75% of tax filers received a tax refund last year, and it is expected that figures in 2018 will be much the same. A tax refund can be a slight windfall and allow for some freedom of spending, however, reinvesting it is a much better idea in 2018, particularly for anyone who wants to plan ahead for retirement.
Tax Refund, Investment or Savings?
The stock market had an incredible start in 2018, but many of the gains are now coming undone. Although talk of a ‘crash’ is still a long way off, there’s definitely a drop in investor confidence. Although lower stock prices might seem attractive to some, not everyone will be willing to take the risk of buying today.
Instead of investing tax refunds into stock (or other similar investments), it’s a good idea to put them directly into a savings account.
A savings account provides better liquidity, even if the returns are lower than what is possible with other forms of investment. Despite set-term savings account interest rates being relatively low (often less than 5%), the security that comes from a deposit into a specialized savings account should not be overlooked.
For those who have an existing retirement account, the tax return can be put directly towards the fund, allowing for better long term gains, depending on the retirement plan.
When Is It Time to Start Thinking About Investment?
Today, people live longer but may not work longer, which can make retirement plans insufficient for comfortable living. Any small amount that can be added to a retirement plan will help, and a moderate amount (such as from a tax return) can make a significant difference.
Things are made even easier by the fact that returned funds can be directed straight to an IRA (including traditional and Roth versions). It’s also possible to make a partial retirement payment while still keeping money for any immediate needs or for depositing into a regular savings account.
Young people expecting tax returns should not overlook the benefits of starting retirement savings early, and most experts recommend that savings begin as early as possible. Someone who starts saving in their 20s will have a significantly larger retirement fund than someone who starts a decade later. The earlier it begins; the more comfortable retirement will be.
You may be interested
Job Hiring is Picking Up as Employers and Consumers Gain ConfidenceLamont J - March 29, 2021
The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…
Fed Could Maintain 0% Interest Rate Until 2024Adam R - March 26, 2021
The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…