It already has been well documented that the Internal Revenue Service (IRS) is severely backlogged and has been dealing with ongoing staffing and budgeting issues for years. As a result, many Americans’ tax refunds have been delayed—some since the last tax season. But for the fortunate ones who were able to receive their tax refunds this year, now comes an important decision that could potentially have long-term impacts on their financial future.

According to finance writer Kailey Hagen of The Motley Fool, “you’re free to use that money however you want—to pay bills, splurge on a big-ticket item, or grow your savings. If you don’t need that money right now, the last option might be your best one.”

She adds that with “just a little bit of patience,” one could turn an average tax refund into “$25,000 or maybe even more.”

Invest for the Long Term

Here’s how the refund can reach such massive monetary figures. “The S&P 500 index has a compound average annual growth rate of over 10 percent over the last 30 years. During that time, it saw losses … but the general trend was upward. As long as you’re able to invest your cash and leave it alone for a decade or two, you’re probably going to make a lot of money,” Hagen notes.

“Let’s say you qualify for the average tax refund, which at the moment is about $2,323. If you invest that money in an S&P 500 index fund that earns about 10 percent per year over 25 years, you’d end up with over $25,000. And if you left that money alone for another five years, you’d be looking at about $40,000. Another five years after that and you’d be at $65,000,” she adds.

Supplementing Social Security

Other financial experts note that putting money to work at a younger age is important because living off only Social Security benefits is nearly impossible in the long run.

However, a 2020 NIRS study showed that a whopping 40 percent of Americans rely on Social Security benefits as their sole source of retirement income. Considering that the average annual benefit amount comes in at less than $20,000, it appears that millions of seniors will continue to have a hard time making ends meet.

Additionally, the 2021 Social Security Trustees report indicated that by 2034, retirees will start receiving a reduced benefit if Congress doesn’t rectify the long-standing funding issues for the social program. Moreover, if Social Security benefits still exist twelve years from now, recipients will only see about 78 percent of the full benefit amount.

Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.