Here's How to Maximize Your Moneybox for Retirement Savings and Minimize Taxes

Asset Location

Your moneybox is made up of all the different accounts and assets. The types of accounts, referred to as asset location, can make a sizable difference in deferring taxes over a long period of time. It is important to maximize tax deferrals and employer contributions for retirement planning. 

The moneybox has four main parts:

1. Employer-sponsored accounts: pensions, 401k/503b
2. Tax-deferred accounts: IRAs, annuities
3. Taxable accounts: brokerage, bank accounts/CDs, real assets
4. Social security/Medicare

Waterfall of Savings

Imagine your savings going down a waterfall and filling buckets in order. Which buckets come before others? The general approach should be to maximize savings with an employer contribution and/or tax advantage first. It is also prudent to pay off high interest personal loans before saving for taxable accounts. 

Prepaying a home mortgage is a situation-dependent question and has tax implications. The interest on home mortgages is tax-deductible for many. This is difficult to generalize this situation without understanding the complete financial plan and personal preference. If you sleep better at night knowing there is 0 debt and assign less value to a tax-deduction, it is your decision.

Asset Selection

The assets inside your moneybox will change over time as you move to different phases in life. The two main investment phases are accumulation and withdrawal. 

Accumulation is the working years where you are actively contributing and “accumulating” assets. The goals are to maximize contributions and after-tax compounding of assets. Investors should monitor long-term risk/reward, fees paid, and tax implications of the moneybox.

Withdrawal is the golden years of retirement where you are living off the portfolio and nest egg. The goals in this stage are reducing volatility, ensuring income for your lifestyle, and protecting against inflation. Investors should focus on minimizing portfolio volatility, potential for capital appreciation of income investments, and liquidity of investments to protect against unforeseen events. 

The moneybox will change over time to reflect different phases and goals of life. It's important to construct the moneybox, allocate the assets properly, and rebalance the portfolio for market and life changes. 

About the Authors

Yang Tang

Yang is the CEO and co-founder of Arch Indices and Arch Indices Investment Advisors. Yang spent over a decade in macro solutions, structuring, and sales roles at Morgan Stanley, Citi, Deutsche Bank, and Credit Agricole CIB. In his most recent role as Head of Solutions Sales Americas, Yang built the solutions sales desk from scratch into one of the most productive and highest-grossing in the organization. Yang has worked with banks, insurers, and asset managers globally on solutions across asset classes for asset liability, yield enhancement, capital, and tactical opportunities.

Dr. Jacob Kuang

Jacob is the CPO and co-founder of Arch Indices and Arch Indices Investment Advisors. Jacob spent over two decades at Citi and its predecessor Salomon Brothers in trading, structuring, and quantitative research/analytics. Jacob has deep expertise working with institutional and private bank clients in multi-asset derivative solutions, cash products, and structured notes. Jacob has extensive modeling and analytics knowledge from roles in research, modeling, and quantitative analysis in both cash products and derivatives.

Between his retirement from Citi and co-founding Arch, Jacob worked with his wife Rebecca in financial planning and advisory.

Disclaimer

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.