Investing for Retirement Strategies for Taxable Investors.pdfVIP

Investing for Retirement: Strategies for Taxable Investors Vanguard Investment Counseling Research Executive summary. Investors saving for retirement need to determine not only Author how much to save, but also which account type to save it in. Determining how Colleen M. Jaconetti, CPA, CFP® much to save requires an investor to make several key decisions: 1) the amount the investor wants to spend from the portfolio each year during retirement, 2) the portfolio balance needed upon retirement to meet that annual spending objective, and 3) how much the investor needs to save annually from now until the desired retirement date to achieve this portfolio balance. As far as where to save, most investors already know that the first step is to make full use of employer-sponsored plans that offer matching contributions—free money from which an investor should not walk away. After that, many investors struggle with which type of account to fund next—should they contribute additional, unmatched funds to a 401(k), or contribute those funds to a deductible traditional IRA, a Roth IRA, a non-deductible traditional IRA, or a taxable account? The answer depends on when the investor believes his or her tax rates will be the lowest. An investor can elect to pay all of the taxes up front (through a tax-free vehicle such as a Roth IRA), to pay them up front and during the life of the investment (a taxable account), or to pay them all in retirement (401(k) or traditional IRA). In this paper, we will provide general guidelines to help an investor determine how much to save for retirement and which retirement savings vehicles may be most appropriate for the investor’s situation. Connect with Vanguard Developing a savings plan fund the desired retirement lifestyle. While most expe