Is It Smarter to Spend Your Tax Refund?

My e-mail inbox fills up daily with press releases and pitches from companies, authors and financial experts hoping to get me to write about their products, review their books or interview them. Some are great sources for my Kip Tips column, some get deleted immediately and some make me scratch my head and wonder what to make of them.

Take this one, for example: "Expert says don't save your tax refund -- spend it now!" Kiplinger.com columnist Kim Lankford recently wrote about five smart ways to use your refund, none of which involved spending the money on a big-screen TV or Caribbean vacation. But this expert being touted in the e-mail I received says it "makes better sense to stop saving for a future retirement and go do the things you want to do right now."

I would love to hear what you think about this advice. I'll lay out his arguments, and you can weigh in by posting your thoughts in the reader comment box below.

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John P. Strelecky, author of How To Be Rich and Happy and The Why Café, makes the following points:

-- The first factor is inflation, which historically has been around 3%, and is running a lot higher these days. Because costs keep rising, a dollar today isn’t worth a dollar ten years from now. When you account for inflation, you learn that the $5,000 investment will only be worth $10,783 in actual buying power when mom and dad turn 65.

-- If you were making this decision in January 2000 and you decided to put your $5,000 into retirement investments in the Standard & Poor's 500-stock index, the odds are not looking good for your future week-long cruise. Better plan for the five-day instead of the seven-day cruise because over the past 11 years, not only did your money not go up, but also it lost more than 20% of its value. (NOTE: We're not sure where he gets this figure. Our research shows you would have lost 7.8% if you base your calculations on the price return of the S&P 500 over that period and would have gained 13% if you base your calculation on the S&P total return (includes dividends) over that period.)

-- The point of earning money is to create memories, have amazing experiences and do interesting things. When most people think about retirement, they think about adopting that lifestyle. Don’t wait until age 65 to start spending your money to live a rewarding life, because physically and energetically, cruising and everything else at 65 is a different experience then at 43. Plus, sadly there are no guarantees you’ll make it to 65.

Do you think this is wise advice? Share your comments below.

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