Proposed Bush retirement/savings plan scenarios
By Laura Bruce • Bankrate.com

Here is a look at how President Bush's Lifetime Savings Account/Retirement Savings Account proposals stack up against the 401(k). In each scenario the investors are 45 years old and will start drawing money at age 65. All investments earn an 8 percent rate of return, and the balance continues to earn income even after the distributions begin.

These scenarios were developed by CCH, a provider of tax information.

Scenario 1:
George is single, he makes $40,000 a year and is in the 27 percent tax bracket. He invests $4,000 pretax every year in a 401(k). He wants to take after-tax distributions of $20,000 a year. He'll be in the 15 percent tax bracket after retirement.

But what if, starting at age 45, George pays the tax on that $4,000 and contributes the remaining $2,920 every year to a Lifetime Savings Account?

Which option suits him better?

Scenario 2
Lois and Clark earn $75,000 annually, and can save $10,000 a year in pretax money. We'll assume that they're in the 27 percent tax bracket both pre- and post-retirement. They're going to need $50,000 a year after-tax in retirement.

Let's look at which account is exhausted first if they put the entire $10,000 into a 401(k) vs. paying taxes on the $10,000 and putting the remaining $7,300 in a Lifetime Savings Account. And yes, because they are in the same tax bracket before and after retirement, the numbers do come out the same.

Scenario 3
Howard and Marion make $120,000 each year and, again, we'll assume they're in the 27 percent tax bracket in pre- and post-retirement. They're going to start contributing $16,000, combined, to their 401(k)s. They have additional income that they can invest.

Let's look at three possibilities.

A) They increase their 401(k) contributions to $20,000 and pay less tax. They invest that tax savings, $1,080 a year, in a Lifetime Savings Account.

B) They keep their 401(k) contributions at $16,000, but each year they pay the tax on $4,000 and deposit the $2,920 in after-tax money into a Lifetime Savings Account.

C) They keep their 401(k) contributions constant but invest $2,290 a year into a different taxable account (in other words, the Bush plan isn't enacted.)

Howard and Marion want $70,000 a year after taxes.

Under which scenario will their money last the longest?