Pump Up Your Retirement Plan With One Simple Idea

As a financial advisor, easily the number one question I get from people is “am I on track to retire?” To answer that question appropriately requires a deep dive into that person’s specific situation. But for those who ask me in passing, I try to have a couple ideas handy that can help make a positive difference in their retirement picture. This time of year there is one particular strategy that I like to mention. Why now, you might ask? It’s when many people’s bank accounts are a little fatter because of tax refunds.

The strategy is simple: re-invest your tax return. Treat it like “found money,” or money that you weren’t expecting. (Think: you go to put on a pair of jeans and happen to find a cool $20 in the pocket. That suprising little treat is found money!) By doing this one simple thing every year, you will undoubtedly put yourself in a better position to meet or exceed your retirement goals.

Let's look at a couple scenarios below using the average tax refund of $3,140 per the IRS. By re-investing the average tax return each year, earning the market average of 9.8%, our handy chart below shows how your retirement savings could be positively impacted* — especially if you start at an earlier age. Talk about the power of compounding interest!

Chart: Total Earnings Based on Annual Contribution of $3,140

In fairness, you most likely do not receive the national average tax refund every single year over multiple decades. But let’s take a look at what happens if we re-invest in a more gradual way, increasing over time:

Chart: Total Earnings Based on Adjusted Annual Contribution

You could potentially have $1,029,390.40 sitting in your bank account. Wow!

Tax refunds can be used for many things but maybe none more powerful than re-investing in your retirement. By treating your tax refund like “found money” and choosing to invest it yearly instead of spending it, you will reap the rewards. Who knows, you may even bump up your retirement date!

Opportunities to improve your retirement plan are out there — you just have to know where to look and how to invest once you find them. Call me to arrange a no-cost, no-obligation consultation on your specific situation.

Rance Carlson is a CERTIFIED FINANCIAL PLANNER™ professional with CommunityAmerica Financial Solutions and works primarily out of the Green Hills Financial Planning Center in Kansas City. To get in touch with Rance, click the button below.

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