It's not easy to prepare for one's financial needs 40 years into the future, and yet a
Some experts estimate that workers will need approximately $1 million to retire comfortably, with the average couple needing $315,000 for healthcare expenses alone. And while everyone's necessary nest egg will vary depending on what standard of living they wish to maintain, saving enough money to live on after 65 is a daunting task for just about every American — especially as social security funds dwindle and the cost of living continues to skyrocket.
Still, with
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"It was Einstein that said the eighth wonder of the world is the power of compound interest," he says. "A lot of people just sock money away in a savings account and don't see the impact taxes have on dragging down that balance each year. So take advantage of tax-deferred accounts whenever possible."
A tax-deferred account, such as 401(k), is an investment account that allows Americans to postpone paying income taxes on the money there until it's withdrawn. This means savings can grow each year with the help of compound interest, given that the employee is investing the same amount each year.
"If you have $100 and it grows to $110 in a taxable account, you would get taxed on the growth of that money," says Bunnell. "In a tax-deferred account, that $10 would be compounded and $110 would grow next year."
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Using this concept, if that $110 earns 6% interest, it will grow to $127 the next year, despite the individual's contribution of just $10. In the long-term, contributing less than 10% of an annual income of $50,000 to a retirement account each year can equate to saving over $200,000 in 20 years, as a typical 401(k) generates an average annual return of 5% to 8% interest, depending on the market.
But to make this