Retirement Planning With Treasury Securities Term Paper

Length: 4 pages Sources: 2 Subject: Economics Type: Term Paper Paper: #68535970 Related Topics: Private Security, Investment Portfolio, Sport Finance, Government
Excerpt from Term Paper :

Government Issued T-Bills & Munis

Government T-Bills & Munis

Treasury Bills (T-bills) provide a way for the United States government to fund projects by raising money from the general public. The simplicity of T-bills is attractive to investors, who purchase the securities at a price that is less than their face value (par value) and receive a payment from the government for the full value of the bills upon maturity. T-bill securities have a short-term maturity and are issued to mature at three-month, six-month, and one-year maturities ("Investopedia," 2015). A primary distinction of T-bills from, say, coupon bonds is when the interest is paid. T-bills pay interest upon maturity and coupon bonds pay interest semi-annually ("Investopedia," 2015).

As a money market instrument, T-bills are quite popular in large part because individual investors can afford them, and because neither local nor state taxes are levied on T-bills. While institutional investors commit very large sums to their investments, individual investors can choose from T-bill denominations as low as $1,000. Typical T-bill denominations are $5,000, 10,000, $25,000, $50,000, $100,000, and $1 million ("Investopedia," 2015).

Globally, treasury securities (T-bills and the like) are considered to be risk-free investments, topping the list of safe investments, since they are backed by the government that issued the treasuries ("Investopedia," 2015). But this safety comes with a price: returns are low because the investment risk is low, and investors who cash out before the maturity of the securities may not receive all the money back that they invested when they purchased the bills ("Investopedia," 2015).

Treasury bills, notes, and bonds are all issued...

...

In order to purchase a T-bill, an investor must submit a competitive or non-competitive bid for the securities ("Investopedia," 2015). For bids that are submitted non-competitively, the investor receives the security amount that they have requested but the return is determined at the auction ("Investopedia," 2015). The process of competitive bidding truly is a bid, in that, investors specify the return they are seeking, and learn if they will receive any securities at all, or if they will receive a portion of their bid ("Investopedia," 2015). The determining factor is whether or not the return specified is considered to be too high to truly be competitive ("Investopedia," 2015). A too high bid can put an investor out of the auction action.

A municipal bond is issued to finance large capital expenditures, such as highway or bridge construction and to build schools. A municipal bond provides tax benefits in that most "munies" are exempt from federal taxes, and are also exempt from most local and state taxes, particularly when the investor resides in the state that has issued the municipal bond. As a debt security, municipal bounds are favored by investors in high income tax brackets, fundamentally because of their tax benefits and the low risk of investment.

The information provided up to this point paints a rosy picture for treasury bills. However remote -- a consideration that is viewed as more probable after the 2008-2009 fiscal meltdown -- a corollary down side to treasury bills does exist. There is the matter of custody risk: should the custodian (money market fund or brokerage firm) that holds (has custody of) treasury security investment fail, it is no longer possible to simply get back the securities. The best case scenario is that investors can legally get their securities back, but it could take a good long while. AT-bill is essentially just an IOU -- a promise to pay -- from the United States government. And like any IOU, it is possible to renege on a T-bill.

Credit ratings are an important investor consideration, and the downgrade of U.S. debt from AAA to AA+ by Standard & Poor's in 2011 was an unexpected dark horse…

Sources Used in Documents:

References

Merton, R.C. (2014, July). The crisis in retirement planning. Cambridge, MA: Harvard Business Review.

Money Market: Treasury Bills (T-Bills). (2015). Investopedia University.

Prosser, M. (2103, April 20). Are municipal bonds currently a good investment? Forbes.


Cite this Document:

"Retirement Planning With Treasury Securities" (2015, January 24) Retrieved January 16, 2022, from
https://www.paperdue.com/essay/retirement-planning-with-treasury-securities-2148163

"Retirement Planning With Treasury Securities" 24 January 2015. Web.16 January. 2022. <
https://www.paperdue.com/essay/retirement-planning-with-treasury-securities-2148163>

"Retirement Planning With Treasury Securities", 24 January 2015, Accessed.16 January. 2022,
https://www.paperdue.com/essay/retirement-planning-with-treasury-securities-2148163

Related Documents
Retirement Planning
Words: 1740 Length: 6 Pages Topic: Economics Paper #: 84774858

Retirement Planning Retirement means different things to different people. For some, retirement means being sufficiently financially independent to travel and relax 24 hours a day. Others may view retirement as a "career change." However an individual views retirement will help determine how much he or she will need to retire. Will the lifestyle change dramatically in retirement, or will an individual continue doing the things you currently do, trading work for

Retirement Planning
Words: 3466 Length: 10 Pages Topic: Economics Paper #: 6198469

retirement planning. Beginning as early as age, about what are their dreams for retirement? What goals are important for living during the retirement years? The individual should write their retirement plan and have it available to update when needed. DESIGNING A STRATEGIC RETIREMENT PLAN People are living longer and having better health than ever before. "We're gained 25 years since 1900. That extra time is added to midlife. We have a

Retirement Options Almost One-Third of American Workers
Words: 11565 Length: 42 Pages Topic: Careers Paper #: 96046193

Retirement Options Almost one-third of American workers are failing to prepare themselves for a comfortable retirement, according to a new survey conducted by American Express. The national telephone survey of working adult men and women who had recently left or lost their jobs revealed that 30% did not invest for retirement in their company's 401(k) plan. The survey also revealed that 16% of these participants rolled their money into an IRA, and

Retirement Portability Is a Hot
Words: 20119 Length: 76 Pages Topic: Economics Paper #: 53847496

As Geisel (2004) notes: Income-tax deductions are worth the most to high-bracket taxpayers, who need little incentive to save, whereas the lowest-paid third of workers, whose tax burden consists primarily of the Social Security payroll tax (and who have no income-tax liability), receive no subsidy at all. Federal tax subsidies for retirement saving exceed $120 billion a year, but two thirds of that money benefits the most affluent 20% of

Financial Planning Charting the Course:
Words: 15430 Length: 56 Pages Topic: Careers Paper #: 74235910

Goal setting works well for simple jobs -- clerks, typists, loggers, and technicians -- but not for complete jobs. Goal setting with jobs in which goals are not easily measured (e.g., teaching, nursing, engineering, accounting) has posed some problems. Goal setting encourages game playing. Setting low goals to look good later is one game played by subordinates who do not want to be caught short. Managers play the game of setting

President Bush's Social Security Proposal
Words: 809 Length: 3 Pages Topic: Economics Paper #: 40431288

It becomes more and more likely that by the middle of this century, all those hard-earned dollars that today's twenty- and thirty-year-olds have paid into Social Security will simply not be there. Privatizing social security ensures the post-baby boomers that their money will be there for them when they retire. It takes the control out of the government's hands, which has notoriously not been the best financial advisor in history,