Investing for Retirement: Popular Options to Consider
Saving steadily for retirement is important, but how you invest that money also matters. These days, you can choose from DIY investing options like a portfolio of stocks and bonds or other securities you select yourself. You can invest in mutual funds or exchange-traded funds (ETFs). There are also types of pre-set retirement funds and automated platforms like robo advisors that use technology to help manage a portfolio.
It’s wise to understand how the different strategies work to help decide which ones are best suited to your financial goals and personality. Below, you’ll learn about some popular retirement investment options.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
Key Points
• Opening a retirement savings earlier than later allows for the possibility of compounding returns and recovery from market volatility.
• In general, younger investors might choose more aggressive high-risk, potentially high-reward investments like stocks, while those nearing retirement are likely to opt for more conservative options.
• Investment options include DIY investing, in which the investor is in control of their portfolio; index funds that track a specific market index; automated investments; and working with a financial advisor.
• Employer-sponsored plans like 401(k)s and IRAs provide savings automatically deducted from paychecks, certain tax benefits, and potential employer matches.
• Regularly reviewing your portfolio and rebalancing when necessary may help manage risk and align with retirement goals.
The Importance of Investing for Retirement
Retirement may be a long way off or a short way down the road, depending on your age and stage of life. Either way, developing an investment strategy that can help your savings grow is essential. For many people, retirement might last 20 or 30 years — or even longer. A solid long-term investment strategy can help you build the amount you need for the years where you’re no longer in the workforce.
Benefits of Starting Retirement Investing Early
The earlier you start saving for retirement, the more time your money has to grow. One reason for this is the potential for compounding returns. Compounding means that if your money sees a return from investments, and that profit is reinvested, you’re earning money not only on your original investment, but also on your returns. In other words, over time, both your savings and your earnings could see gains.
In addition, the longer your time horizon, the more time you may have to recover from market volatility. If you have a time horizon of 30 or 40 years before you retire, you might be able to afford to weather some short-term losses, knowing that your investment returns could balance themselves out over time.
Understanding Retirement Accounts
The type of retirement accounts you have is important. Different types of accounts have different contribution limits and tax implications. Since both the amount you can save and how it will be taxed can have an impact on your nest egg, be sure to spend time strategizing about which types of accounts make the most sense for you.
For instance, you may have a workplace retirement account like a 401(k) or 403(b). In addition, you might decide to set up an Individual Retirement Account (IRA), like a traditional IRA or a Roth IRA that you manage yourself, to save even more for retirement.
Choosing Between Roth and Traditional IRAs
There are many types of IRAs, but two of the main options to choose from are a traditional and Roth IRA. Both can be helpful for saving for retirement, and you can contribute the same amount to each — up to $7,000 annually in 2025, with a catch-up contribution of $1,000 a year if you are age 50 or older, and up to $7,500 annually in 2026, with a catch-up contribution of $1,100 a year if you are 50 or older.
However, there are some key differences between a Roth and traditional IRA, especially when it comes to taxes. With a traditional IRA you contribute pre-tax dollars, and you get an upfront deduction on your taxes. But you’ll pay taxes on the money when you withdraw it in retirement.
A Roth IRA allows you to contribute after-tax dollars. In other words, you pay the taxes on the money upfront, and you’ll withdraw your savings tax-free in retirement.
Another difference between the two types of IRAs: With a traditional IRA you will need to take required minimum distributions (RMDs) starting at age 73 (assuming you turned 72 after December 31, 2022). A Roth IRA does not have RMDs.
If you’d like to open an IRA, think about which type makes the most sense for you. If you expect to be in a lower tax bracket in retirement, a traditional IRA might be a good choice. But if you think you’ll be in a higher tax bracket, a Roth IRA may be a better option.
Understanding Employer-Sponsored Accounts
Retirement accounts such as 401(k)s, 403(b)s, and 457 plans are examples of employer-sponsored plans.
401(k)s are one of the most common types of employer-sponsored plans. An employee signs up for the plan at work and their contributions are automatically deducted from their paychecks. Employees choose how to invest their 401(k) funds, and employers may match the employees’ contribution up to a certain amount, depending on the plan.
Your employer may offer a Roth 401(k) in addition to a traditional 401(k). With a traditional 401(k), contributions are taken from your paycheck before taxes, lowering your taxable income for the year, and you pay taxes on your withdrawals in retirement. With a Roth 401(k), contributions are taken after taxes, and your withdrawals in retirement are tax-free.
Other employer-sponsored plans like 403(b)s are for those who work in education, health-care, and other tax-exempt organizations, and the way they work is similar to a 401(k). Another type of employer sponsored plan, a 457 plan, is offered to some government employees and those who work for certain tax-exempt organizations.
All of these employer-sponsored plans have the same annual employee contribution limits: up to $23,500 in 2025 and $24,500 in 2026 for those under age 50. For 2025, individuals age 50 and up can contribute an additional $7,500 in catch-up contributions, and in 2026, they can contribute an additional catch-up contribution of $8,000. (In both 2025 and 2026, those ages 60 to 63 can contribute up to an additional $11,250 instead of $7,500 in 2025 and $8,000 in 2026, thanks to SECURE 2.0.)
Under a new law regarding catch-up contributions that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their catch-up contributions for these employer-sponsored plans into a Roth account. With a Roth account, as noted above, these individuals will pay taxes on their catch-up contributions upfront, but can make eligible withdrawals tax-free in retirement.
Total contributions limits (including employer contributions) are $70,000 in 2025, and $77,500 for the standard catch-up, and $81,250 with the SECURE 2.0 catch-up. In 2026, the total contribution limit is $72,000, and $80,000 with the standard catch-up, and $83,250 with the SECURE 2.0 catch-up.
Investment Options
While investing for retirement can seem overwhelming, it doesn’t have to be. There are various retirement strategies suited to different personality types and risk-tolerance levels, as well as a number of investment options, so you can choose methods and plans that are the best fit for you.
Here are a few options for retirement investing to consider:
DIY Investing
For investors who feel confident in managing their own retirement portfolio, taking a DIY approach may be an option.
You can open an investment account and purchase stocks, bonds, commodities, mutual funds, or any other types of securities for your long-term portfolio. While the term “active investing” brings to mind day traders, active investing can also mean taking a hands-on approach to managing your own portfolio.
This strategy isn’t for everyone. It’s time and energy intensive, and it requires a certain amount of expertise. For instance, anyone interested in something like IPO investing, which can be risky and speculative, according to the Securities and Exchange Commission (SEC), should be a very experienced investor.
In addition, if you go the DIY route, bear in mind that the same rules apply to all long-term investors.
• Be mindful of the contribution limits and tax implications of the retirement account you choose.
• Consider the cost of your investments, as fees can reduce your earnings over time.
• Consider using a strategy that includes some portfolio diversification, as this may, over time, help mitigate unsystematic risk, which is the type of risk unique to a particular company or industry (something that’s due to the management of a specific company, say). But remember, risk is inherent in all investing.
Index Funds
An index fund is a type of fund that tracks a broad market index. One of the most popular types of index funds tracks the S&P 500 index, for example, which mirrors the performance of the 500 largest U.S. companies.
There are hundreds of indexes, and many have corresponding funds that track different sectors of the market, such as smaller companies, technology companies, sustainable or green companies, various types of bonds, and more. Most are index funds.
Index funds don’t rely on a live team of portfolio managers, so they tend to be less expensive than actively managed funds. However, they have a downside which is that your money is pegged to the securities in that sector.
Mutual Funds
Mutual funds are a type of pooled investment. Mutual funds may include stocks, bonds, commodities, and other securities that are in what you might think of as a basket. An investor buys shares or fractional shares of a mutual fund, which gives them exposure to a variety of different companies or assets and may help with portfolio diversification. Unlike stocks and ETFs, mutual funds trade just once a day, at the end of the day.
Mutual funds were designed to get people started with investing. Buying even just a few shares of a mutual fund invests an individual in all the individual securities the fund holds.
Mutual funds may be actively or passively managed. Passively managed funds track an index, while actively managed funds attempt to beat the performance of an index with careful investment selection. Actively managed funds typically cost more than passively managed funds, so you’ll want to watch for transaction and operating fees.
Automated Options
In the world of investing there isn’t a truly automated “set it and forget it” strategy that will work on its own, without any input, for decades. But there are some options that are more hands-off than others.
One such option is a target date fund. A target date fund is designed to be an all-inclusive portfolio option for people that are looking to retire on or near a certain date. For example, a 2050 target date fund is intended for people that will be ready for retirement in 2050.
Target date funds use a set of calculations to adjust a portfolio’s asset allocation over time. When a target date fund is decades away from the specified date, it might invest 80% in equities and 20% in fixed income or cash/cash equivalents, for instance. As the date draws nearer, it will automatically move more of its investments away from equities towards bonds, cash, or other investments with lower risk. This automatic readjustment is referred to as the glide path.
Another option is automated investing, commonly known as a robo advisor (although these services are not robots, and don’t typically offer advice).
A robo advisor platform offers a questionnaire for investors to gauge their time horizon (years to retirement or another financial goal), their risk level, and so forth.
The platform then uses sophisticated technology to recommend a portfolio of low-cost index and exchange-traded funds (ETFs).
While automated options do offer the convenience of managing a portfolio on your behalf, they also have some drawbacks. The cost can be higher than other types of investment options. And there is limited flexibility. Investors typically have less control to adjust the securities in these funds.
Hire an Advisor
If you don’t feel comfortable investing for retirement on your own, you may want to consider using a financial advisor. Talk with your trusted friends or family members to get a recommendation.
Because an advisor introduces a new level of cost, be sure to ask how the person is compensated. Some advisors charge a flat fee or an hourly rate, and some earn commissions — or combinations of the above.
Tips When Investing for Retirement
As you start investing for retirement, here are a few things that you’ll want to keep in mind:
Ask About Fees
Many investments come with fees that are charged by the advisor or company that manages the investment. These investment fees may be explicitly charged to your account, or they may be captured as part of the investment’s returns. Make sure to check any fees that are charged before you invest. There are many low-cost mutual funds that offer investment fees under 0.1% as compared to a financial advisor who may charge 1% or more. Even a small difference in the fees charged can make a huge difference on your returns when compounded over decades.
Plan for Taxes
You’ll also want to account for how your retirement investments will be taxed.
If you contribute to a traditional 401(k) or IRA, you may be eligible for a tax deduction in the tax year that you make the contribution (meaning a contribution for tax year 2025 can typically be deducted on your 2025 taxes).
These accounts are called tax-deferred because you will owe taxes on your withdrawals.
If you contribute to a Roth 401(k) or Roth IRA, you won’t get a tax deduction when you contribute because you deposit after-tax dollars. Instead, your qualified withdrawals will be tax-free.
There are other differences between tax-deferred and after-tax accounts that can impact your nest egg. For example, once you reach the age of 73, you’re required to take RMDs from a traditional IRA or 401(k) every year. That doesn’t apply to Roth accounts.
If you invest for retirement in a non-retirement or taxable account, such as a brokerage account, you’ll owe income taxes on your gains whenever you sell those securities, which will affect your portfolio’s overall performance.
Setting a Retirement Goal
Setting a retirement goal can help you establish a road map for your future and get you to the place you want to be financially and personally.
To get started, decide at what age you’d like to retire. Next, determine what you’d like to do in retirement. Travel? Visit family frequently? Move to a new city? Think about what suits you best. Then figure out how much money you’ll need for a comfortable retirement based on what you want to do in your after-work years, the costs associated with the goal, and your life expectancy.
Setting goals can motivate you to take action and step up your retirement savings. Revisit your goals periodically to make you’re on track to reach them.
Rebalancing Your Portfolio Over Time
It’s generally considered a good idea to periodically adjust your investments by rebalancing your portfolio. Portfolio rebalancing is a way to adjust the mix of your investments. It means realigning the assets of a portfolio’s holdings to match your desired asset allocation.
How Often Should I Adjust My Investments?
Investors who are managing their investments themselves can rebalance when they like, based on their personal preferences. Some choose to do it at certain points, such as quarterly or annually. Others do it when their target asset allocation changes.
If you have a robo advisor or investment advisor, they likely have you set up with a specific target of different types of investments. Over time, the advisor will typically rebalance your portfolio to keep it in line with your target percentages. Check in periodically and review what’s going on to make sure everything is on track.
Signs It’s Time to Rebalance Your Portfolio
There is no one answer for when to rebalance your portfolio —it is up to each investor and what they are comfortable with. However, there are certain situations that indicate it might be time to consider a portfolio rebalance. These typically include:
• Major life changes that affect your financial goals or risk tolerance. For instance, perhaps you lost your job or got divorced. Or on a happier note, maybe you inherited some money or had a baby.
• Market volatility has caused your asset allocations to stray from your target goals.
• You’re concerned your portfolio isn’t diversified enough.
Strategies for Adjusting Investments with Age
The mix of assets in your portfolio will likely shift with age. When you’re younger and you have a longer time horizon until retirement, you may want to have more assets that are considered riskier with more potential for growth, like stocks, because you have more time to ride out any market volatility.
As you get older and closer to retirement, however, you will likely want to shift your allocation to have fewer riskier assets and more assets considered less risky, such as bonds, to help protect your money from any drops in the market.
Each investor’s financial situation is different, so individuals’ asset allocation will vary. Every investor needs to determine the best allocation for their age and circumstances.
The Takeaway
Investing for retirement is important as part of an overall financial plan. And with some research, picking the right investment options doesn’t have to be overwhelming.
You can learn about different types of retirement plans, including employer-sponsored plans and IRAs, and investment options. Then, you can weigh the pros and cons and pick those that suit your financial situation, risk tolerance, and goals. Make sure you are aware of any fees involved, along with tax implications.
If you don’t feel comfortable managing your own portfolio, you might want to consider such alternatives as working with an advisor or using an automated portfolio. Whatever you do, start saving as soon as you can so that you’ll have more time to work toward your retirement goals.
Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.
FAQ
Can I invest for retirement if I have limited funds?
It is possible to invest for retirement if you have limited funds. In fact, if you have limited funds, that may be one reason it’s even more important to invest for retirement as soon as you can. Especially if you are younger and have a long time before retirement, even a small amount can potentially grow to be a sizable nest egg when investment returns are compounded over many decades.
Should I adjust my investment strategy as I approach retirement?
How you choose to invest will depend on a number of factors, one of which is how close you are to retirement. One common strategy is to be more aggressive with your investment strategy when you are years or decades away from retirement. This type of higher-risk, potentially higher-rewards strategy can possibly lead to higher overall returns while you have a long time to weather the ups and downs of the market. Then, as you get closer to retirement, you’ll likely want to be more conservative with your investments in an attempt to better preserve capital.
What investment options are suitable for conservative investors?
Choosing your investment options will depend on your overall financial situation and tolerance for risk. Some examples of more conservative investments include bonds, cash, CDs, and Treasury bills. As you get closer to retirement, it likely makes sense to choose more conservative investments. You may give up some possible returns, but you may also be better insulated against large losses.
How much should I save monthly to reach my retirement goal?
How much you should save monthly to reach your retirement goal depends on what your goal is, your time frame for reaching it, and your financial situation. One guideline is to put 15% to 20% of your income toward your retirement, and aim for specific targets based on your age, such as having 1 times your salary saved by age 30, 3 times your salary by age 40, and 10 times your salary saved by the time you are 67. Those are just rough guidelines, but they can give you a point of reference.
Is it safe to rely on Social Security for retirement?
Typically, Social Security doesn’t provide enough of a retirement income for most people. For instance, in 2023, retirees received about $1,900 per month, on average. That’s why it’s a good idea to start saving for retirement as early as possible, through an employer-sponsored retirement plan or an IRA, or both, and not rely on Social Security as the main source of your retirement income.
Photo credit: iStock/monkeybusinessimages
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: 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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOIN-Q125-053
CN-Q425-3236452-44
Q126-3525874-017
