The convoluted art of the timeshare deal

We just returned from our third trip to Maui. The impetus for the trip was a timeshare presentation offer we couldn't refuse: in exchange for a 90 minute pitch, we'd get lodging at the Hyatt Residence Club on Ka'anapali for $1295 plus taxes and a $100 spending credit while we're there. The taxes were about $180 dollars and we would no doubt charge at least a few things to the room, so the net was 5 nights in a fantastic 2-bedroom condo with ocean view, right on the beach, for just under $1400. We split the cost with my sister-in-law's family, bringing our net to about $140 a night per couple, per night, in premium accommodations.

The presentation was scheduled for the 3rd full day of our stay, giving us enough time to enjoy everything and be in a fully receptive mood. Our agent took 10-15 minutes to get to know us, asked about our travel and spending habits. He did some math to show us we'd spend about $500k in a lifetime of vacationing. This, of course, is meant to make the ensuing offer seem cheap by comparison (as he writes $500k in one column and $2600 per year in the other - we'll get to the actual math later). He lays out that we have 4 options: use our purchased week, trade it in for 2600 points towards another Hyatt Residence Club location, 3000 Interval International points, or 90,000 Hyatt hotel points. These are, of course, all different opaque points in different systems, with different nebulous values.

He then takes us around the property to show us professional shots of the Residence Club properties and declares that Interval International has 3000 hotels in 80 countries (which is supposed to make you think "I can go anywhere I want!"). We are presented with another scale involving Travel Destination Index (a measure of the desirability of a location at a time) and bedrooms pointing out points per week, and he highlights that by trading in our week in Maui, we could get 4 or 5 weeks in some other locations. He also tells us just how high the retail price is these locations we'd get access too. For example, our Maui condo would run $8800 a week after taxes (but could be ours for just $2600 a year!). There were many other leading questions about "wouldn't it be nice to just show up and not have a bill?" and similar. Sure, sounds great, but how much do I pay ahead of time for it? We eventually tour the grounds of the timeshare property and gaze over the ocean from the 12th story. He tells us how much courage the first owners had to buy before the property was even finished ... and did we have the same courage to become owners too?

What's the deal?
In the end we said no, partly because there's simply no way to assess such a convoluted asset in an hour, and mostly we weren't interested to begin with. In the interest of keeping an open mind (as we had been asked to do), I wanted to work through what the offered asset is actually worth, and explore the value of the offer. The terms are:

1. Buyer makes a down payment of $66-76k, depending on the chosen floor (2 to 12).
2. Buyer pays a yearly HOA payment starting at $2600 (assume it rises over time)
3. Buyer may, in each calendar year:
1. use the property for any 1 week, excluding Christmas and New Years (which cost unspecified extra)
2. exchange use of property for 2600 Hyatt Residence Club points
3. exchange use of property for 3000 Interval International points
4. exchange use of property for 90,000 Hyatt Global (hotel) points

The true cost to the owner is two-fold: there is the opportunity cost of the down payment, and the ongoing cost of the HOA fee. Qualitative opportunity cost, such as being able to afford a primary home, doesn't belong in this discussion; I will assume anyone considering this has $70k free money to put down. The opportunity cost can be estimated quantitatively by looking at lost investment opportunity. Conservative estimates would say about $2800 per year, optimistic estimates could reasonably be as high as $5600. I'd tend to bracket the range as about $3500-5000 per year. The HOA fee will rise as costs rise. Our agent claimed accommodation costs were rising by 10-15% per year in the area, which is believable when comparing our costs to stay at the Hyatt Regency next door in 2012 to their published rates today. There may also be a one-time large inflation as travelers have shifted away from Mexico due to Zika virus and cartel-related violence. At any rate, let's assume 10% long-term. In early years, the actual cost is about $6000-7500, and will grow to $10-12k in a decade.
The true benefit can be quantified as the market value of whichever option in [3] the owner takes that year. Each sub-option deserves its own analysis. In other words, how much cash would I need to spend to get the same thing?

Value of property use
I can't currently find a published price to rent a week at the Maui property, so the only number I have is the claimed $8800 after taxes. However, we must also compare similar nearby options (unless the Hyatt is uniquely special to someone). There are several other condo buildings on Ka'anapali, along with numerous hotels. A year ago we rented a 2-bed, 2-bath vrbo set a quarter mile back from the beach, with sweeping ocean views and lanai. We watched whales every morning over breakfast, had a pool, hot tub, kitchen. We paid just under $3000 for 7 nights. The actual place was a little less posh, but still nice, and we didn't have room service or a bar on premise ... so we took a trip to Costco when we landed instead.
For comparison, the nearby ocean-front Ka'anapali Alii runs between $500-600 a night for a 2-bedroom condo. The building is clearly older and the units are a bit outdated, but we have to consider the relative value.
A comparably appointed Westin or Hyatt hotel on the beach, with ocean views runs about $400-500 per night, and this cost would be doubled to get to two bedrooms. This does not appear to be a better value. Opting out of the ocean views would save about $100 per night.

Value of Hyatt Residence Points
The additional consideration here is the limited set of locations. This exchange only works if there's one in a desired destination. There are 15 other Residence Clubs, and they are heavily concentrated on ski (Tahoe, Colorado) and beach locations (with 4 in the Florida Keys), and then a few more esoteric spots like San Antonio and Sedona. There is no indication on their website of how many points any of these could be booked for, that information seems limited to owners. Our one data point is that we rented a 2-bedroom at the Hyatt Sedona Residence Club, in August 2013, for $282 a night. That is clearly far under the market value of the Ka'anapali property. Searching "Hyatt Residence Club" on hotels.com offers some glimpses, for example the Hyatt Beach House in Key West is indicated "from $319 a night", but no concrete bookable offers popped up in my quick searches. At best I can conclude that comparable quality properties can be had for that range, so unless the points can be translated to longer stays, it's a clearly lesser value than just using the home property.

Value of Interval International Points
There are 3000 locations in 80 countries. While talking, Marisa thumbed through the booklet and noted that many of the locations seemed to be in slightly obscure spots. For example, there were half a dozen options in Hungary, but none in Budapest. A quick perusal suggests the locations tend towards the more remote, though this is not conclusive. While the website allows a search of locations, you need to be a member to see any cost details. This lack of access makes this entirely opaque, so we can't really evaluate the value.

Value of Hyatt Global Points
90,000 sounds like a lot, but nights seem to start at 8000 per, and a mid-range Hyatt hotel is about 12,000 (per examples shown to us). Nights start as low as 5000, but I expect these are few and far between. Even if a 12,000 point mid-range hotel is $300 a night, that's still only a $2000-2500 benefit in exchange for the original property.

Are people buying?
Yes. Assuming our agent was truthful, about 50% of the timeshare has been sold. There are 52 weeks times 134 units for a total of about 7000 shares. The property has been open for about 3 years so they are selling about 3 shares a day (3500 divided by ~1100 days). Assuming every buyer is getting a pitch in person, about 6% of the claimed 50 daily sessions are converted into sales. The bulk of the sessions are set up in exchange for freebies like sunset cruises or golf, my estimate is that 5-10 of the daily sessions are for people who got a deal similar to ours.

Is it worth it?
To me it appears this is not generally worth it. For someone who has 70k and nothing else to do with it, who loves the nicest accommodations and Ka'anapali, it's not an inherently terrible deal. Using $6-8k as the effective cost, comparing it to $4500-5000 for a less nice Ka'anapali Alii, or $7000+ for comparable hotel rooms, the numbers aren't way off. Assuming the retail prices grow at 10% for the area and the HOA grows at the same rate, locking in the bulk of the investment as a one-time payment can be a benefit. It does not appear that the exchanges are great options, so the value of the asset is primarily the one location. Anyone who prioritizes flexibility and variety in vacations is probably better off saying no. Still, it's amazing to me that people are committing $70k based on an hour of cherry-picked information. People ask questions, but not all the questions. However, having been able to ask a few questions might make them feel comfortable? It takes way longer to assess the underlying asset. I just spent several hours laying it out and trying to dig up representative numbers and wasn't able to answer questions to my own satisfaction.

What about buyer's remorse?
The presentation is short enough (and we weren't interested enough) that we never even asked about selling. Apparently it's possible to sell back to Hyatt at the current market rate minus 6% commission. Those rates are not made public, though I suspect it'd be easy enough to find out what the current asking price is. I suppose that's better than lots of other cases where people are desperate enough to get out that they just abandon their asset and lose everything, but that's a pretty low bar to beat.

Save our children. The more the merrier.

The Parkland shooting has created a momentum in the conversation around gun and school safety reform that hadn't really existed after previous shootings. The students held rallies, addressed lawmakers, created social media personalities, and lots of people followed the cause. 17 of their classmates and teachers had just died, it was time to do something.

The Florida legislature is in the process of passing some reform: a combination of raising the minimum age to purchase a gun to 21, 3-day waiting periods for all rifles, and $400M for mental health and school resources. The resources can include a variety of defensive measures like bulletproof glass, metal detectors, etc. All this sounds pretty good from a reform perspective, right? There was one other nugget in there, and it's a point that has also gained a lot of traction: putting guns in schools. In the Florida legislation, it would mean allowing "trained" teachers to carry guns unless their school opted into a marshal program. I hadn't seen the details of the latter, but presumably it's essentially putting a full-time, uniformed police officer in the school. Around 30% of the approximately 100,000 schools in America have such a School Resource Officer.

Is this a good idea? There are numerous lines of reasoning. One says that our children's safety is paramount, and adding a trained, qualified, armed person to their safety net is a win. Another says the SROs can lead to some unintended consequences, for example unruly children might end up with criminal charges instead of detention. There's particular concern the latter will apply for minority students. I have an entirely different concern: finite resource optimization.

We have a limited amount of funds to do all the things we'd like to do. This is true of individual budgets, state budgets, school budgets, all budgets (even federal, though they have a bit more leeway to take on debt). The goal of the SRO is noble: to save children's lives. No one contends this is a desirable outcome. However, we need to consider the cost-benefit not because we are putting a dollar amount on a life, but because we want our finite resources to protect the most lives. To compare one approach to another, we have to quantify the cost and the benefit: how many lives are saved for how many dollars, and can we deploy those dollars in a more effective way.

An SRO is a police officer. Salaries will vary, but the cost to support an officer should be at least $75k per year between salary, training, equipment, etc, amounting to around $7-10B per year if deployed to every school in the nation. Let us also suppose, optimistically, the tactic is completely effective: all school shootings are eliminated, no child dies from gun violence in a school, ever again. Let us even assume that school shooters would not be displaced to other locations, ie: that they won't become mall or park or clock tower shooters instead. We would save an average of 20 lives a year, with a high mark of 42 in 2012. We'd spend about $350-500M per saved life. Again, this is if everything goes perfectly. A similar number injuries would also, optimistically, be prevented.

There are an abundance of ways we can save lives, including children's lives, for far less. Some are investments: teach them more about the dangers of addictions, alcohol, drugs, gangs, HIV. Some are more acute: Spend the money on cancer research or leading-edge treatment to offset some of the two thousand childhood cancer deaths each year, or set up a free no-questions-asked cab fund for teenagers to use when they have been drinking. Hell, make it free for everyone. Create a monetary incentive for blood donations, or run ad campaigns for people to become organ donors. Provide housing for the homeless. It doesn't take much imagination to do better than several hundred million dollars per life.

Guns, guns, and different guns

On a very basic level, all guns are the same. I'll let Homer Simpson explain:



However, they diverge rapidly from there. In all the discussions following various mass shootings, the anti-gun (or gun control, if you will) crowd has jumped straight to policy with very little understanding of how guns are different from each other. There are many calls to "ban all those automatic and semi-automatic guns". Of course this warrants immediate contempt from 2nd Amendment advocates (or pro-gun, if you will) because it reveals a clear unfamiliarity with the world of firearms. "Semi-automatic" seems to be a loose term for "really powerful" and I'm not sure what automatic is even supposed to mean in this context ... but maybe "military powerful"? At any rate, these terms have concrete meanings and they matter to those who understand them. In the interest of dialog, it's important that both sides use proper terminology.

Automatic means the user pulls the trigger once, and bullets keep flying out until s/he lets go. These are what we usually see in our action movies, and include the M-16 and M-4 most commonly used by our military in war zones. They are able to fire hundreds of rounds per minute, in principle an M-16 could empty its 30-round clip in just a few seconds. Larger belt-fed models like the M-60 can sustain that rate much longer. Not all automatics are big or powerful; Uzis are a prime example of a small automatic fire weapon. These guns are largely illegal in the civilian population due to the 1986 Firearm Owners' Protection Act.

Semi-automatics require the user to pull the trigger once per bullet. That is the only fundamental differentiation from the group above. On a per-bullet basis, these guns can be just as powerful as those above. For example, high-powered hunting rifles are available in semi-automatic. The AR-15 is the predecessor to the M-16 and M-4 above and shares their firepower. However, many are much smaller: the Glocks used by many police forces and civilians, or even this tiny Beretta.

There are also guns that require additional input from the user to load the next round. Old single-action revolvers required the user to pull the hammer back to turn the cylinder. Bolt-action (common for hunting rifles) requires the user to explicitly eject the previous cartridge and chamber the next round.

What actually damages a human? It's the energy transferred by every bullet that hits them. This energy can be quantified: it is the "muzzle energy". For example, an M-16 uses a standard NATO round that is rated around 1800J, while a 9mm Glock might use a .380 ACP round rated around 300J. Even big-boy handgun ammo like the .45 ACP and 10mm auto top out around 800-1000J. As this trauma radiologist points out in a well-circulated piece in The Atlantic, the impacts from these are worlds apart.

In addition to the damage caused per bullet, there's the matter of how fast accurate shots can be fired. The AR-15 looks similar to military guns precisely because it was the original, designed to do the same things. It was built with the ability to take a large magazine, to be aimed easily over long distances, and to recoil minimally so the process can be repeated as fast as possible. While not a fully automatic, an AR-15 still has an effective fire rate around 1 shot per second. Since each bullet causes so much damage, the 20 or 30 in the magazine can be targeted at that many separate targets. Because the weapon is so much more accurate and easy to aim, a skilled user can reasonably expect to deliver a lethal shot from 500 yards, vs maybe 50 yards for the Glocks used by police. Given a crowd, a skilled operator could probably kill a dozen people in under 30 seconds. This combination of power, range, and accuracy makes it hard for a crowd to get to safety. It allows a shooter to set up in Mandalay Bay and rain death onto a concert hundreds of yards away.

Interestingly, recoil is a big enough issue in handguns that the FBI requested lower-speed ammunition for their Glocks outfitted with .40 S&W ammo specifically to improve their weapons handling. Because properly used rifles eliminate recoil to such a huge degree, they can retain their rapid fire rate and high power.

It's easy to see why mass shooters are drawn to "assault rifles". Interestingly, the AR-15 (or non-Colt-brand variants thereof) used in many shootings does not qualify under the US Army's definition since it lacks selective fire capability (it's only semi-automatic). The definition doesn't matter. The function does. It fires a highly lethal NATO round that was designed to penetrate 1/8" steel armor and steel helmets at 500 yards. There's no reasonable need for that level of firepower outside of a war zone. Upping the ante, the highest firepower available is the 18,000J of the .50 BMG round, used by the readily available Barrett M82, with effective range over a mile (and confirmed longest deadly shot at 2.2 miles). Thankfully it makes a poor "assault" weapon because it weighs 30lbs and rounds cost about $4 apiece. But, it would be highly effective and lethal from a perch.

Attempts at legislation can be obviously tricky. Attempts to outlaw ammunition above a certain muzzle energy will impinge on big-game hunters. Shooting a moose, elk, bear, etc, requires serious firepower. Limiting specific weapons or ammunitions will just cause manufacturers to create slight variants of existing models. The trick is to find the right feature, or combination of features that eliminates weapons with mass offensive capability. I think the right ideal model is some combination of limiting muzzle energy in combination with semi-automatic weapons. For example, suppose you can't buy a semi-automatic weapon that fires rounds over 1000J. This ends up being unenforceable through the combination of a custom "weak" round for the semi-auto weapon and the creation (or existence) of a bolt-action gun taking the same format. There's some precedent already via the definition of all illegal destructive devices, which does include any ammunition with great than 1/2" caliber ... but the law mostly focuses on explosive devices, rockets, etc. There's a bit of a "you know it when you see it", but that can't translate to law. Maybe a solution is to eliminate all semi-automatic rifles in an attempt to limit the rate at which damage can be done?

The 1994 Federal Assault Weapons Ban was an attempt to classify what an "assault weapon" is, but its guidelines seem to have a lot of loopholes or misses. For example, rifles had to meet at least two of:

• Folding or telescoping stock
• Pistol grip
• Bayonet mount
• Suppressor or threaded barrel to accept one
• Grenade launcher

It's pretty easy to imagine an AR-15 variant without suppressor threads that doesn't meet the above definition. This illustrates that even with the appetite to make changes, and even if an AR-15 variant is explicitly disallowed, it would simply require the manufacturer to make a new model with a minor cosmetic change that would not be covered under the legislation. Perhaps the approach could be that new models must be opted into legal status, and existing models can be placed on disallowed lists?

It's also important to remember that mass shootings make up just a few percent of all murders. Handguns are responsible for the majority, but they rarely make headlines because they usually just kill one or two people at a time. The goal of limiting "assault rifles" is just to limit the carnage in special cases with deranged shooters. Any new laws need to address issues while not unduly burdening citizens. Proposals like arming teachers (and training them, and spending taxpayer money on more guns, ammo, etc) definitely seems to fail that. But anything we can try for "cheap" that might improve our outcomes should be tried, measured, evaluated. And then we build from there.

That big, beautiful, idiotic wall

Trump wants $18B over the next decade to build some new border wall and reinforce old walls. CBP wants funding for additional agents and equipment, bringing the total to $33B. ICE wants to add 10k more agents as well, which has to cost at least $1-2B per year. Grand total: about $50B in the next 10 years.

After all that money is spent, there will still be half a US-Mexico border sitting naked. We'd need to then spend the same money again, two or three times over. While a few areas don't need a wall, most does.

There is a lot of debate about how much illegal immigrants cost the country. High estimates touted by Trump and Fox personalities claim $113B per year, but this has been rated mostly false by Politifact. I don't entirely understand how these numbers are computed, but the CBO's assessment is that "in aggregate and over the long term, tax revenues of all types generated by immigrants—both legal and unauthorized—exceed the cost of the services they use". This may include the general economic activity generated, though it sounds like a direct comparison of just net tax dollar flow. Either way, if the reality is that illegal immigrants are revenue-neutral, then spending money to keep them out is bad financial business. Consider also that illegals interact with legal businesses and generate revenue for those as well (they eat, they live places, they need clothes, tools, cars, ...).

The effort to keep them out becomes a moral question, but even there it can't be assessed in a vacuum. We must compare what else we could do with the money. $5B could cover ongoing health care for 500k people. Or a yearly $150 tax break for the bottom 10%. Or a $1500 raise for every teacher. Or installing 1500 new wind turbines a year that will offset fossil fuel energy used by about a million people. Or a full-ride state university scholarship for 100k students per year. It could be an investment in our own people. And consider that even a perfect wall would only keep out half the illegal immigration (the other half enter legally, then overstay visas).

The common line is that being anti-wall is the same as wanting weak borders. No one is saying we should promote illegal immigration, but we have to consider the cost-benefit or the morality here. In either case, it seems more prudent to spend the money on something else. Anything else.

From the archives: Talking Trump in Tucson

I posted this to Facebook in October 2016. It's one glimpse into the mind of some Trumpers.

Last night I was at the hotel bar with a bunch of people from a real estate convention. Talk turned to politics, as it does, and I found myself in a crowd of Trump supporters. Once we got past the really shallow talking points (Hillary emails, whether Trump pays taxes, a few silly memes), some interesting details emerged.
These people were mostly small business owners, aged 50-70. They cited Trump's business skill and his likely ability to clean up a bloated system, because "running a country is just like running a huge business". I disagreed with them, but don't think I was able to impress the differences upon them.
They hated that their taxes went to support "deadbeats who would rather not work", but were very compassionate towards people who experienced misfortune and felt there should be government programs to help them. We agreed we did not know how much of our taxes went to such scenarios.
They hated Obamacare (because their personal rates were moving up) and all of them agreed that a universal socialized medicine system would be great.
One lady was adamant that we have to close our borders and keep the terrorists out (well yeah, no one wants to let the terrorists in), but an hour later talked about an Iranian guy who'd worked for her (remotely, she's never physically met him) for years that she wants to help get into the country and considers a family member. Another said hated both candidates, but was reluctantly siding with Trump because of Hillary's position on 1031 (a real estate tax thing).
More than one of them, without even being pressed, admitted they probably woulda Lewinsky'd it up in her position too. I mean, if they would have blown a Democratic president, could he really have been all that bad?
We agreed to disagree on some points, connected on some others. These people were not assholes. It amazes me that they're willing to support someone who so unapologetically is one. My take was that they had a hard time extending their compassion to the general population, even though they had it for individuals.
I think the more we make conversations about the issues people care about instead of attacks on the politicians they support, the more we can diffuse the rampant and extreme partisanship. By the end of the night, they decided I was a great guy, even though I openly told them I will not be voting for their candidate.

Next-level attack ads

Washington's 45th district is pulling the most campaign money in the state's history for a senate seat. What's at stake? The balance of the state! The legislature already leans Democratic, the state has a Democratic governor, and the Senate hangs in the balance. A victory by Democrat Manka Dhingra would be tip the Senate to the left as well.

Her challenger is Jinyoung Englund. She's photogenic, has great hair, grew up in the area, moved to DC to do something. She's so unknown, she doesn't even have a Wikipedia page. She was transplanted back to Washington with huge funding support to try and win a vulnerable seat left vacant by previous Senator Andy Hill-R who died of lung cancer.

The elections are today and attack ads have been in full swing for weeks. Dhingra is often attacked for supporting heroin injection sites and being light on crime. The latter is a complete fabrication and the former is a contentious issue with incomplete data that suggests effects from neutral to positive. Dishonest attack ads are par for today's course, so there's not much sense dwelling on this.

Disclosure: I'm an eastsider and I voted for Manka Dhingra. Actually I live 1 block outside her district so I didn't, but I would have.

The next level ad is one masquerading as pro-Dhingra, but is actually trying to turn voters off by making her seem ridiculously left, snooty, etc.

"Hey eastside, it's Seattle. We don't have enough liberal politicians!" shouts a 20-something in a beanie, wearing hammer-and-sickle, MORE TAXES!, and socialist-Sawant pins, standing next to a Lenin statue (get it, she's a socialist communist millennial who wants handouts!).
"Do us a solid, send Manka Dhingra to the senate" adds a dude with a beard and gauged ears (get it, he's one of these kids these days)
"Manka Dhingra will give us free stuff. I LooooOOOOooove free stuff" says the 60-something lady in a headband, trying to channel some kind of stoned hippie summer love look.

And it goes on like this, even adding a professional 30-something in glasses outside of Amazon who quips "Manka Dhingra is Seattle sophisticated, not like those eastside soccer moms!"

Get it?? She's arrogant and out of touch with the eastside values, whatever those are.

I really hope this ad backfires. We'll find out tomorrow.

A tale of two limits

The Trump administration is considering a reduction in the yearly 401(k) contribution limit from the current $18,000 to $2400.
Edit: Trump has stated 401(k) limit reductions are not going to be a part of the plan.
Comment: Trump says a lot of things, so whatever.

The goal is offset lost tax revenue due to the nominal lowering of taxes (though without knowing the exact details, we can't be sure who really is hurt or helped and by how much). To understand this a little better, we have to start with what a 401(k) account is.

A 401(k) is a long-term, incentivized, savings account. Money placed into it by an individual is not taxed now. Generally speaking, contributed money is invested (bonds, stocks, mutual funds, T-bills, ... ) and grows. The money and all gains are also locked away until age 59.5 (modulo penalties and very specific circumstances that don't contribute to this discussion). Once a person starts taking money out, it is considered like normal income and is subject to tax. As such, it is a tax deferral and not a full tax shelter. Any reference to tax sheltering is a mischaracterization. This is important because it's easy to try and cast it as an example of people using loopholes.

Because the money is not taxed now and the gains are not directly taxed, it provides a meaningful incentive for people to save long-term. In addition to being good for you, it's good if people have enough money in retirement to take care of themselves: they exit the workforce and make space for younger people, they aren't a drag on social safety nets or their kids, they get have a better quality of life as physical abilities diminish, etc. In short, everyone being self-sufficient for the long-term is good for us all.

It might be tempting to think that any incentivized savings is great, and that's a reasonably true statement. However, $2400 per year vs $18,000 per year is materially different because of _math_. Career lengths, incomes, and market rates of return vary, but we can use a couple canonical examples to illustrate the point.

Suppose someone starts working at age 18 and spends 45 years in the workforce. They contribute $2400 per year to their 401(k). If we assume a market-normal-ish return of 7% per year, they would reach age 63 with about $686k. That sounds like a nice amount, but consider the effects of inflation. At about 2% per year, we should expect our money to have devalued by about a factor of 2.5; that nest egg is worth about 280k in today's money. We have to think about these numbers in today's money because that's the only way to have a fair assessment of what its spending power is. If we assume someone has to live off it for 20 years, we're looking at 14-25k per year depending on how conservative or optimistic we are about consistent growth of the funds during retirement. The lower end of that range is right around the poverty line. Repeating the same math with the current cap yields about $5.1M, or a hair over $2M in today's dollars. If that needs to last 20 years, even a conservative approach will yield about $100k a year.

We can re-run the math for a variety of scenarios. Supposing a more modest 5% return, the Trump proposal would yield $157k in today's money. Even a most optimistic projection from there leaves the owner at poverty levels of income, while the current limit yields $1.1M in today's money and a median ~50k income in conservative projections. Or, if a person saves for 35 years, the range falls to $63-135k; yielding only a fraction of poverty-level income.

It's fair and important to point out that not everyone can take full advantage of a maximal 401(k) contributions. A median person making $45-50k per year is unlikely to have $18k to spare from that. However, they may be able to spare $5000. Being able to do that doubles their savings over time. The chart below shows accumulated savings in current dollars (assuming 2% inflation) at $2400 and $18000 per year savings rates. Green cells show a guaranteed 20 years at median income, red cells show 20 years guaranteed income at less than the poverty threshold ($12,084 per year). Savings scales linearly with contribution. For example, if you wanted to calculate the savings from $5000 per year over 35 years at 6%, just find the cell below under 2400 and multiply by 5000/2400 (and the answer would be $278,602).

		2400			18000
Years\Percent	5	6	7	5	6	7
5	12011	12254	12501	90085	91902	93755
10	24764	25951	27202	185729	194631	204017
15	38480	41507	44811	288597	311299	336082
20	53406	59414	66213	400544	445602	496598
25	69819	80260	92525	523641	601949	693940
30	88029	104750	125158	660221	785623	938683
35	108390	133729	165893	812928	1002968	1244201
40	131302	168217	216991	984763	1261624	1627431
45	157220	209440	281312	1179153	1570801	2109842

There are many what-ifs in here, and clearly the current 401(k) limits don't guarantee a healthy retirement savings (due to inability to save, poor investment strategies, etc). But, a $2400 per year limit guarantees the savings is AT MOST barely yielding poverty-level disbursements at retirement age. When people have shown over and over that they are not good at saving, taking away a major savings-incentive vehicle seems not just imprudent but downright negligent.

So what does the proposal gain? We can't compute this exactly because we need access to a lot of savings figures and the details of the tax proposal, but we can make some estimates. For someone putting away a full $18,000 per year, the cap would mean they need to take $15,600 of their income instead of deferring it. For a high-income individual, that would be taxed at 33-39%. I think some people in the 25% tax bracket could still contribute the max, but it's unlikely people in lower brackets would be able to afford this. The benefit to the federal government runs about $4000-$6000 per such person per year. The number of such income earners is maybe the top 20%, and again this assumes everyone who can afford to does contribute the max. Multiplying the middle of the range by about 20% of the 160M tax filers yields about $160B. It's meaningful money, no doubt. Due to the imprecision and optimism of the estimations, I'd recast that number in the $100-150B range. It could be less, it could be more, but probably not by a factor of 2 off either end. Sadly, I think the majority of people are unable to or don't save more than $2400 a year into a retirement account (so the tax revenue benefit would be zero under the new plan).

The current tax proposal has been estimated to cost $1.5T over 10 years, so this 401(k) clawback actually seems to address a significant portion of the lost money, but at what expense? In addition to eroding the likelihood that individuals save for retirement, it pulls an accounting trick on us: the fed is collecting tax on current disbursements from 401(k) that have balances seeded with much larger limits AND will not front-load collection of taxes from future moneys that can't go into 401(k) anymore. As existing retirement assets run out (are disbursed), those taxes reduce drastically (because now they are fed by the new-model small 401(k) accounts) and we're left only with the new-model taxes. Essentially, the change gives us an in-between period where taxes get to double-dip and _look_ a lot more impressive than they will be for the long-term. It's literally borrowing from the future.