Fact checked by Vikki Velasquez

Retirement is a dream for many people. It frees up your time so you can do things you may have put off during your working life, such as traveling or buying a vacation home. But, all of this costs money.

While the rule of thumb has generally been to save between 70% and 80% of your pre-retirement income (remember, that’s just a suggestion) to accomplish your goals, many Americans still find trouble saving money for their nest egg.

Here’s what financial advisors suggest to get you closer to your dream.

Key Takeaways

• Experts suggest saving 70% to 80% of your pre-retirement income for retirement.
• Almost half of the U.S. population doesn’t have retirement savings.
• Plan and save for leisure and recreation by understanding the costs and narrowing your focus.

How Much Are People Saving?

Over 54% of Americans are prepared for retirement, with most using employer-sponsored plans like 401(k)s and 403(b)s to save for the future. In January 2025, Empower reported that the average American’s retirement savings balance was $492,795. Those in their 60s were reported to have the highest balances at an average of about $1.2 million.

But, most savers aren’t taking full advantage of the retirement options available to them, according to Pam Horack, certified financial planner (CFP) at Pathfinder Planning in Lake Wylie, South Carolina. “Many of them don’t maximize the savings they can make here and have little other savings outside of that,” she told Investopedia in an email.

Having some retirement savings is better than nothing, though, especially when you consider that 46% of Americans reportedly had none at all. This can be troubling if you want to retire, as experts say that you shouldn’t rely on Social Security alone to achieve your goals—especially if you want to include leisure and recreational activities into your lifestyle.

Note

Consider tax-free income sources, such as a Roth IRA, cash-value life insurance, and municipal bonds, to supplement any other investments you have for your retirement nest egg.

How to Afford Leisure During Retirement

Some of the most common things people say they want to experience after they retire include buying a vacation home or recreational vehicle, traveling, and taking up different hobbies. Make sure you understand the associated costs so you’re prepared ahead of time (remember: these costs are likely to change):

You should be as specific as possible so you can plan and make realistic savings goals, according to Horack.

For instance, if you’re interested in travel, she suggests narrowing down where you want to go (domestic or international), whether you want active vacations or sightseeing tours, and whether you want to travel first class or with a mission team. “Helping define the goal by equating it with their values allows us to plan better,” she said.

Remember, though, that it’s important to plan for your day-to-day living expenses before you start saving for recreational pursuits, according to Jonathan Barrett, founder and managing partner of Barrett Financial Solutions in Woodbridge, New Jersey.

“Many individuals aspire to achieve ‘luxury‘ goals in retirement. The first step is to devise a financial plan to meet your ‘needs’ in retirement,” he said. “If you have the capacity to save beyond that, allocate whatever is feasible within your means to achieve future aspirations.

The Bottom Line

Start saving for retirement as early as possible so you can maintain your standard of living and afford some of the things you want to do, whether that’s traveling or a new hobby. When you’re younger, you have a greater tolerance for risk, which means you can ride out market and economic volatility and still have time to recover.

Your investments will also grow more because of compounding. If you’re older, don’t fret, because you still have time. Barrett suggests the best way to start is to look for areas where you can cut your discretionary spending so you can allocate that money for savings.

Fact checked by Vikki Velasquez
Reviewed by David Kindness

Private Credit vs. Private Equity: An Overview

Securities traded on the public markets, like stocks and bonds, may be the backbone of most everyday investors’ portfolios. But there are also plenty of alternative investments that aren’t publicly available, like private credit and private equity.

These assets can be quite profitable, but because they’re also risky and tend to tie up capital for a long time, trading generally takes place among institutional investors and accredited investors.

In the private credit market, investors make loans to businesses and sometimes individuals who may have trouble accessing credit from banks or the public market. Because there is often a heightened risk that the borrower may be unable to repay the loan, private credit investors can collect higher interest rates than they would earn on bonds or other debt investments.

Private equity investing, meanwhile, involves taking an ownership share in a company that isn’t currently traded on the public markets. Unlike a stock, which can be easily bought and sold on a public exchange, private equity investments require investors to make a longer-term commitment with their capital. In exchange for this lack of liquidity, private equity investors also look for elevated returns.

The chance for outsized gains might make private credit and private equity attractive to investors who have access to these private markets.

Key Takeaways

• Private credit investors lend money to borrowers who may have trouble accessing loans elsewhere, while private equity involves buying ownership shares in a nonpublic company.
• These investments may offer attractive returns, but their riskiness and illiquidity make them more suitable for institutional investors and accredited investors.
• Private credit offers more predictable and stable returns, while the higher upside potential of private equity comes with the risk of significant losses.

Private Credit

When you invest in private credit, you lend out your money—mainly to companies, but occasionally to individuals—and then generate returns by collecting interest payments.

Private credit plays an important role in the financial system by making loans available to businesses that may not be able to secure them through banks or the public debt markets.

The borrowers seeking these private, non-bank loans often have credit ratings that are below investment grade, suggesting a heightened risk that they may not be able to pay their debts. To compensate for the greater risk of default, they generally have to pay higher interest rates. This means the potential for higher profits for investors willing and able to stomach the risk.

Note

Private credit investing is much like buying a bond, with the main difference being that private credit isn’t traded on the public markets and typically isn’t available to the general investing public.

As investors in private credit are making loans, rather than acquiring an ownership stake, they are more likely to be repaid if the borrower faces bankruptcy. In addition, there is a chance for diversification, with the flexibility to invest in different types of loans with distinct risk/return profiles. Private loans often have floating interest rates, which can benefit investors when rates increase.

However, given the risks involved, private credit firms often require investors to meet strict accreditation standards and start with a high minimum investment. Private credit firms also make loans for extended terms, requiring investors to commit their capital over long time frames.

Large institutional investors are central players in the private credit industry because they have the scope and expertise to manage these potential drawbacks.

Pros

• Rapid growth of industry

• Predictable returns outperforming other fixed-income options

• Diversification and low correlation with public markets

• Priority for repayment (as creditor) in case of bankruptcy

• Flexibility to manage risk by selecting different types of loans

Cons

• Stringent accreditation requirements and high minimum investments

• Illiquidity

• Increased default risk

• Management fees

• Lack of transparency and regulatory protections

Private Equity

Rather than making a loan, investors in private equity are acquiring an ownership stake in a company. Private equity firms typically pool together assets from institutional investors and accredited investors into large investment funds.

Then they use this money to acquire companies. This may include purchasing businesses that are already privately owned or taking control of public companies in their entirety. Firms often form consortiums with other investors to complete these buyouts.

Once a private equity firm has taken control of a target company, it will carry out a strategy to increase the value of its investment. That could include significant restructuring or cost cutting. The goal is to add value and then exit the investment, which could be done through a sale to another owner or by taking the company public through an initial public offering (IPO).

Note

Private equity firms typically invest in more mature companies. This stands in contrast with venture capital, another type of alternative investment that acquires stakes in startups and early-stage companies before they offer their shares to the public.

A successful private equity transaction can be very profitable for investors. However, because these exit strategies take time to develop, private equity investors also tend to have their investments tied up for extended periods.

In addition, along with the chance for stellar gains from private equity comes the risk of painful losses. As shareholders, private equity investors would be among the last to be compensated in the event of bankruptcy, meaning they could lose 100% of their investment.

Given the lack of liquidity and heightened risk levels, private equity firms also limit participation to institutions and individuals with significant wealth and financial sophistication. However, these high barriers to entry haven’t restricted the growth of the private equity market.

Pros

• Rapid growth of industry

• Possibility for huge returns

• Diversification and low correlation with public markets

• Increased control over management decisions

• Potential to benefit from expertise of private equity firm

Cons

• Stringent accreditation requirements and high minimum investments

• Illiquidity

• Management fees

• Lack of transparency and disclosure requirements

• Limited recourse in case of bankruptcy, with chance of losing entire investment

Key Differences

Private credit and private equity share some key similarities. They both represent alternative investments available only on a private basis. In addition, they typically have strict accreditation standards and require lofty minimum investments, leading to a concentration of institutional investors in both areas.

Management fees also tend to be high for these private investments, but investors are rewarded with the potential for outsized returns. This helps explain why both asset classes have experienced tremendous growth in recent decades.

There are also some important differences to keep in mind. For one thing, private equity involves taking an ownership stake, while private credit represents a loan. This makes the two types of investment quite different in terms of their risk-reward profile.

Private equity investors could earn huge profits if and when the company they invested in is sold or brought public. Conversely, they could lose their investment entirely if the company is unsuccessful. Meanwhile, returns for private credit investors are more predictable—established by the terms of the loan and relatively stable (provided the borrower doesn’t default).

Which Is Better: Private Credit or Private Equity?

Private credit and private equity are both alternative assets that could be attractive to investors looking for different benefits for their portfolios. Private credit may be appropriate for investors seeking relatively stable and predictable returns that often exceed those of bonds and other fixed-income assets. Private equity could be suitable for those in search of high potential returns, although this also means elevated risks.

What Types of Investors Typically Invest in Private Equity?

Private equity often requires a high minimum investment and a commitment of capital for years or even decades. Given these characteristics, private equity firms typically vet investors based on strict accreditation standards. For this reason, institutional investors and individuals with a high net worth or strong financial expertise dominate the private equity space.

Why Is an Investor Likely to Opt for Private Credit Over Private Equity?

Investors may choose private credit over private equity if they are seeking more predictable and stable returns. Because they are acting as creditors rather than equity holders, private credit investors assume lower levels of risk, but their potential profits are limited to the interest generated by the loan.

The Bottom Line

Investing in private credit involves making loans to companies or individuals and collecting interest payments, while private equity investors acquire an ownership stake in a company whose shares don’t currently trade on the public markets.

Both of these investment classes may offer higher potential returns than their publicly traded counterparts, but they also tend to be highly expensive, less liquid, and less transparent, making them more suitable for institutional investors and accredited investors.

Fact checked by Vikki Velasquez

Tax Day is coming on April 15, 2025 and yours might be one of the 62% of returns that ends up getting a tax refund. There are smart ways to use that money to invest in both your short- and long-term financial health if you get an unexpected refund,

Key Takeaways

• A tax refund is a reimbursement from the government when you’ve paid too much in taxes during the year.
• Tax refunds can happen if you fill out your W-4 incorrectly, overpay your estimated taxes, are eligible for a refundable tax credit, or receive the Recovery Rebate Credit in 2025.
• You can use an unexpected tax refund to pay down debt, save for emergencies or college, invest for retirement, and even splurge a little.
• Tax audits can also surprisingly result in refunds.

What Is a Tax Refund?

A tax refund happens when you’ve paid too much in taxes so the government sends you a reimbursement. This can happen with state or local taxes but the largest refunds come from the federal government. The average federal tax refund was $2,948 in April 2024.

Some taxpayers may know that they’re likely to receive a refund. A freelancer who pays estimated taxes may overpay each quarter to avoid an unexpected tax bill due to the possibility of higher-than-average income at the end of the year.

Other taxpayers may not know they’re going to receive a refund until they finish preparing their tax return and realize that the IRS is sending them some money.

Important

You can check the status of your payment with the Where’s My Refund? tool on the IRS website if you expect to receive a tax refund,

Reasons You Could Get a Tax Refund

You might end up with an unexpected tax refund for several reasons.

Form W-4

Tax form W-4 is used to estimate how much income tax your employer should withhold from your paychecks and send to the Internal Revenue Service on your behalf. Your employer might have withheld too much all year if you didn’t complete the form correctly and you’d be entitled to get some of that money back.

You also might get an unexpected tax refund if you didn’t update your W-4 when you were supposed to. Your withholding rate should change if you had a major life change such as having a new baby, You’re probably having too much withheld from your paycheck if you didn’t update your W-4 with your employer after this kind of change.

Estimated Tax Payments

Many self-employed workers or freelancers make high estimated tax payments throughout the year to avoid a surprise tax bill in April. You’ll likely be entitled to a refund at tax time if you overpaid your estimated taxes throughout the year, especially if you didn’t account for business expenses when making estimated payments.

Tax Credits

A refundable or partially refundable tax credit such as the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit can result in a tax refund. Most tax credits only reduce the amount of tax you owe down to $0 and the government keeps any amount that’s left over. Refundable credits can be sent to you as a tax refund, however, if they’re greater than the amount of tax you would otherwise owe.

Recovery Rebate Credit

The Internal Revenue Service announced in 2024 that taxpayers who were eligible for stimulus payments in 2021 but who didn’t claim the Recovery Rebate Credit will receive those payments in 2024 and 2025. The payment will be sent directly to you if you filed your 2021 tax return but didn’t claim the credit. You can claim it when you file your 2024 tax return in April 2025 and you’ll receive the credit as part of your tax refund if you didn’t file taxes in 2021.

Being Audited

Another surprising reason you might get a tax refund is that you’ve been audited. “We actually are able to correct people’s accounts all the time,” says Alyssa Maloof Whatley, a tax attorney who specializes in disputes with the IRS. “It’s not like every audit will end in someone owing money.”

Taxpayers often think of an audit as the government trying to collect additional taxes, but Whatley explains that the most common cause is a computer program flagging something in their tax return that doesn’t match other information the government has on file. This can result in an unexpected refund in some cases.

What to Do With a Tax Refund

Your first instinct might be to simply increase your spending that month if you get an unexpected tax refund or use it for a splurge you couldn’t otherwise afford. “Don’t just go to, ‘Oh I’ve always wanted to go on this trip,'” advises Melissa Joy, CFP, CDFA, and president of Pearl Planning. She tells her clients to think carefully about where that money should go instead. “Ask yourself where you can alleviate pain or increase safety.”

Pay Off High-interest Debt

“On the debt side, it starts with the interest rates,” says Joy. High-interest debt like credit card debt, personal loans that have a high interest rate, or a home equity line of credit can feel impossible to get on top of because the interest payments add up quickly.

It can help you eliminate a large part of that debt or even all of it if you suddenly have money from a tax refund. “Pay off things that should be short-term debt but have turned into medium or long-term baggage,” says Joy. “You’ll feel less burdened right away.”

Build Up Your Emergency Reserves

Consider using your tax refund to create an emergency fund if you don’t have high-interest debt to pay off. This kind of reserve can help prevent you from taking on high-interest debt in the first place when something unexpected happens. Even a small emergency fund can save you from having to put a surprise expense like a car repair or a broken refrigerator on a credit card.

“People can be afraid to use their emergency fund but that’s what it’s there for,” Joy points out. “Things are always going bump in the night so having an emergency reserve can really save you from having to tap into that high-interest debt.”

Save for Retirement

The next thing to tackle is saving for retirement if you’re not carrying high-interest debt and you have something saved for an emergency. Opening a retirement savings account can come with tax advantages as well as contribute to your future financial health.

You can open a Roth IRA or a traditional IRA regardless of whether you have another retirement account through your employer. A Roth IRA is funded with after-tax dollars so you don’t have to pay taxes on withdrawals in retirement. A traditional IRA lowers your tax bill now. The total contribution for any kind of IRA in 2025 is $7,000.

You can open an IRA through brokerage accounts and banks.

Avoid Student Debt

Paying off long-term debt can weigh down your financial life even if you aren’t paying high interest rates. A large chunk of money from a tax refund can help you put a significant dent in those payments.

“Focus on smaller, more enduring debt like student loans that have just been there forever,” suggests Joy. And you can use your tax refund to help your kids avoid it if you don’t have student loan debt of your own. “Maybe you put half toward your student loans and half toward a 529 plan so your kids aren’t saddled with that kind of debt in the future.”

Splurge a Little

It’s smart to invest in your long-term financial health, but it’s frustrating to get an unexpected windfall and feel like you don’t get to spend any of it. You may want to set aside a little bit of your tax refund for something fun after you’ve put most of your money toward your big-picture goals.

“It’s okay to invest in your current self,” Joy says. That could be something recreational like a trip with a friend or loved one or professional such as a course or certification that will improve your resume. “Don’t spend it all that way,” Joy advises. “But it’s okay to give yourself a budget for a certain percentage that’s a splurge.”

The Bottom Line

It can be exciting to get a refund at tax time but ultimately, Joy says, a yearly refund shouldn’t be your goal. “That means you’ve lent your money to the government,” she explains. “You could be using that money throughout the year and keeping control of it yourself.”

Be thoughtful about how you use it, however, if you do find yourself with an unexpected refund. Invest in your long-term financial health by paying down debt, planning for emergencies, or saving for retirement. It’s okay to have a little fun with your money, however, after you’ve got those covered.

“Everyone needs a splurge now and then,” Joy says. “Just be smart about how you’re spending that money.”