Retirement Optimization with Python

A simulation of pre-retirement and post-retirement income and 401(k) growth.

This tool helps to answer the question, "I am starting to save for retirement. Should I open a Roth or a Traditional 401(k) account?". Conversions are not considered.

The image below, output by the tool, shows that the value of the account is the same over time in either the Roth or Traditional case. The example image assumes one would contribute the same amount in either case, additionally assumed to be the maximum possible. The three discontinuities at 25, 35, and 40 respectively the result of decreased investment returns as the portfolio transitions to safer wealth vehicles and finally as retirement begins.

The image below shows that, for the author of this tool, retirement will be significantly more comfortable at a minor cost to pre-retirement income. The discontinuity at about year 26 coincides with the beginning of catch-up contributions. The large discontinuity at year 40 is the beginning of retirement.

Accounted for in the model is

• initial salary,
• salary growth with a decaying growth rate,
• contribution maximum increases (both Traditional and Roth) (assumed to be $500 every 3 years)
• US income tax schedules for a single filer
• catch-up contributions (currently allowed age 50+)
• A change in growth rate / risk tolerance as retirement approaches
• currency inflation

Input is

• base salary e.g. $60000
• the year the simulated person enters the workforce e.g. 24
• the length of his or her career e.g. 65-24 = 41 years,
• the length of retirment e.g. death at 95 with retirement at 65 = 30 years in retirment.
• Initial Roth and Traditional contribution maxima e.g. $17,500 for both Roth and Traditional in 2014

Output is given both as text and charts:

Income pre-retirement pre-and post-tax for Roth and Traditional 401(k).

401(k) assets in pre- and post-retirement years.