Originally Posted by
PilotWombat
Again, the math doesn't lie. Assuming I used the correct calculations. Feel free to check my numbers. I've shared them for the internet to bash.
Great job with the spreadsheet on DropBox. The lookup tables for tax rates were a nice added feature. My biggest complaint is the 6% distribution rate on MBCBP vs 4% on MMIC (My Money, I Control). The correct analysis is to compare the account values, as both distribution options are available in either plan. When applying an equal rate for distributions, the MMIC comes out ahead for all years tested. Anything less than 6 years wouldn't calculate.
A second adjustment I'd recommend is to look at marginal tax rates vs average tax rate for calculating the MMIC contributions. You are giving an unfair advantage to the MMIC plan by reducing the contribution by the average tax rate not the marginal rate as you should do.
Also, the capital gains taxes didn't seem to be properly calculating. The VLOOKUP was referencing only the capital gains income and not total income when applying the capital gain rate.
You have a great start on a useful tool and a few tweeks will perfect it.
Originally Posted by
PilotWombat
Also, I would never take financial claims from the internet as advice. Instead, I would take the advice of my father, a "real financial advisor" (CFP), whom I have been learning from for the last 3 decades. I am in no way up to his level of knowledge, but I am generally good at math, I know how to read IRS documents, and I believe I have a better understanding of this stuff than the majority of the population.
You are miles ahead of the general population and a comparable distance ahead of the pilot population as well. The problem I've run across with CFPs in they limit their advice to a neat 6 sided box created by Wall Street. I have yet to meet with a CFP, fiduciary or otherwise that grasps what can be done with money outside of traditional paper investments. For that reason, I based my analysis on a vanilla S&P 500 ETF. There is an entire world of investments that extend beyond an ETF that are available within the MMIC option. Even restricting the analysis to 5% vs 8%, there are more favorable outcomes with the MMIC. The MBCBP may be a good option for the last 5 years of a typical pilot career, but that is a limited benefit for a targeted group. This does not consider the plus up.
A CFP is not the gold standard for financial advice. Spend some time with a room full of multi-millionaires and you quickly realize that a 5% MBCBP vs an 8% MMIC is not even a relevant conversation. There are so many things that can be done with money outside of the traditional investments. There is a large group of pilots asking for the freedom to pursue some of those options.
Originally Posted by
PilotWombat
I did that because most people generally consider the default for retirement investments to be the 4% withdrawal rule. And the union has stated that the default (but not the only option) for the MBCBP upon retirement is to buy an annuity with it. As best I can find, immediate payment fixed lifetime annuities generally pay about 5-7% of the purchase price per year, hence 6%. If you have better knowledge, by all means, show me some data that allows us all to make a better estimate.
Again, no issue with the 6% return, but the proper analysis is to apply it to both piles of money. A 4% withdrawal rate from the MMIC plan will likely leave a sizeable estate for your heirs, but a 6% lifetime annuity is worth exactly $0 when you die. These values are not captured in the 6% vs 4% analysis.
Originally Posted by
PilotWombat
Sure it is....assuming you have the time for it to grow and don't get caught being forced into retiring during a down cycle.
Again, I am not arguing for or against the MBCBP. I just don't buy the "it's my money or else" crock that you're trying to sell. I want to see the actual numbers. And, as it turns out, if you take the DPSP Cash money and invest it after tax and get 8% from it, it takes about 18 years to break even compared to the MBCBP and the tax savings you get right away.
The real issue with the MBCBP is the "optional" nature only exists within DALPA, not the IRS. For a time horizon under 5 years, there is some validity in the tax benefits of the MBCBP, in fact if I were a decade older, I'd consider exercising my option to participate if given the choice. In the hands of an average individual, the MMIC invested in an S&P ETF outperforms the MBCBP on an after tax basis for a longer term investment horizon. Those of us crying loudly against it are unconvinced of the optional nature and believe we can do better outside of the plan.
What I am asking for is a plan that lets me dictate when and how much I contribute to a vehicle that provides a stable 5% return. Heck, even Warren Buffet recommends 10% in government bonds and 90% S&P Index for the average investor. The MBCBP by it's very nature over indexes individuals in the stable return portion.