Duane and Dinah, a married couple in their forties, see themselves as the typical tail-end Baby Boomers. They’ve worked hard, their children are in college, and they realize they probably haven’t put as much aside for their retirement as they should have. For both of them, there was a time when turning 60 meant being able to relax, but today, they can’t imagine retiring—at least for another 25 years. Since neither of their employers offers a retirement plan, Dinah and Duane must save on their own for retirement. Their household income is $80,000 and IRA contributions don’t get them to the saving rate they need for a comfortable retirement. They have decided to invest $7,000 annually in a mutual fund in addition to making IRA contributions. If they were able to defer taxes on automatically reinvested capital gain distributions, they would have $5,300 in additional retirement assets after taxes—and their mutual fund investment would have grown to $309,400—in 25 years.

Duane and Dinah’s Cohorts: There are more than 11 million Americans who are married, with a total household income of $80,000 or more, and who are not offered or are not eligible to participate in a defined contribution retirement plan at work.

Note: Hypothetical example. Assumes an annual rate of return of 5%; with dividends contributing 1%; realized capital gains, 3%; and unrealized capital gains, 1%. Capital gains and dividends are taxed at 15% federal rate (no state taxes considered). Accumulations are after-tax values at end of horizon indicated. Detail may not add to total because of rounding. Similar to Joint Economic Committee's April 2004 analysis.

Source: Investment Company Institute