If I end up in the same tax-bracket in retirement, I expect to have saved much more than needed. In which case, I'd probably want to donate to charity from pre-tax and/or highly appreciated securities in taxable. I expect much of my pre-tax balance to never be taxed.
If I end up in a lower tax-bracket, I'm more likely to have saved less overall. This could be due to disability, large unexpected expenses, or being forced to retire early. In such a case, I'd rather have contributed more to pre-tax, since I'd end up more after-tax money.
I don't view financial planning as simply trying to maximize my expected after-tax wealth. I want to reduce my downside risk at a reasonable cost. (E.g. maximize expected utility, not expected wealth)
I buy different types of insurance, even though it has a negative expected value. I cannot yet self-insure against a catastrophically large hospital bill or a long term disability. Similarly, I maximize pre-tax contributions in part because I believe that it provides downside risk against future low-income years. In such scenarios I'd expect to pay 20%+ less tax than my current marginal rate. I invest the tax savings in taxable accounts.
If I end up in a lower tax-bracket, I'm more likely to have saved less overall. This could be due to disability, large unexpected expenses, or being forced to retire early. In such a case, I'd rather have contributed more to pre-tax, since I'd end up more after-tax money.
I don't view financial planning as simply trying to maximize my expected after-tax wealth. I want to reduce my downside risk at a reasonable cost. (E.g. maximize expected utility, not expected wealth)
I buy different types of insurance, even though it has a negative expected value. I cannot yet self-insure against a catastrophically large hospital bill or a long term disability. Similarly, I maximize pre-tax contributions in part because I believe that it provides downside risk against future low-income years. In such scenarios I'd expect to pay 20%+ less tax than my current marginal rate. I invest the tax savings in taxable accounts.
Statistics: Posted by Lyrrad — Fri Feb 21, 2025 1:23 am — Replies 6 — Views 719