Skip to main content
No. of Recommendations: 1
Dollrbil posted..

"He argues ( correctly ) tax bracket now at 28% is prohibitive and later is better. I argue you can make up the loss in 10yrs and then some even if you double up on mortgage payments. The difference is $1700/mo now vs $3400/mo at 65. What say ye Fools ?? "

The assumption made by others do not seem to take the tax bite into account on distributions on the $1700/mo.

$1,700 x 12mo = $20,400 B4Tax
$1,700 x 0.72 x 12 = $14,688 Aft Tax or $1,224/mo Aft Tax

$1,224/mo for 120 mo (10 years) @ 12% = $281,567.

Assuming that is not within a tax shelter investment then there would be $281,567 - $146,880 of principle =
$134,687 and gross on it assuming ALL of it was capital gains - no dividends would be .8 x $134,687 = $107,750 or a total of $107,750 + $146,880 = $254,630.

Assuming that you could average 12% per year, (This is a bad assumption - as some years will be negative.) This would yield $30,556/year or $2,546/mo.

The whole calculation hinges on the effective rate of return (APR not necessarily the average) over those 10 years.

I ran an Excel Solver where I deducted taxes from each monthly gain. I assumed 22% in taxes which would be a blend of dividends and capital gains. The break even point seem to be about 9.4%. Thus an estimated break even point would be about 9%. If you think over 10 years you can beat 9%, then go for it.

(The calculation does NOT take into account that the amount invested could be with drawn over the remaining life left to more closely represent the pension which will be worth zero at death. This method would leave the $200,000+ to the estate upon death. There are ways to calculate the Present Value of annuity if you set a time line for payments - This would require estimating the time until death.)

If doing it would make you worry whether you were breaking the 9% breakeven point then it may not be worth the risk. The pension is probably as risk free a return as can be found and finding a 9% return will mean taking on more risk.

Would you invest in stocks if you had CD's returning very close to 9%??


Print the post  


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.
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.