First Break

Yes, passive activity loss for someone who earns W2 income is a beautiful thing. But sure can take a lot of effort, speaking from experience.

Trip7

Not sure why you believe 12% is some sort of unachievable return for pilots. To be in the realm of Warren Buffett a pilot will need to average well in excess of 20% returns over a career. Please don't quote Berkshire Hathaway recent returns from their multi billion dollar operation that has far less options with that sum of money vs a small individual investor.

Warren Buffett as a small individual investor achieved 50% IRR. Peter Lynch achieved 29% IRR over 10 years managing the Fidelity Magellan Fund. Joe Greenblatt averaged 49% returns managing the Gotham Partnership. Lynch and Greenblatt both retired when their funds grew to big to generate excess return from the S&P 500. All of them have wrote books detailing their investment process in a simple, easy to understand format. All say the same thing, investing is not difficult, does not require some sort of high IQ, just basic math and emotional stability.


​​​

m3113n1a1

This. And the s&p index has averaged about 10% throughout its life. Or double what the target return of this fund is.

First Break

Your Magellan sound bite leaves a lot out. That return was only available if you entered his fund at exactly the right moment. Talk to the people who invested in him at the wrong time.

You do you man. I’m sure you’ll kill it. I have no delusion that I’ll change your mind. I’m more concerned about those who will listen to advice that may harm them in the long run.

Again, DYODD.

Trip7

IMO you are the target audience for the MBCBP. There are compelling benefits for pilots with a shorter time frame to retirement with better visibility on retirement income tax implications.

mispoken

From a dollars and cents standpoint, this MBCBP COULD do financial harm to those with a long time horizon. Even if you think 12% isn’t achievable, how about 8% annualized? Run the difference vs 5% annualized over a 10, 20 and 30 year period. I’m sure you already know this, but the difference is staggering.

That’s just the math side of it.

The other part of the equation is the psychological portion. I can totally see someone who has no interest in watching and managing their money finding great benefit in this plan. I know plenty who would much rather focus their attention elsewhere that will definitely participate and that’s great.

As far as the tax piece, for those who want to enjoy a tax savings today, this is a great plan. Nobody knows where taxes will go in 10, 20 or 30 years. At that point we are all just taking our best guess and forming our plan based on that.

There is no wrong answer and the opportunity to have these options is pretty incredible when compared to the rest of the working world. For me, once I get within 3-5 years of retirement I could see myself participating in the plan, it’s too bad that won’t be an option (at least for now).

Trip7

This was not about changing minds, but addressing debating some of your statements geared towards the younger Delta pilots. If Delta pilots had full control of the MBCBP investment my opinion would be different. I agree pilots should DYODD. Expand your team, gather as much information available as possible, including opinions expressed here(Financial CRM), and make a decision that's best for themselves.

tennisguru

I just ran some basic, dirty numbers through an investment calculator. Both cases were run starting with a $0 balance and a hypothetical $1000 DC excess per month, for 25 years.

For the MBCBP, I assumed the whole $1000 would go in at a 5% annual rate of return. That yielded $585k after 25 years.

For the non-MBCBP, I assumed $600 going into the investment, so a 40% loss to taxes and dues. With the 25 year time horizon, it takes an 8.5% annual rate of return to match the $585k of the MBCBP. Obviously the better you do over 8.5% the less sense the MBCBP makes. A 10% return nets you $740k. 11% is $864.

With a 30 year time horizon, a 7.8% return beats the MBCBP. At 15 years you'd need 11.25%, and a someone with a 10 year horizon needs 15%.

None of my calculations take into account dividend/capital gains taxes along the way for the non-MBCBP, but that's probably closer to a wash when you factor in that the MBCBP account will be taxed as ordinary income on withdrawals. And of course if the MBCBP fails to average 5% that makes it much easier to beat over the long term.

Trip7

Is your $585k on the MBCBP pretax or post tax?

tennisguru

Pre-tax. I sort of alluded to this at the end of my post. Of course the non-MBCBP is also going to have taxed withdrawals at the end as well, just not at ordinary income rates.