3 ms·

> 1.045^100 = 81x. That sounds more impressive, as inflation over the last hundred years is only 17x. Viewed another way, though, if inflation is the same, "yo

by mlyle 3y ago

> 1.045^100 = 81x. That sounds more impressive, as inflation over the last hundred years is only 17x. Viewed another way, though, if inflation is the same, "you'll" get 4.7x in real money at the end. On the other hand, you'll be paying tax on that interest, so you are likely to be losing money in absolute terms. A nonprofit might find it attractive, though.

georgeg23 3y ago
I think it's an exaggeration to say you'd be losing money after taxes.. it's still at least 3x, but point taken.
- mlyle 3y ago
  Say I open a 1 year CD at 5% interest with $100. Say inflation is 3%. I will get $5 of interest. The original $100 would be worth $103. I'd better pay less than $2 of taxes on that $5, or I'd be losing money in absolute terms. If my total marginal tax rate is 30%, then I'll pay $1.50 in taxes, and yield .5%; after 100 years then you'd have 1.6x the money. If my total marginal tax rate is 40% -- say 32% federal + 8% California-- then I'm breaking even. The same logic holds for longer term CDs, as you're paying taxes on interest accrued each year.
  - kasey_junk 3y ago
    A 30% marginal tax rate across 100 years would be extremely abnormal as it implies you are mostly getting taxed at income tax rates at a very high rate.
    - mlyle 3y ago
      > getting taxed at income tax rates Interest is taxed at income tax rates. It is a pretty high rate; but people who are excited to lock up $100k for 100 years probably have high incomes. Not everyone can structure all of their earnings and other income as capital gains. For a single person in California, it's 24% + 9.3% at ~$89,000 per year, and 32% + 9.3% at ~$170k per year, and goes up from there. So, here: 2.86% average inflation for past 100 years. (10^(log(16.785)/100) = 1.0286...). 4.75% APR. At ~89k/year, APR-after-marginal-taxes in California is 3.26%; or a real yield of 0.4%. You'll have 1.9x the principal after 100 years. At $170k-single-equivalent/year, there's an after-marginal-tax yield of 2.78%, or an after inflation real yield of -.007%. After 100 years, you'll have about half the principal in real money.
      - kasey_junk 3y ago
        Presumably a 100 year cd would largely be used like an annuity, as a retirement vehicle. Which you’d expect to happen at low income tax levels. I suppose if you are the beneficiary of the cd gift you could be taxed at that rate but at that point you have lots of options including donating it to a dag and it kicking off tax advantages to you for years and years.

by mlyle 3y ago

georgeg23 3y ago

I think it's an exaggeration to say you'd be losing money after taxes.. it's still at least 3x, but point taken.

mlyle 3y ago
Say I open a 1 year CD at 5% interest with $100. Say inflation is 3%. I will get $5 of interest. The original $100 would be worth $103. I'd better pay less than $2 of taxes on that $5, or I'd be losing money in absolute terms. If my total marginal tax rate is 30%, then I'll pay $1.50 in taxes, and yield .5%; after 100 years then you'd have 1.6x the money. If my total marginal tax rate is 40% -- say 32% federal + 8% California-- then I'm breaking even. The same logic holds for longer term CDs, as you're paying taxes on interest accrued each year.
- kasey_junk 3y ago
  A 30% marginal tax rate across 100 years would be extremely abnormal as it implies you are mostly getting taxed at income tax rates at a very high rate.
  - mlyle 3y ago
    > getting taxed at income tax rates Interest is taxed at income tax rates. It is a pretty high rate; but people who are excited to lock up $100k for 100 years probably have high incomes. Not everyone can structure all of their earnings and other income as capital gains. For a single person in California, it's 24% + 9.3% at ~$89,000 per year, and 32% + 9.3% at ~$170k per year, and goes up from there. So, here: 2.86% average inflation for past 100 years. (10^(log(16.785)/100) = 1.0286...). 4.75% APR. At ~89k/year, APR-after-marginal-taxes in California is 3.26%; or a real yield of 0.4%. You'll have 1.9x the principal after 100 years. At $170k-single-equivalent/year, there's an after-marginal-tax yield of 2.78%, or an after inflation real yield of -.007%. After 100 years, you'll have about half the principal in real money.
    - kasey_junk 3y ago
      Presumably a 100 year cd would largely be used like an annuity, as a retirement vehicle. Which you’d expect to happen at low income tax levels. I suppose if you are the beneficiary of the cd gift you could be taxed at that rate but at that point you have lots of options including donating it to a dag and it kicking off tax advantages to you for years and years.