Originally Posted by
interceptorpilo
Here is my math: Be glad to be shown where I am wrong:
Retiring at 67: 500K x 2 = 1M. Put 15% in retirement fund so 75K per year. Take home before taxes 425K. 4M in the bank. 6% income on your retirement account. 4.075 x 1.06 after year 1 = 4.32M, after year 2 = 4.658M. Gains are actually higher because that 75K isn’t put in all at the end.
Retiring at 65 with 4M in the bank after year 1 withdrawing 400K per year and 6% returns = 3.84M. After year 2 = 3.67M. Gains are actually lower as I gave credit for having the full amount in the account and only withdrawing expenses at the end of the year.
That is 988K difference - pretty close to 1M.
Yes you pay taxes on the 500K but you also pay taxes on the 400K coming out of retirement account. Can you make more (or less) in your retirement account? Yes. Can you put some of your retirement money into accounts to withdraw tax free? Yes. Can you withdraw less from your retirement savings? Yes. But I made some things simple for clarity.
And you are two years further down the age road toward death and will need two years less of withdrawals from retirement account. If you have a counter then please show your math.
BTW just doing math in public. I am 💯 against raising the pilot retirement age.
Just to be clear, are you saying it is close to a $2m difference in net worth when pilot A works until 67 and pilot B works until 65? Or even a $2m difference pre-tax?
A couple things. You said "Gains are actually higher because that 75K isn’t put in all at the end" yet you treated it like it was all put in on day 1 of the year and got the full 6% growth. A more realistic number would be 4-5% growth on the $75k addition, since pilot A would probably hit max out of pocket by July at the latest if they make $500k a year. Earlier with a large profit sharing check.
Second, did pilot A have no expenses at all over the course of his 65-67 years? To get anywhere near a $2m increase in pre-tax money by working 2 more years, you would have to count your change in retirement plans of roughly $1m, and then count all of the $500k income for both years for pilot A as well. You took in to account $400k of expenses pre-tax for pilot B via 401k withdrawals, and the subsequent drop in their 401k and growth on those withdrawals. For pilot A, you would also have to reduce their $500k income by some expense amount as well, unless they are living in the crew room and eating all their meals out of the snack baskets. You would also have to reduce the $500k by some share of the $75k that they put in their 401k out of their own deductions, as the company can't put in that much. Counting the full $75k as an increase in the 401k for pilot A and also as income is counting at least some portion of it twice.
Super over simplified, but the same $400k in pre-tax expenses and the pilot deducting $20k of that $75k 401k contribution on their own, would only leave $80k of that $500k at the end of the year. $80k x 2 + the $1m in 401k change would only be $1.16m difference between the 2 pilots.
Also, you said "And you are two years further down the age road toward death and will need two years less of withdrawals from retirement account." So is pilot B in your example. They are both 67.