Retirement Savings versus Credit Card Rewards

11 Apr, 2018

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Retirement savings are more valuable than any credit card rewards schemes. At first sight, the latter appears more attractive. You can score free miles, acquire points to purchase gift cards or cash back. These come with a free rider, of course- you must use them in a responsible manner, like not charging them more than you can possibly pay every month.

Perception gap

It is no wonder a greater number of Americans are enrolled in a minimum of one credit card rewards scheme compared to any variety of retirement plans. A recent survey conducted by a finance company found that about 61 percent of American households have enrolled themselves in a credit card scheme. In comparison, about 58 percent of the US households utilize any flavor of retirement savings solution.

Retirement investing is undeniably more valuable compared to earning free trips miles. There is no compulsive need to enjoy that awesome vacation, but there is a real need to support yourself after retirement. Retirement savings is not only vital to any person's future, but it is possible to get “free” money through participating in any retirement program compared to what you will get from the most generous of all credit card programs.

All in the numbers

It is possible for you to make a maximum contribution of $5,500 to traditional IRA in 2018. This amount increases to $6,500 in case your age is 50 years or above. A tax deduction is also possible for your contribution- if you satisfy all income limits. If you fall into the 22 percent tax bracket and also contribute $5,500, a tax break of about $1,210 will be available to you. This money is “free” money from the US government or can be regarded as a $1,210 “reward” as invested in future. In comparison, using a credit card with two percent cash back amounts to you spending at least $60,500 to enjoy about $1,210 in rewards within a year. Any money put into 401(k) or any IRAs increases if you invest the amount. A contribution of $5,500 to an IRA when you are 30 years of age will make a whopping $58,000 by 65 years of age. The amount assumes a seven percent return.

It is easy to participate in any retirement savings program. Instruct HR that you want to enroll and make automatic contributions if you enjoy 401(k) or the 403(b) at work. In case you do not have the latter, open an IRA at your preferred brokerage firm.

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