3. Current Retirement Structure
1.
2.
3.
1. Decide retirement income
2. Step 1 depicts value to amortize at 65
3. Start investing! No breaks, no options.
No Guarantees!
4. Retirement Options
Option #1
• Forward Contract w/
guarenteed Floor
• Next best option =
bond market for 2.5%
Option #2
• Assume yearly “sale”of
retirement savings,
much like Cargill
• Thus yearly forward
contracts, until V65
with an “average
window” of a year
• Option to shout yearly
5. Option #1
SPo = 23.35 SP1 = 23.35
Bond = 38.26
Expect = 51.16
• K = expected value – growth attributed in bond market
• Floor! Guaranteed $51.16/share or greater.
• Cost of underlying short put is purchased as premium
• Assumed market for 40 year market for
Vanguard 500 Index
40yrs
7. Option #2: Increased Control
• Cargill, except instead of a guarentee for commodity pricing, guarentee for
stock sale
• Q = # of stocks needed for retirement quota
• Commodity = volatile stock market index shares
• Price a 40 year forward contract (based on V0 retirement) to be sold at time 0
• Average window of the entire year
• Delivery in 39 years
• Continue each year until 64 with 1 less year delivery each year
8. Conclusion
• 2009 hurt: “those with more than $200,000 in account balances
had an average loss of more than 25 percent.” (ebri.org)
• More options are needed in retirement plans
• As social security deflates further and news articles continue to
criticize the importance of retirement, individuals will look for
new options.
