Looks like we're getting tax reform-Invest those tax savings!
So, for my US readers, it looks like Congress is going to pass tax reform. Whatever your political persuasion or views on the Republican Tax Plan-if you’re one of the winners under tax reform-don’t waste the money on frivolous purchases! Invest those yearly savings.
|Proposed 2018 Tax Brackets under Tax Reform|
Let’s do a simplified example (please consult with a tax professional to understand the full impact of this legislation on your tax obligations). A taxpayer decides to invest $5,000 of their tax savings annually in a low cost index fund. Assuming a 7% rate of return over 30 years (and that the cuts don’t expire in 2026)-that’s a $472,303.93 addition to their retirement savings.
|Compound Interest Calculator|
How much you save to invest is as important as choice of asset class or allocation. The more you invest today, the more you potentially have in retirement income later. That’s why it’s important to pay down debt, set and adhere to a household budget, and forego frivolous purchases-like a new car every five years. If you spend everything you make-you have no money to invest. Say the taxpayer in the example above was able to invest an additional $5,000 per year through budgeting and saving-he/she could realize a $945k in retirement under the same scenario-that’s almost a million dollars!