Saving for retirement can be tough! Especially since it requires you to make monumental sacrifices in terms of spending in the present. If your income is $10000 per month, the probability is that after cutting taxes, rent, and other fixed expenses, you will be left with $5000 for clothing, food, and luxuries.
Unfortunately, though, the math is not that easy! If you plan to spend your retirement in comfort, not dragging yourself from one pension check to another on just toast and butter, you need to save a healthy proportion of this $5000 for your retirement- and separately from your savings for other grand plans. If you want to buy a car and are saving for it, your retirement savings have to be entirely independent of your savings for a car if you want to have a good amount saved for retirement.
Now, that sounds tough! Lucky for us, though, Paul Samuelson has come to the rescue, giving crucial advice to help you generate a retirement income- which is the product of sound investment decisions in the youth that pays off well even after you age 70+.
Who was Paul Samuelson?
Paul Samuelson was one of the leading economists in America and the very first American to secure a Nobel prize in Economics. He is also attributed to elevating the economics department of MIT to make it into a globally-renowned institute for the subject, attracting scholars from all over the world and consequently producing other Nobel prize winners for the nation.
Below are a few pieces of advice given by Paul Samuelson to his son regarding smart investment, which he has recalled for the public.
- Taxes eat away profit.
Paul Samuelson was a believer in long-term investment and kept a bunch of low-cost index funds. He recognized that taxes are the major leeches in the investment portfolio; thus, he recommended investing in funds that made a deliberate effort to trim down the realized gains as to secure oneself from excessive taxation.
- Have a sound investment portfolio
He also insisted on scrutinizing the repercussions of investing in different accounts. Each account receives different tax treatment. This simply means that the profit percentage may be high on a savings account, but the annual tax levied might be equally higher and strike off your handsome gains.
- Withdrawals should be planned wisely
As tricky as it is to decide which account to invest in, it is equally challenging on how to withdraw it. Some savings accounts offer a tax leeway upon withdrawing after a certain age or withdrawing a certain amount. Thus, ensure that you balance your withdrawals such that you secure the highest tax-efficiency.
The accounting firm Ernst & Young carried out research that elucidated the importance of navigating carefully through the tax loop. It revealed that special attention to the effect of tax on investments and withdrawals could increase the after-tax income 33% over the life of an investment.
