Let me provide a counter point for those on the sidelines. As always DYDD, YMMV, etc. Here is my analysis below:
Assumptions that I have starting 2023:
- 35 yo, 6 year NB A. Inflation, pay raises, IRS limits, tax brackets etc. will all be 4% in perpetuity. (Yes I know this isn't how it works, but it's the best guess for today and honestly it's putting in controls when I only want to look at the affect of certain variables).
- 2023 pay rate of $320/hr. 415(c) and 401(k) limits as discussed above.
- 1,000 hours of pay every year.
- 10% personal contribution into 401(k)
- I don't use profit sharing for any budgeting going forward. I always consider that some nice extra and usually have fun with that money; TBH I've never really had a big check since starting here.
- Working withholding rate of 40% (Fed, State and ALPA; yes it's slightly higher than real life, but actually errs in favor of MBCBP).
- Withholding in retirement of 30%.
- 16% DC today, 17% next year and 18% in 2026 and until retirement.
- Retirement at 65.
- MBCBP or equivalent gets 100% excess. Brokerage account gets 60% of excess (40% withholdings).
Results:
2053 balance
LIRKX at 4.3%: $1,935,000 | Value after taxes (30%): $1,354,500
MBCBP at 5%: $2,098,000 | Value after taxes (30%): $1,468,000
Brokerage at 7%: $1,634,000 | Value after taxes (15%): $1,388,900
Brokerage at 8%: $1,894,000 | Value after taxes (15%): $1,420,000
Brkge VOO at 11.5%: $3,273,000 | Value after taxes (15%): $2,782,050 --> Honestly the brokerage accounts will actually be worth more because the LTCG is only applied to the gains and not the cost basis, but for simplicity sake I applied 15% to the entire value.
I think it's pretty obvious that anyone with any amount of runway will get a much better value from investing the excess if they get even modest returns. 7% is about the break even point for me and that is not hard to achieve. God forbid someone takes an annuity buy out on the MBCBP then they will really be getting pennies on the dollar for their excess but I digress and won't even go there.
Keep in mind I forecast a total inflation of 225% over that time frame. So $1.35 million in 2053 is like $600,000 today.