Quote:
Originally Posted by ReachTheBeach
So, just when I think I have a reasonable handle on this, a coworker throws a curveball. He is thinking of putting his off largely because of the 401k tax savings. Here is his reasoning. If he stops working and takes 30k out per year, it will get taxed at roughly 10%. Once he starts receiving SS, anything he pulls out of the 401k will be in the 25% bracket. So he says he is making 15% in an era where 5% is really good. This sounds too simplistic. I know (and he knows) that the savings will not compound; it's a tax savings on a single year and the money is gone. It would grow no more. He still thinks the math works in his favor.
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the flip side is he is giving up a lifetime of compounding on all that money he is taking out and spending up front.
if investment returns are weak then he did well but if they are even average then he didn't do so well. he killed off the goose laying those golden eggs to early .
making decisions about doing things by letting the tax tail wag the dog may not be the best way.
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