bozo99

I am going to beat the dead horse on this discussion and offer some parting shots.

At the end of the day: the MBCBP decision is a tax play not a return play.

If you have a "standard" balanced retirement portfolio of stocks and bonds, you can just increase the equity weightings in other accounts (401k, IRA, etc) to still hold a desired asset allocation. Only under the least favorable assumptions (no previous savings, immediate max MBCBP contributions, etc) will your "forced" bond allocation be higher than 10-20% of the total portfolio. Therefore the investment returns of both courses of action (opt-in or opt-out) are similar, if not identical, at the portfolio-level.

Since the returns between both scenarios are marginally the same, the relevant question to analyze is: what tax treatment maximizes your financial goals? More specifically, do you want to recognize your taxes when you work or defer recognition to the future (when you will presumably have *some* control over the recognition timing)?

A proper analysis requires thoroughly understanding your taxes today (i.e. while working) and comparing them to the expected taxes in the future (while accounting for TCJA sunset, spouse RMDs, Military/VA retirement, other account RMDs, SS strategy, Roth conversion strategy, etc).

Unfortunately, most of the analysis methodologies I've seen are incomplete or incorrect (tax-equivalent yield, account-level return comparison vs portfolio-level analysis, not understanding taxes paid today vs the future, etc.).

For those still reading this thread or still analyzing the MBCBP opt-in/opt-out decision, I hope this helps point you in the right direction for your situation.

Gunfighter

You are correct about the tax play portion. There is however a return play component where MBCBP funnels money into "market assets" as opposed to non-market assets. Many of the complaints about return are from pilots participating in investments outside of Wall Street or at least outside of what Fidelity Brokeragelink offers. In that case it becomes more difficult to achieve the desired portfolio balance when 16-18% of earnings above the IRS threshold are kept in the market. Pilots on property have the chance to opt out and preserve that flexibility. It isn't just investing in gold, real estate, bitcoin and businesses. Some pilots are investing in their children by funding education and a down payment on their first house.

It could be argued that the second bolded comment applies to the most favorable conditions. We have pilots who started a week ago with no retirement savings who could receive 401k excess for 20+ years. They will be heavily overindexed on bonds. It's an entirely different kind of money problem to have when you are at the IRS 415C limit before your 30th birthday. It's not ideal, but I'm sure they will survive.

Jughead135

That one's a lob. By and large, are the pilots in that group the same as those earning in excess of the compensation limit?

Vsop

I’m in that group 3 kids under 5 and NBA now.

Gunfighter

There is significant overlap. I'll fit both categories this year and know of several who will as well. It isn't the new hires with college kids and first time homebuyers. That is the realm of Captains and senior FOs.

You will be squarely in spill cash territory when the kids are in college and buying their first home.

bozo99

Houses, kids, boats, and Miatas are apples to oranges comparisons and not what the common arguments surrounding the MBCBP have been about. If pilots want to *spend* their money instead of saving, that's awesome too.

As for bonds, "overindexed" is in the eye of the beholder but I did the math and even with your stated assumptions the max "forced" bond allocation is 10-20%.

The interesting thing that no one is talking about is the possibility that super-young captains may hit the IRS DB limit in the MBCBP. That would be a good problem to have.

Gunfighter

It's unlikely the MBCBP portion would grow to that amount. The IRS limit for an annual DB payment is $265,000 for 2023 adjusted upward for inflation. Given that the MBCBP isn't designed to significantly outpace inflation, it is unlikely the future balance would support a DB payment exceeding the future inflation adjusted values.

O R C A

If I were to buy a home right now with a 7% mortgage where should any excess dollars go? Pay down the mortgage or invest with a long term 5% bond?

FangsF15

7% > 5%. Unless you think you WILL beat 7%, pay down your mortgage first, the earlier the better so the excess has longer amortization to work for you. You are guaranteeing 7% return on every dollar you pay down your mortgage to the maturity date.

Disclaimer, ​​​I'm not a financial expert.

tennisguru

The Fedex TA also adds an MBCBP, and according to the TA their plan is established "with a forecasted investment return of at least 6.5% on a ten-year projected basis." I don't see any stock/bond split requirement. Seems like their plan is set up to have a better chance at higher returns than our plan.