Tableau Dashboard Activity 13-1: New-Hire Decisions: Roth or Traditional Retirement Savings (Static)

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New Hire Decisions: Roth or Traditional Retirement Savings

Eva is excited to start her position in the Accounting Department of Longevity, Inc., a local company known for its employees staying with the company for their whole career. While filling out her new hire packet to select health care coverage and other benefits, Eva must decide which retirement plan option offered by Longevity, Inc. makes the most sense for her personal goals. Longevity, Inc. offers a Roth plan or a Traditional plan for retirement savings. Eva considers the following variables, constraints, and assumptions:

• Her starting salary is $120,000; Longevity, Inc. has historically increased employee compensation by 3% annually.
• She wants to contribute 5% of her annual salary to the retirement account, but must keep her after tax take home pay the same regardless of the chosen option.
• Longevity, Inc.'s retirement investment options are expected to earn a 12% rate of return.
• Eva expects to work for Longevity, Inc. for 30 years and will spend 20 years in retirement.
• During retirement, Eva intends to exit her retirement account investments and will take an even distribution of the retirement savings each year.

Eva's goal is to maximize her after tax cash flow in retirement but also wants to minimize the amount of tax she pays over her lifetime. Using 2019 income tax brackets and assuming a Standard Deduction increase of 1.67% each year, you have created the following Tableau visualization to help Eva make a decision. Mouse over the graphs to reveal specific amounts for use in answering the following questions. Note, the Data pane provides a summation of values based on the selected Year(s) slider and Roth or Traditional option in the dropdown menu.

A. What is the expected Market Value in year 30 under each option?

B. What is the lifetime (year 1 through 50) Taxable Income and Tax expected to be if Eva chooses the traditional retirement account?

C. Under which option will Eva pay less Tax over her lifetime?

D. Which option has a lower average tax rate over her lifetime?

E. Which option maximizes Eva's After Tax Cash Flow in retirement?