Originally Posted by First Break

Do you have any of your portfolio invested in lower risk assets? Even the most aggressive suggested portfolio mixes have some portion protected from risk.

Originally Posted by First Break

When you receive DC excess, you are paying the highest marginal tax rate on those dollars, because they are effectively the last dollars you earn. Depending on your state, you may be losing upwards of 40+% of your spill cash to taxes, not to mention the 1.85% to Ambrosi. The arbitrage has nothing to do with the “tax bracket” you will be in during retirement. It has everything to do with the effective tax rate of the dollars that are withdrawn from your tax deferred retirement plans while in retirement. If you are paying a 40%+ effective tax rate on ALL dollars you withdraw from your tax deferred accounts, you won the game of life and likely have substantial income in retirement outside of your retirement accounts. Most realistic scenarios for an average pilot have an effective tax rate or IRA withdrawals of no more than 20%, and even that would require a pretty large yearly withdrawal rivaling a pilots pre retirement active income.

Some quick googling of the difference between marginal tax rates and effective tax rates may help illustrate where we might not be lined up on how we view this decision.

On the investment return side, you have to consistently earn something like double the return of the MBCBP to overcome the tax arbitrage above to come out ahead for a middle of the road pilot with normal circumstances.

If you are gifted enough to make a 10-12% return every year, without losing anything, EVER, consistently for your entire career, i admit you may come out ahead. Pilots with the ability (or luck) to achieve this remarkable rate of return for multiple decades in a row with no losses are in a pretty rare demographic amongst our seniority list. If you know any of them, I’d gladly give them my password and pay a handsome commission to manage my accounts.

One place you and I are in violent agreement is that Real Estate can reliably eclipse these gains if one has the fortitude and desire to invest the time, energy, and risk tolerance required to be successful.

But I also applaud the union for thinking outside the box and trying to improve the retirement outcome for the average Joe who wants nothing to do with having a second job owning/managing real estate or actively trading their spill cash.

And there must be some value beyond “basic math” in this plan, as nearly every other major pilot group has disclosed they are actively seeking a MBCBP. I’ve seen it mentioned by UAL, APA, SWAPA, FedEx, JetBlue, and Alaska. To my knowledge, Delta is much further ahead than any of these other groups.

Originally Posted by higney85

yes. We have balance.

Originally Posted by First Break

So, could the MBCBP take the place of your other low risk assets, freeing those funds up to seek a greater return in your 401k? If so, why would you want to abandon the obvious benefits provided by tax deferral?

Originally Posted by First Break

When you receive DC excess, you are paying the highest marginal tax rate on those dollars, because they are effectively the last dollars you earn. Depending on your state, you may be losing upwards of 40+% of your spill cash to taxes, not to mention the 1.85% to Ambrosi. The arbitrage has nothing to do with the “tax bracket” you will be in during retirement. It has everything to do with the effective tax rate of the dollars that are withdrawn from your tax deferred retirement plans while in retirement. If you are paying a 40%+ effective tax rate on ALL dollars you withdraw from your tax deferred accounts, you won the game of life and likely have substantial income in retirement outside of your retirement accounts. Most realistic scenarios for an average pilot have an effective tax rate or IRA withdrawals of no more than 20%, and even that would require a pretty large yearly withdrawal rivaling a pilots pre retirement active income.

Some quick googling of the difference between marginal tax rates and effective tax rates may help illustrate where we might not be lined up on how we view this decision.

On the investment return side, you have to consistently earn something like double the return of the MBCBP to overcome the tax arbitrage above to come out ahead for a middle of the road pilot with normal circumstances.

If you are gifted enough to make a 10-12% return every year, without losing anything, EVER, consistently for your entire career, i admit you may come out ahead. Pilots with the ability (or luck) to achieve this remarkable rate of return for multiple decades in a row with no losses are in a pretty rare demographic amongst our seniority list. If you know any of them, I’d gladly give them my password and pay a handsome commission to manage my accounts.

One place you and I are in violent agreement is that Real Estate can reliably eclipse these gains if one has the fortitude and desire to invest the time, energy, and risk tolerance required to be successful.

But I also applaud the union for thinking outside the box and trying to improve the retirement outcome for the average Joe who wants nothing to do with having a second job owning/managing real estate or actively trading their spill cash.

And there must be some value beyond “basic math” in this plan, as nearly every other major pilot group has disclosed they are actively seeking a MBCBP. I’ve seen it mentioned by UAL, APA, SWAPA, FedEx, JetBlue, and Alaska. To my knowledge, Delta is much further ahead than any of these other groups.

Originally Posted by illini90

You’ve all flown with those captains that bragged about getting to 150 hours/month or more, working their tails off to make a pile of money. One of my favorite guys retired recently, hardly able to walk anymore, but hit 180 hours/month regularly. Now he’s 65, and probably hasn’t taken his kids or grand kids fishing or skiing in the last ten years, because there was flying to be had, money to be made. “Sorry, kiddo, I was going to take you fishing today, but Skeds just called with a greenie…maybe next week, depending on the coverage.” With the money we pull down, working a normal ALV, and investing what will be 18% in a couple years…how can you be trading time today for incremental gains in the future? What do you want to do with a zillion dollars when you’re 65? Count it all day? I’m sipping an Aberlour 18 yr whiskey as I type this, that I picked up today on a layover for $140. I made that back before I turned the landing lights off, passing 10,000’. My buddy would have had a heart attack, spending that much out of his 180 hour month. I choose to enjoy it today, because I’m pretty sure 18% of my W2, over the years, will set me up just fine. I don’t want to look back and see what I could have done with this pile of gold, if only I would have used some of it earlier to be with my friends and family, or buy the fishing pole or hockey stick I always wanted. That’s why I’ll max out my 401K, take my spill cash, and make my own decisions with it. You can do all your analysis, all day long…knock yourself out. I’ll be in the South Platte River, with my family and my dog, reeling in some sweet rainbow trout, enjoying life.

Originally Posted by Trip7

Much of your tax points, outside of those who will retire in the next 5 years, is speculation. For a pilot with decades left, ceding control of your hard earned tax dollars, with no guarantee of what your future tax rate will be, all for a targeted 5% return(also not guaranteed) seems like Pension like risk.

Also your return example is off. One does not need to return 10-12% a year with no losses to average an 10-12% IRR. Years of under performance followed by a year or 2 of big out performance does the same thing.

Originally Posted by Trip7

Stop referencing financial advisors. This is basic math. There is ZERO difference between the compounding of the two. One is tax deferred, and other isn't. The only real difference is your tax bracket when paying the taxes. Most that go tax deferred are betting they will have a lower tax bracket on withdrawal in retirement. Easier decision to make with 5 years or less to go.

Your comment on compounding interest and tax arbitrage for younger pilots is misplaced. I don't think you fully understand how low of a return 5% is and huge opportunity cost wasted by not paying taxes now, controlling your own money and investing it as you see fit. Any pilot can get a much better return on real estate or value stocks. Moreover, I believe you're flat out confused on the tax advantages. The MBCBP is not a HSA and therefore not triple taxed advantaged.

By all means, do what's best for you, but coming on here and telling pilots who are opting out that we don't know finances is quite the contrary. For me to opt into the MBCBP I'd need at least a 10% hurdle rate, preferably 15%