Go beyond tax season with a financial plan

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Tax season is a time to think about your financial situation and what you might want to do differently in the coming year. As you plan, consider your long-term goals—and include your retirement plan in your tax strategy. Why? Your future self is counting on it.

Take their advice: Lessons from retirees

In a recent study, U.S. retirees were asked what financial advice they would give their younger selves. Most of them wished they had created a financial plan earlier in their working lives. And about half of these retirees admitted that they hadn’t anticipated how much taxes could affect their retirement finances.¹

Read on to discover how having a financial plan can set you up for long-term success—and help you avoid tax surprises in retirement.

Tax surprises in retirement?

Almost 40% of retirees said they’re paying different taxes than they expected in retirement, and the majority of that group said the taxes are more than they expected.¹

How does that happen?

Many Americans save in their retirement plan with pre-tax money. This type of savings lowers your taxable income when you contribute the money to the plan because you don’t pay taxes on it then. 

But you do pay taxes on pre-tax money when you take it out, ideally in retirement.² You’ll have the option to start taking your pre-tax money out without an early withdrawal penalty once you reach age 59½. But you have to start taking it out at age 73. These planned withdrawals are called your required minimum distributions, or RMDs. 

No matter when you take the money out, it adds to your income that year. And that can put you into a higher tax bracket than you were expecting.  

It’s important to keep all this in mind when planning a retirement income strategy. And the earlier you start, the better.

How can a financial plan help?

A financial plan can help you make the most of your tax options and ensure that you have the income you need—now and in retirement. You can prioritize your most important financial goals and figure out the steps you need to take to achieve them.

Try it yourself

Whether you already have a financial plan or you’re ready to start one, here are some simple retirement plan saving tips you can add:

Save more

We suggest saving between 12% and 15% of your pay. And if that feels like a big lift, try bumping up your savings by just 1 or 2 percentage points when you can. About 70% of surveyed retirees would have adjusted their spending habits to save more during their working lives.¹

Meet your employer’s match

Some employers will match your contributions up to a certain percentage—which means you’ll get more money in your plan account just for saving. If your plan offers an employer match, it’s important to save enough to get the full benefit.

Think about saving Roth after-tax money

If your plan offers this option, you’ll pay the taxes now when you save Roth money, and you won’t lower your taxable income in the year you contribute it to the plan. When you take the money out in retirement, both your contributions and your earnings will be tax-free, as long as you’ve met two conditions.²

By the way, you can save both pre-tax and Roth money. Some investors choose to save some of each so, no matter what, at least some of their savings will offer the tax advantage that works best for them.

Invest your money appropriately

Your mix of investments should include stocks, bonds, and other investments that match your time horizon and comfort with risk. Plan to check in on your mix every now and then, especially if your goals change.

You don’t have to plan alone

About 4 out of 10 retirees followed a financial plan throughout their working lives, and 65% of them created one with a financial advisor’s help. With a plan and an advisor, this group was least likely to regret the saving habits they followed during their working years because they felt satisfied with their financial situation in retirement.

Most importantly, 90% of these retirees felt that the value of working with a financial advisor outweighed the cost.¹

A Vanguard advice service—available through your retirement plan—can create a financial plan for you at the low cost you’ve come to expect from us. Learn more about Vanguard advice.

No one likes surprises at tax time, especially in retirement. So let’s make a plan together. Try Vanguard advice today.

Vanguard Digital Advisor®

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Cost: About $15 for every $10,000 we manage each year.³

Requires a minimum $5 account balance.⁴

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Vanguard Personal Advisor®

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Cost: About $30 for every $10,000 we manage each year.⁵

Requires a minimum $250,000 account balance.⁶

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Whenever you invest, there’s a chance you could lose the money. Diversifying means having different types of investments. It doesn't guarantee you'll make a profit or that you won't lose money.

¹ Source: EBRI (Employee Benefit Research Institute). Retiree Reflections. 2022.

² Taxes: Taking money from your retirement account can affect how much you’ll have to pay in taxes. You’ll owe taxes on pre-tax money. You won’t owe taxes on Roth earnings as long as you are age 59½ or older and it’s been at least five years since your first Roth contribution. If required by law, Vanguard will withhold some taxes for you. You may need to pay a 10% federal penalty tax if you take money out early.

³ Actual costs vary. Digital Advisor will reduce your gross advisory fee by the amount of revenue (such as expense ratio rebates) that Vanguard (or a Vanguard affiliate) collects on your portfolio in order to calculate the net advisory fee. Digital Advisor’s annual net advisory fee is approximately 0.15% across your enrolled accounts for a typical investment portfolio, although your actual net fee will vary depending on the specific holdings in each enrolled account. Your net advisory fee can also vary by enrolled account type. Plan participants’ actual advisory fees will vary depending on your plan’s lineup and the revenue that Vanguard receives from those investments. Please see your plan fee disclosure notices for the applicable annual gross advisory fees that apply to your plan assets.

⁴ To be eligible for Vanguard Digital Advisor, you must have either:

$5 or more in your employer-sponsored retirement plan at Vanguard.
$100 or more in IRAs and taxable accounts—owned individually or as joint tenants with rights of survivorship—at Vanguard.

⁵ Actual costs vary. Personal Advisor will reduce your gross advisory fee by the amount of revenue (such as expense ratio rebates) that Vanguard (or a Vanguard affiliate) collects on your portfolio in order to calculate the net advisory fee. Personal Advisor’s annual net advisory fee is approximately 0.30% across your enrolled accounts for a typical investment portfolio, although your actual net fee will vary depending on the specific holdings in each enrolled account. Your net advisory fee can also vary by enrolled account type. Plan participants’ actual advisory fees will vary depending on your plan’s lineup and the revenue that Vanguard receives from those investments. Please see your plan fee disclosure notices for the applicable annual gross advisory fees that apply to your plan assets.

⁶To be eligible for Personal Advisor, you must have one of the following:

$250,000 or more in your employer-sponsored retirement plan at Vanguard.
$50,000 or more in IRAs and taxable accounts—owned individually or as joint tenants with rights of survivorship—at Vanguard.
$250,000 total among your employer-sponsored retirement plan, IRAs, and taxable accounts—owned individually or as joint tenants with rights of survivorship—at Vanguard.

Vanguard Digital Advisor's and Vanguard Personal Advisor’s services are provided solely by Vanguard Advisers, Inc. (VAI), a registered investment advisor. Please review the Vanguard Digital Advisor and Personal Advisor brochure for important details about these services. Vanguard Digital Advisor’s and Personal Advisor's financial planning tools provide projections and goal forecasts, which are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VAI is a subsidiary of The Vanguard Group, Inc. (VGI), and an affiliate of Vanguard Marketing Corporation (VMC). Neither VAI nor its affiliates guarantee profits or protection from losses.

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