For the record, we're not saying you'll be getting $25,000 in full out of your tax refund IMMEDIATELY. But, it is possible.
The Internal Revenue Service (IRS) is extremely backlogged and has been battling with ongoing staffing and financial challenges for years, as has been well documented. As a result, many Americans have been waiting for their tax refunds for a long time-some since the previous tax season.
However, for those who were fortunate enough to receive tax returns this year, a significant decision awaits them that might have long-term implications for their financial future.
"... you're free to use that money however you want-to pay bills, splurge on a big-ticket item, or grow your savings. If you don't need that money right now, the last option might be your best one," according to finance writer Kailey Hagen of The Motley Fool.
She goes on to say that with "just a little bit of patience," one might turn an average tax refund into "$25,000 or maybe even more."
Here's how the refund can amount to such large sums:
Over the previous 30 years, the S&P 500 index has grown at a compound annual growth rate of more than 10%. During that time, it had losses, but the overall trend was upward. According to Hagen, if you can invest your money and leave it alone for a decade or two, you will most likely make a lot of money.
"Let's say you qualify for the average tax refund, which at the moment is about $2,323. If you invest that money in an S&P 500 index fund that earns about 10 percent per year over 25 years, you'd end up with over $25,000. And if you left that money alone for another five years, you'd be looking at about $40,000. Another five years after that and you'd be at $65,000," Hagen noted.
Other financial advisers point out that putting money to work at a young age is critical because living solely on Social Security benefits is practically difficult over time.
However, according to a 2020 NIRS survey, 40% of Americans rely only on Social Security benefits for retirement income. Given that the average annual benefit amount is less than $20,000, it appears that millions of senior citizens will continue to struggle to make ends meet.
Furthermore, the 2021 Social Security Trustees report stated that if Congress does not address the social program's long-standing financing difficulties, pensioners will begin receiving a decreased payout by 2034. Likewise, if Social Security payments are still available 12 years from now, claimants will get just around 78% of the full benefit amount.
