Dalpa R&I Roadshow
09-12-2018, 10:45 AM
#41
Banned
Joined APC: May 2018
Posts: 314
Ok. This is bothering me quite a bit. So I just ran some numbers.
Let’s assume (which historically is the case) that the S&P 500 averages 10% annual rate of return. Some years are 15+%, others have been 6%. On average it returns 10% annually. We can all agree with that because it is a fact.
So let’s assume you are 40 years old, with 25 years until retirement. $10,000 is sitting in your Fidelity general trading account.
Invest the $10,000 into theS&P 500 index fund.
Let’s assume that every year after that you invest an additional $10,000 of DPSP cash for he next 25 years.
Compounded at an annual 10% rate of return, you will have invested $250,000 over 25 years. The worth of that account 25 years from today is $1,190,165. One million. One hundred ninety. One hundred and sixty five dollars.
On top of what you already have in your 401k.
I’ll take my chances with that. If you want to argue this, there’s nothing to argue. Everything here is a fact. I also did not account for dividend reinvestment in my calculations. Again, Warren Buffett would agree. https://finance.yahoo.com/news/warren-buffett-says-couldve-turned-114-400000-230140222.html
Here’s a link to a calculator plug and play as you wish. https://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx
Let’s assume (which historically is the case) that the S&P 500 averages 10% annual rate of return. Some years are 15+%, others have been 6%. On average it returns 10% annually. We can all agree with that because it is a fact.
So let’s assume you are 40 years old, with 25 years until retirement. $10,000 is sitting in your Fidelity general trading account.
Invest the $10,000 into theS&P 500 index fund.
Let’s assume that every year after that you invest an additional $10,000 of DPSP cash for he next 25 years.
Compounded at an annual 10% rate of return, you will have invested $250,000 over 25 years. The worth of that account 25 years from today is $1,190,165. One million. One hundred ninety. One hundred and sixty five dollars.
On top of what you already have in your 401k.
I’ll take my chances with that. If you want to argue this, there’s nothing to argue. Everything here is a fact. I also did not account for dividend reinvestment in my calculations. Again, Warren Buffett would agree. https://finance.yahoo.com/news/warren-buffett-says-couldve-turned-114-400000-230140222.html
Here’s a link to a calculator plug and play as you wish. https://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx
09-12-2018, 11:02 AM
#43
Gets Weekends Off
Joined APC: Oct 2015
Posts: 270
Originally Posted by CBreezy
$4000/ mo 40 years from now will be worth virtually nothing.
you'll have 40 years to renegotiate.
09-12-2018, 11:30 AM
#44
Gets Weekends Off
Joined APC: Jun 2015
Posts: 1,637
Originally Posted by tennisguru
The tax thing is an interesting math issue. Let's say someone has 20k per year in DPSP cash (I have no idea what's realistic, but the concept behind the numbers will still work).
Our current option is to take the cash, with the tax hit. Let's say after fed/state taxes, dues, etc you end up with 55% of that, or 11k. If you invest that 11k every year starting with $0 over 20 years @ 10% rate of return you'll have 630k in that account.
Option 2 would be this 5% VEBA/whatever you want to call it, the benefit being that you would get to put the full 20k in each year. That amount after 20 years would be 660k.
The math on those is very close, but of course the variable is what can you do with your own money. If you can average 11% instead of 10% that puts you at over 700k, 12% is just shy of 800k. Conversely if you can only do 8% you're only looking at 500k.
The one thing I don't know is how this union plan would be taxed on withdrawals after retirement. Is it ordinary income or long term capital gains? That would make a big variable that would need to be accounted for.
Either way I can see how the 5% "set it and forget it" plan appeals to some people. If they could push that yearly gain closer to 7% it'd really start to look much more attractive of an option for a larger number of pilots. A 7% ROR on the enhanced retirement option would push your 20 year account balance over 800k, which matches the 12% ROR if you took the DPSP cash tax hit.
Our current option is to take the cash, with the tax hit. Let's say after fed/state taxes, dues, etc you end up with 55% of that, or 11k. If you invest that 11k every year starting with $0 over 20 years @ 10% rate of return you'll have 630k in that account.
Option 2 would be this 5% VEBA/whatever you want to call it, the benefit being that you would get to put the full 20k in each year. That amount after 20 years would be 660k.
The math on those is very close, but of course the variable is what can you do with your own money. If you can average 11% instead of 10% that puts you at over 700k, 12% is just shy of 800k. Conversely if you can only do 8% you're only looking at 500k.
The one thing I don't know is how this union plan would be taxed on withdrawals after retirement. Is it ordinary income or long term capital gains? That would make a big variable that would need to be accounted for.
Either way I can see how the 5% "set it and forget it" plan appeals to some people. If they could push that yearly gain closer to 7% it'd really start to look much more attractive of an option for a larger number of pilots. A 7% ROR on the enhanced retirement option would push your 20 year account balance over 800k, which matches the 12% ROR if you took the DPSP cash tax hit.
Add that into your calculation and see if its worth it.
09-12-2018, 11:38 AM
#45
Gets Weekends Off
Joined APC: Apr 2008
Position: DAL FO
Posts: 2,141
Originally Posted by Gunfighter
IMHO redirecting DPSP cash anywhere but the pilots paycheck is the kiss of death on any of these plans. The first step in retirement improvement should be a bump up to 20%, so we hit the 415C limit with company contributions. The second step could include a qualified DB plan like the MBCBP, that is funded with company money, not redirected DPSP cash. That money should be invested in a mix of S&P Index and Total Market Index, with management fees equal to a similar fund at Fidelity or Vanugard (i.e. low). The historical return of those assets with fees included is closer to 8.5%
The fact that 2/3 of the pilot group receive DPSP cash makes us a huge target for a number of financial services firms looking to come in and with one "sale" gain control of millions of dollars. In return for managing that money, they will target a return that is about 60% of what an S&P index fund returns. It sounds to me like someone is trying to get 40% of our money through substandard returns. How is that different than losing 40% to taxes?
The fact that 2/3 of the pilot group receive DPSP cash makes us a huge target for a number of financial services firms looking to come in and with one "sale" gain control of millions of dollars. In return for managing that money, they will target a return that is about 60% of what an S&P index fund returns. It sounds to me like someone is trying to get 40% of our money through substandard returns. How is that different than losing 40% to taxes?
09-12-2018, 11:54 AM
#46
Gets Weekends Off
Joined APC: Jul 2013
Posts: 10,039
Originally Posted by lake
It will be worth more than you get now... always a complainer on these boards... news flash...
you'll have 40 years to renegotiate.
you'll have 40 years to renegotiate.
No. I do not trust you or the company with my money. Give it to me for me to invest. I don't want an annuity. I want to put my money where I want it.
09-12-2018, 12:32 PM
#47
Gets Weekends Off
Joined APC: Oct 2015
Posts: 270
Think outside the box. What if this was in addition to anything else you had for retirement. It's very simple math. If you were employed for 30 years you would get an ADDITIONAL $3000.00/ month. No one's taking anything from you...
Last edited by lake; 09-12-2018 at 12:54 PM.
09-12-2018, 12:43 PM
#48
Gets Weekends Off
Joined APC: Apr 2008
Position: DAL FO
Posts: 2,141
Originally Posted by lake
Trust me, just give us ours and I promise it'll get better when you get close to retirement."
No. I do not trust you or the company with my money. Give it to me for me to invest. I don't want an annuity. I want to put my money where I want it.
Think outside the box. What if this was in addition to anything else you had for retirement. It's very simple math. If you were employed for 30 years you would get an ADDITIONAL $3000.00/ month. No one's taking anything from you...
No. I do not trust you or the company with my money. Give it to me for me to invest. I don't want an annuity. I want to put my money where I want it.
Think outside the box. What if this was in addition to anything else you had for retirement. It's very simple math. If you were employed for 30 years you would get an ADDITIONAL $3000.00/ month. No one's taking anything from you...
09-12-2018, 01:15 PM
#49
Gets Weekends Off
Joined APC: Nov 2011
Posts: 4,503
Originally Posted by LeineLodge
Except apparently they are talking about using DPSP cash, ie self funding. At least that’s what Denny’s recap seemed to indicate
Exactly. If its self funded it needs to be 100% optional....company funded I'm fine with it being mandatory
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