Retire Early to the Good Life

Retirement is about far more than rocking on the porch, watching the world go by.

Many of us dream of seeing the world, exploring new places, and doing new things: We want to retire to a full, active lifestyle. But if you want this wonderful lifestyle while you're still young enough to enjoy it, relying only on traditional retirement vehicles like 401(k)s and IRAs won't cut it.

New ideas for future retirees
Because of their tax-deferred status, 401(k)s and IRAs are wonderful tools for people who'd be happy with an old-fashioned retirement. They allow you to invest your money free of capital gains and dividend taxes, as long as you follow stringent withdrawal rules limiting when and how much money you can withdraw.

But if your retirement dreams aren't so old-fashioned -- if you plan to retire earlier than 59 1/2, for instance -- you'll probably have to sock away a little extra money, and that may mean ponying up to the IRS. The trick is knowing how to minimize the damage on these taxable accounts -- so you can enjoy the retirement you've saved for.

Damage control
The key to tax efficiency in a traditional brokerage account is to buy and hold funds that minimize turnover and aren't particularly high-yielding. That way, the tax bite while you're accumulating your wealth will be minimal.

Index funds are particularly good choices for ordinary accounts. Not only do they tend to beat the majority of actively managed mutual funds, but they do so with significantly less churn -- and excess churn will likely raise the taxes you pay.

Take, for instance, Vanguard's Total Stock Market Index (VTSMX). It covers around 95% of the total market capitalization of the major U.S. stock markets, yet sports a low 2% yield and a mere 4% turnover, compared with a category average of around 69%.

Best of all, since it's a total market tracking fund, you'll own stakes in some of the country's largest, most profitable, and highest-regarded companies, including:

Company	Market Cap (in Billions)	TTM Earnings (in Billions)	CAPS Rating
Chesapeake Energy (NYSE: CHK)	$32.6	$1.06	*****
Intel (Nasdaq: INTC)	$121.08	$6.78	****
Cisco Systems (Nasdaq: CSCO)	$156.51	$7.97	****
Apple (Nasdaq: AAPL)	$163.43	$4.35	****
Johnson & Johnson (NYSE: JNJ)	$188.14	$11.60	*****
General Electric (NYSE: GE)	$303.61	$21.94	****
ExxonMobil (NYSE: XOM)	$452.87	$42.22	****

Be sure to smell the roses
If your dream retirement starts earlier than your qualified retirement plans will allow, index investing is a great first step toward making that dream a reality.

At Motley Fool Rule Your Retirement, we have strategies to achieve all kinds of retirement dreams. In our just-released issue, for instance, advisor Robert Brokamp discusses three types of funds for traditional brokerage accounts that can earn you solid returns while keeping taxes low.

If you'd like to find out more about these funds, as well as other ideas for building a successful retirement, consider a taking advantage of our 30-day risk-free trial. You can click here to find out more. There's no obligation to subscribe.

Copyright © 2008 Universal Press Syndicate.