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Tax season, for many people, means getting a decent sized check in the mail from the government in the form of a tax refund. Some see it as an opportunity to buy something they wouldn’t otherwise or take a fun trip on a whim. That’s okay, as long as your retirement savings are in good shape. The average refund in 2019 is roughly $2,000. You may wonder how such a relatively small amount of money can help you save for your retirement, but there are a few things you can do with these funds to help you make your retirement dreams come true.
Get Rid of High-Interest Debt
The average household in the United States paid $1,141, on average, in interest alone in 2018. This is just giving your money away. One of the best things you can do with your refund is to get rid of this type of debt. Go through all of your credit cards, pick the ones with the highest interest rates and pay those off first. By doing this, you are essentially paying your refund back to yourself over the next year by getting rid of or substantially lowering your credit card payments. This extra money can go towards maxing out your 401(k) or paying off your mortgage or student loans (other types of debt that you don’t want to carry with you into retirement).
Put Money in an Emergency Fund
This sounds like a no-brainer, but as of 2018, roughly 55 million Americans don’t have an emergency fund. On top of that, only 18% of the population had enough saved to cover 3 to 5 months of expenses. Living without an emergency fund is a financially precarious place to be. You are basically a broken transmission or leaky roof away from not being able to pay your bills. What does this mean? Usually, it means that these unexpected emergencies are paid for with high-interest credit cards. The best way to avoid these high-interest payments is to make sure that you have enough to cover your expenses if you lose your job or have to pay for a new furnace in your house. It’s recommended that you have enough to cover three months’ worth of expenses in this fund. So, if you need $4,000 to cover all your costs for a month, your goal should be to have $12,000 in your emergency fund and putting your tax refund towards this goal is worth every penny. This way it will be much easier to save for retirement if disaster strikes.
Max Out Your Retirement Savings
About a quarter of the employers in the United States, that provide 401(k) benefits, offer to match your 401(k) contribution. It’s likely if you’ve had retirement on your mind, that you’ve already been contributing, but the question is: have you been contributing enough? In 2019, the IRS increased the amount you can contribute to $19,000 from $18,500. So that’s an extra $500 right there, but if you are over the age of 50, you are allowed to make a “catch-up” contribution of an extra $6,000 per year. This can go a long way to helping make sure you are living a comfortable life in your retirement. If you are confused by all of this, and many people are, it would be a great idea to get in touch with a financial advisor.
Accomplishing a lot of these goals will probably take a lot more financial heavy-lifting than your yearly tax return. If you need a little extra help securing your financial future in retirement, a life settlement could be the answer that you are looking for. Did you know you can sell all or a portion of a life insurance policy, even term insurance? If you have a life insurance policy that you don’t need any more or can’t afford the monthly premiums, a life settlement could be right for you. If you want to talk about selling your life insurance policy for immediate cash, contact us today.
Case Study: Don and Thelma bought life insurance when they were younger to protect their family’s future. Now the kids are grown and their youngest is 47. Thelma passed away last year, and Don no longer needs his life insurance policy. Don sold his life insurance policy and used the proceeds to supplement his retirement and check off several boxes on his bucket list.
Life Settlement Advisors