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1. You don’t want to rely on the welfare system to finance your retirement years.
There’s nothing wrong with relying on the country’s welfare system for financial assistance if you have to. Many Americans have used it as a bridge to achieving their financial independence . And, it is your right to do so, especially when you have spent all of your working life paying into the system. The issue is, do you really want to be in the position where that is your only choice during your retirement years? How would that affect your retirement lifestyle? With the limitations that you would face with such limited financial resources, you run the risk of barely being able to afford the basic necessities. (To learn more, see Introduction To Social Security .)
2. You won’t to have to live with your children just because you can’t afford to live on your own.
If you have children, you probably wouldn’t mind spending as much time with them as you possibly can. But – for the most part – you probably also want that to be at your discretion. Having to live with your children because you don’t have the financial resources to live on your own isn’t how most people want to spend their retirement years – regardless of whether your children feel you are a welcomed responsibility or a burden they simply cannot afford. Being financially dependent not only means depending on someone else to cover your living expenses, but it may also mean giving up your freedom and your independence! (For related reading, see Retire In Style .)
3. Saving in a tax-deferred account reduces your income taxes.
If you make deductible contributions to a traditional IRA , it reduces the income that you have left because you must take funds from your savings in order to make that contribution. If you make salary deferral contributions to a 401(k) plan on a pre-tax basis, this reduces the amount of take-home pay you receive. However, the net effect is less than the amounts you contribute to these plans because the amount by which your income is reduces is less than the amount you contribute
4. Saving in a tax-deferred account produces a compound effect on your return-on-investments.
If you add your savings to a regular savings account, the earnings that accrue on those amounts are taxed in the year those amounts are earned. This reduces the amount you have available to reinvest by the amount of taxes you must pay of these amounts.