No. of Recommendations: 1
hiya i was hoping you could help me settle a debate. a friend of mine has suggested that with new divedend and capital gains rates, it may *not* be worth it to invest in a pension plan.

his rational/assumptions were that investment gains will be taxed as ordinary income when withdrawn from a pension plan, and he will be in a high income bracket at retirement, while a non pension investment gains could potentially be taxed at only 15% or so.

can anyone help me out with this?
...


i ran a quick test assuming a lump sum invested in 3 scenarios:
A) pension (no matching)
B) taxable long term cap gains/dividend churning anually
c) taxable LTB&H

assumed 10 year investment, 10% annual gain, high California fed and state income tax (44%), 15% capital gains for taxable investments.

came up with the following:
A) pension (1+.1)^10*56% = 1.45
B) LT churn (1*56%)*(1+.1*.85)^10 = 1.27
C) LTB&H (1*56%)*(1+[(1+.1)^10-1]*.85) = 1.32

this is simplistic in that it assumes a lump sum rather than yearly investements.

anyway i don't expect folks to try to decode/correct my math
but i'm sure someone has run a similar analysis
(i haven't found the post)
or there's a calculator for it

any help with the argument, assumptions or number crunching would be appreciated.

thanks

-bill
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement