employed and also the non-employed who by one or other means are self-employed.
Both have the freedom to contribute according to their incomes or according to
other factors that may affect them financially. The enterprise will create
personal accounts where the workers can freely contribute in. The money in the
personal accounts will be used for investment and the results of investment
will always top up the customer accounts. By having this target market the
enterprise will be ready to help both the poor and the rich. The poor will
benefit in a way such that their retirement will increase as a result of
investment that they will be helped to identify by the enterprise.
Similarly
to any other business enterprise the business to operate the self-directed
social accounts will need to put in place the business finance aspects. The
finance aspects like the seed capital, reserves, budgeting and the break-even
analysis are very important for this business. For the seed capital the
business will need a very large seed capital to set up new personal accounts
while still continuing to provide benefits to the current beneficiaries of the
social security. The obvious source of the seed capital is the traditional
loan. Hence it can be preferred for this business also. The second aspect of
finance crucial to any business is the reserves. The business being set to
operate the direct account of social security requires reserves fund. Someone
may decide to invest his/her contribution and then over sudden the whole
investment comes down. Apart from the starting capital and the transition fees
the business need to have some reserve fund set aside in case something
unexpected may happen. Budgeting is another finance aspect that should affect
how the business operation will run. The business needs to know how much will
be invested and what percentage of the investment returns will be given to the
beneficiary. The remaining percentage
also should be well budgeted to cater for other aspects such as wages, taxes
and losses if any. All the costs to be incurred should be well known to the
business the inventory costs, gross margins and administrative costs. The
business should have a well budget to ensure that it does not affect the
beneficiaries negatively due to lack of a well formulated budget.
The
last but not the least finance aspect to be discussed here is the break-even
analysis. This is point in which all expenses will be covered for and the
business will be making profit. Through creating of the personal accounts a lot
of costs will be incurred, but with time the money shall be invested and the
investments shall start returning to the business through cutting a certain
percentage from each beneficiary. When the money being earned covers the
expenses that had been incurred the business is said to have reached the
break-even point.
Raising
of money to start such a business is another issue I will address in this
paper. This business can compared to capital market. As it happens in most
cases of capital market investments there must be an entrepreneur who is the
founder an enterprise. The entrepreneur raises money using different means at
the early stages of a startup entrepreneurs may decide to use the own savings
and borrowings. These same means can be applied in this business of operating
direct account for social security. The aspect of having co-founders starting
the business also makes the raising of the starting capital an easy task.
Sharing the needed amount among several members is not as raising it solely.
Through use of crowd fund raising and government loans not only make the
process of raising capital but also make it as faster as possible.
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This
business must issue securities to the investors. There are main of securities
that can be applied and be used in this context of this enterprise these are;
stocks and bonds, shares of investments capital and the derivative securities.
Investors for this case who are the retirement beneficiaries must feel that
they are secure whenever they contribute their capital. Getting into the
securities first let us look at the stock and bond security, this is the beneficiaries
will be treated as investors and are free to buy bonds from the business. The
company will pay the investors an investment interest which does not exceed the
usual bank interest. The second security I will discuss in this paper is the
share of investment capital funds security. An owner of a share has the rights to
own the share in a joint stock enterprise. The income from the shares varies
from their growth rates. This business enterprise should be able to provide the
investors with a way such that they will be able to own shares of the joint
owned investment. The last type of security is the derivative security, this
security is divided into two components the option and the futures contract.
Derivative security deals mainly with the contracts. The option contract
defines the rights of an investor in case of a favorable market condition while
the future contract gives rights to both the seller and the buyer to negotiate
on a price in case of future changes of market conditions. In our business
setting the retirement benefit being the major investor he/she must be provided
with all these securities.
The
main revenue model for the enterprise will be the investment revenue model.
Most of the revenue will come as a result of profits made from investment
activities. The business may decide to invest in areas of demand such as real
estates among other investments that will raise revenue. The cash flow also
will be from the investments activities. The cash inflow mostly will involve
the sale of properties, sales of debts and equity securities and collection of
interest from loans. The cash outflow will involve the purchasing of
properties, purchasing of debts and equity securities and the lending from
other entities.
This
business enterprise should be organized through all its numerous participants
who include the investors both individual and the institutional. The
contributors of capital want the capital to return with maximum returns while
on the other hand the users of the capital want to use it at lowest possible
costs. Organizing and administering the business well should be given a bigger
priority. The government should value this business, the citizens also it will
create a growing economy through jobs offered, improving of life standards for
the poor among many other benefits.
Works Cited
Andrew M. Chisholm. An Introduction to
International Capital Markets: Products, Strategies, Participant. New
York: Columbia University Press, 2009. Print.
Damodaran, Aswath. Investment Valuation: Tools and
Techniques for Determining the Value of Any Asset. Washingston: Wiley,
2012. Print.
O'Sullivan, Arthur and Steven M. Sheffrin. Economics:
Principles in action. New York: Pearson Prentice Hall, 2003. Print.
Park, Neil Glibert and Hoo Neung. Privatization,
Provision, and Targeting: Trends and Policy Implications for. Washington:
International Social Security Review, 1996.
Shipman, William G. Retiring with Dignity: Social
Security vs. Private Markets. New York: Cato Institute Social Security,
1995.
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