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3 steps to take in your 20s to make sure you see retirement

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If I were Marty McFly from “Back to the Future,” I would travel back and warn everyone against borrowing money from their future selves.

Does that sound crazy? Well, financial companies, the Federal Reserve, banks, and brokers all claim that they act in your best interests, yet your retirement statements prove otherwise. We are seeing the deepest gap ever between the haves and have-nots with savings erosion through COVID-19, a devastating recession, and lack of government support that has left people wondering who is serving their needs.

Read: This bitcoin fund just went up over 1,000%. Beware

The lack of real interest in investing in the future by younger generations is due to the confusion caused in trying to put away for tomorrow by these traditional financial channels. Interest rates are near 0% from banks; there’s no return to be had on bonds, all while things like rent, tuition cost keep climbing faster than the rate of inflation.

There are hopeful solutions that are not yet mainstream from financial technology companies that prove they can do better for the consumers in the fight for financial independence. Here are three steps anyone in their 20s can take immediately to make sure they have a chance to see retirement one day:

Understand what it means to be ‘financially free’

To save for your retirement, you must first understand what it means to be financially free. Financial freedom means preserving your capital, earning yield on the wealth you’re creating, and budgeting for your savings to outlast your days on this planet. The goal of financial freedom is to get to the point where your monthly income is greater than your monthly expenses. When you’re spending, you’ll be spending against your own earned money and not against what you hope you’ll earn in the future. When rates on deposits drop below the inflation rate it becomes impossible to save for the future and so one must invest in more risky assets or in non correlated assets to escape this impossible savings conundrum.

Read: Worried about retirement? You’ll find plenty of company here

The United States is a credit society: $922 billion in outstanding credit card debt pays a 24% average rate of interest back to the banks. Add $1.6 trillion in student loans and $1.2 trillion in car loan debt. We are being forced to borrow from our future selves at rates of 12% to 24% when we can barely earn 1% on our money from traditional financial institutions.

Hoping you choose to spend against your future earnings is what banks and credit card companies would like you to do, but this year has proven that borrowing from the future is unpredictable. When banks get you to borrow from your future self at 24% interest, they are grabbing someone else’s dollars on which they pay them 0.1% to let you have instant gratification and spend now what you cannot afford otherwise.

Can you see the dangerous trap here if you can’t pay it back?

The current policies by the Federal Reserve also stifle retirement plans for the younger generation. Current approaches cause low or nonexistent income for most savers, and there is no indication of it getting better for the foreseeable future. Decades ago, with Social Security and a pension from an employer, a person could expect to sustain themselves in retirement. Now, too many people find themselves retiring with student loans, car loans, and more that make retirement difficult to realize.

Think outside the banks

Start asking yourself this every time you spend a dollar: Do I want to spend this dollar now, or do I want this dollar to earn for me for the rest of my life? Changing your overall mind-set of how money should be put to use can change your life.

Putting your dollars to work through high-interest earning offers an alternative that revolutionizes how you can build your retirement plan.

Boston College’s Center for Retirement Research found that most people world-wide are what you’d call “passive” savers or people who pay little attention to tax incentives currently given by traditional financial policies. Instead, they adapt and adjust their spending to their take-home pay. This mentality makes the idea of saving and earning more responsive to initiatives like auto-enrolment.

If you put money away into an asset that is not linked to the USD or your local FIAT currency it will grow faster than inflation, if it also pays interest income on 35 different digital assets, such interest rates can be greater than inflation and get you closer and closer to financial independence each month. Add on top of that compounding interest and you have the trifecta of how to reach retirement. So here you are, we gave you the secret but unless you press the financial launch button nothing happens, you need to take action and put yourself on the right track for retirement.

Many companies focused on financial freedom are cryptocurrency-based. The blockchain technology and community around it has a belief in helping users find financial freedom. You do not only have to invest in a 401(k) or IRA to save money. Although good options, you’ll find that there are other ways to buy, save, and earn from assets like cryptocurrency, gold, and stablecoins to break free from what the Banks have long convinced us are the only options for saving.

Stop reading this, and start saving now

Compounding interest is interest on your interest, your new dollars plus the original dollars calculated based on both the initial amount and the accumulated interest from previous periods.

There are many companies offering ways to begin earning for yourself, so start right out of high school or right after you read this. The banks have created an addictive model of spending and borrowing to earn and grow wealth through credit cards and rewards point programs. There are many blogs dedicated to hacking these programs, but just like in Las Vegas, the house always wins in the end.

By putting away the average cost of your credit card’s monthly payment (around $123.88) in the right service, you can earn up to $420,000 after 20 years. With monthly earnings of nearly $20,000 by your 40s. A much better average monthly payout than Social Security provides at an average of $1,503 a month.

Just as we looked to startups like Uber
US:UBER
 and Facebook
US:FB
 to revolutionize their industries, financial technology companies in blockchain are now mature enough to provide real alternatives. Services that can earn users up to 15% in interest a year. That isn’t 24% owed to the banks for future income, that is your dollars earning for you — while you’re at work, while you’re asleep, and while you’re focusing on your family or friends. The future of retirement is here and ready to help you be free.

Alex Mashinsky is one of the inventors of VOIP (Voice Over Internet Protocol) with a foundational patent dating back to 1994 and is now working on MOIP (Money Over Internet Protocol) technology. Over 35 patents have been issued to Alex, relating to exchanges, VOIP protocols, messaging and communication. As a serial entrepreneur Alex has raised more than $1 billion and exited over $3 billion. Alex is the chief executive and founder of The Celsius Network, a crypto lending platform that provides members with curated services unavailable through traditional institutions.



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These money and investing tips can help you stay upright against the market’s headwinds

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you greater knowledge about the financial markets’ current condition as you monitor your portfolio and plan ahead. Plus, check out several short videos about whether to include bitcoin and other cryptocurrency in your portfolio and how to go about it if you do.

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Opinion: I took advantage of the 2020 RMD rule but now my 1099-R looks wrong — what should I do?

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Q: I took advantage of the 2020 RMD rule and returned what I had taken from my IRA thinking there would be no taxes. I just got a 1099-R showing the full RMD. That can’t be right. How do I correct it?

—Pauline

A.: Pauline,

If the 1099-R is incorrect, you will need to contact the firm that issued the statement to get it corrected. However, the 1099-R is probably correct.

Read: Are there new RMD rules this year?

Under the law, the firm issuing the 1099-R has no responsibility for reporting how much of a distribution is taxable. That responsibility rests on your shoulders as a taxpayer. The issuing firm need only report what was paid out of the IRA on 1099-R.

Not sure where to retire? Let us help you find the right spot

That does not mean you will pay any tax. Any funds returned to the IRA by Aug. 31, 2020 is considered a rollover and is not taxable. Normally, Required Minimum Distributions (RMD) are not eligible for rollover, but IRS guidance after enactment of the CARES Act that waived RMD for 2020 changed that. The guidance stated the normal 60-day time limit for rollovers would not apply and instead instituted a fixed deadline of Aug. 31, 2020 to return such distributions and avoid taxation.

Read: It’s not too late to save on your 2020 tax bill — here’s how

I get similar questions about 1099-Rs every year. The reporting of the gross distribution looks like an error but in most cases, it is correct and the person receiving it simply hasn’t learned how it is accounted for yet.

Here’s how the accounting typically works.

As with any gross amount reported on Form 1099-R, you declare the amount that is not taxable when you file your 2020 tax return. What I hear most tax preparers would do in your situation is put the gross distribution amount from 1099-R on line 4a as per the normal procedure. Then, they would place a zero in 4b of your Form 1040, and put a note on the return near those lines that it was “returned to the IRA under the CARES Act,” “CARES Act rollover,” “CARES Act,” or simply “Rollover.”

Read: These are the best new ideas in retirement

If you did not return all of distribution by the deadline, the portion that was not returned would be taxable. You would put that number on line 4b.

Read: 5 things to do if you inherit a Roth IRA

As I mentioned a moment ago, the discrepancy between the gross distribution reported and what should actually be taxable comes up in other situations. Three of the most common are other rollovers, Qualified Charitable Distributions (QCD), and distributions from accounts that had received after-tax contributions.

In all those cases, the reporting process looks like what I described above. You put the gross distribution on line 4a and the taxable portion on Line 4b. Then note why the numbers are different with “rollover,” “QCD,” or “See Form 8606” on the 1040. Form 8606 is the form used to determine the taxable amount of an IRA distribution when nondeductible contributions have been made to any of one’s IRA accounts.

If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.

Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.



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Video: Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

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Galaxy Digital’s Mike Novogratz explains the outlook for crypto as Coinbase goes public.





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