If you’re wondering “Am I on track for retirement?” you’re in good company. Figuring out how much money you should be saving for retirement can be overwhelming, but it’s never too early to take a look at your retirement plan.
Finding out if you are on track for retirement is a very personal calculation, built on a number of factors including your income, age, retirement goals, and money already saved.
No matter your age, however, it can be overwhelming to consider saving for retirement if you are already paying off a lot of student loan or credit card debt, trying to reduce your amount owed before putting money into savings.
While it certainly is advisable to pay down any very high-interest loans before you start dedicating a lot of funds to savings, it can be helpful to start saving sooner rather than later, even if it is just a small amount. There are plenty of retirement plan options and different ways to save and invest your wealth for the future.
Traditionally, retirement plans are seen as long-term investments similar to a simple savings account. Whether you are looking to check in about how much money you have already saved for retirement, or are just starting to save for retirement, make sure you evaluate your retirement goals often and start saving accordingly.
Are You on Track for Retirement?
The basic retirement savings formula takes into account your current income, but it’s hard to know exactly how to calculate how much money you’ll need in the future due to inflation and other factors. Luckily, with a few pieces of basic information, you can calculate how much money you’ll need for retirement in today’s dollars, based on your age and goals for when you want to retire.
For example, if a 25-year-old with $0 currently saved for retirement, you might think putting away a few hundred dollars every year will suffice for now, since 25 is so young.
However, using the SoFi retirement calculator, at an annual salary of $65,000 with a goal retirement age 62, starting to add $5,000 in yearly contributions, the estimated odds of a retirement with enough money (almost 1.7 million dollars) are only at 38%.1
But even raising that to $7,000 per year in contributions only raises your estimated odds to 63%. Effectively, the sooner saving begins, the better chance your money has to grow.
Of course, individual salaries will affect the numbers, so it’s key whether a person is 25 or 35 to see how much per year you individually should be saving for retirement.
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Choosing from The Different Types of Retirement Plans
Employer 401(k) or similar plans, is a great place to start. These employer-sponsored plans can earn you money, as well. If your employer offers to match your contributions up to say, 6%.
Take advantage of this matching payout. Many companies will automatically deduct your retirement contributions from your paycheck if you request it. By having these payments taken out, it can help you set a new monthly budget based on your paycheck after you have already put money into your retirement.
If your company does not offer a retirement plan, you can look into Individual Retirement Account (IRAs). There are two types of IRAs, Traditional and Roth, and the difference between the two relates to taxes.
You will still need to do your taxes each year during retirement, but in order to reduce the amount of taxes, you can save money using tax-advantaged strategies. This can include setting money aside in a Roth IRA. While you won’t receive a tax break now, the earnings and withdrawals in the future are often not taxed if certain requirement are met.
With a Traditional IRA, the money you contribute is not taxed, but your withdrawals during retirement are taxed as regular income, if certain requirements are met. If you’re not paying a high tax rate currently, usually it can make sense to select a Roth IRA, since you could be in a higher tax bracket when you retire.
With a Traditional IRA, there is also a 10% penalty if you take out money before age 59½, and you must start taking the money by 70½. With Roth accounts, the early distribution fee only applies to earnings, not contributions.
Overall, you can usually contribute $6,000 per year to an IRA account, but there are other limits depending on your age, marital status, and income. To get a better sense of how much you can contribute, try the SoFi IRA calculator. Depending on your income and other factors, you might also be able to contribute to both an employer-matched 401(k) and an IRA.
If you are self-employed, you also have access to other retirement plans, with contribution limits that are often higher than an IRA or 401(k), if certain conditions are met. Plus, with some larger companies, unions, military and government employees, you might have a pension plan. Make sure you explore all of your available options for saving for retirement.
How to Kickstart Your Retirement Savings
If you are not on track for retirement and you feel like you have not saved enough yet, don’t panic! Plenty of people, especially those with large debt loads, have put off saving for retirement. However, no matter how far away retirement seems, it’s never too early to start saving if you have the means to do so.
You can start small, with even just 1% or 2% of your paycheck going into a retirement account. You can usually set your contributions to increase yearly, so over time, you might not even notice the missing amount from your paycheck. Many retirement plan accounts connected to your company can take directly from your paycheck, but you can schedule other automatic investments too.
You can make scheduled, recurring transfers between your bank account and your investment account. You get to select the dollar amount, the date, and the frequency you want.
Plus, any existing retirement accounts like 401(k) or IRAs can be rolled over to a SoFi Invest account. At SoFi, we believe everyone should have access to wealth management.
That’s why we created SoFi Invest®, which combines cutting-edge automated investing technology with access to a human financial advisor. This advisor can offer personal goal planning, helping you map out a plan and stick with it.
A retirement account with SoFi Invest allows you to save and invest to put your money to work. As a SoFi member, you can start investing in your future retirement with as little as $100 today.
Choose how you want to invest.
1IMPORTANT: The projections or other information generated by the SoFi IRA calculator and the SoFi retirement calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member
FINRA / SIPC .
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.