Originally Posted by
PilotWombat
Ok, so I've been going through the numbers. Of course I have to make a lot of assumptions:
- No state tax, 24% tax bracket during your career, 22% in retirement, 15% capital gains tax rate
- 5% interest in the MBCBP, 8% return on your own investments
- Buy an annuity with the MBCBP total, returned at 6% per year
- Distributions on your own investments at 4%
With those assumptions and more, it will take 28 years for your own investments to provide more income than the MBCBP. At a 9% return, 22 years. Those numbers stretch are 31 and 24 years respectively with a 5% state income tax.
So I guess if your retirement horizon is more than 30 years out, then it's in your best interest to not have the MBCBP. If it's sooner than that, the MBCCBP is the better option.
There are so many reasons this is wrong. Thank You for once again proving pilots should not be financial advisers. Please don't take my suggestions below as advice, rather use my commentary as a basis for forming your own conclusion. Furthermore it may be a basis for a rational discussion with a real financial advisor...
-At the end of the MBCBP you gave it a 6% annuity and only 4% distributions on the self directed plan. WTF? Both avenues have an option to purchase a similar annuity in the market place, the MBCBP isnt a prerequisite for an annuity. Talk about apples and oranges. What if you did a 4% withdrawal rate from the MBCBP and purchased a 6% annuity with the self directed funds? Talk about misleading.
-You have not shown any math behind the assumed final value of the two plans. In the ignorant cries to "Avoid TAXES", you are leading the uneducated masses into a plan that will handicap them with Income Taxes on retirement money. Wealthy individuals pay LT Capital Gains Taxes, not Income Taxes.
-There is a better option to pay income taxes now and then pay LT Capital Gains taxes on the growth via a simple ETF.
Consider the following...
IVV, a plain vanilla S&P 500 EFT has a 15 year return of 8.94%. It has an After Tax return of 8.44%. "That's impossible" cry the MBCBP, fee generating, income confiscators. Nope, its real. IVV or other tax efficient ETFs generate most of their returns by Long Term Capital gains. The dividends, which represent only a small portion of the total return are taxed annually, The bulk of the return is taxed as a long term capital gain at the time of the sale.
iShares Core S&P 500 ETF (IVV) Fund Tax Analysis
Here is my math.
$20,000 annual contributions (calculated at the beginning of the year), 5% MBCBP return, 25% Income Tax paid on distribution.
$13,600 annual investment ($20,000-32% income tax), 8% after tax return in an ETF, 15% LT CG tax
MBCBP Value after taxes
5 years - 87,000
10 years - 198,000
15 years - 340,000
20 years - 521,000
MMIC Plan (My Money, I Control) Value after taxes
5 years - 83,000
10 years - 201,000
15 years - 370,000
20 years - 612,000
DYODD, YMMV, Etc. And please for the sake of your financial future don't take financial advice from anonymous pilots like me who have no vested interest in your financial future. Also weigh carefully the advice of those who may have something to gain from promoting the MBCBP.