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How Can I Retire Early?

An early retirement used to be considered a bit of a dream, but for many people it’s now a reality — especially those who are willing to budget, save, and invest with this goal in mind.

Take the FIRE movement, which stands for “financially independent, retire early.” FIRE has become a worldwide trend that’s inspiring people to work toward retiring in their 50s, 40s, and even their 30s.

If you think an early retirement could be your next priority — or maybe it already is — here are some steps you can take to help you get there, many of which are part of the FIRE method. Let’s start with The Number itself. How much would you need to save and invest to arrive at an amount that would allow you to retire early?

Early Retirement: What’s Your Number?

Many people wonder: How much do I need to retire early? There isn’t one right answer to that question. The right answer for you is one that you (and maybe your spouse, partner, or other loved ones) must arrive at based on your unique needs and circumstances. That said, to learn whether you’re on track for retirement it helps to start somewhere, and the so-called Rule of 25 provides a good ballpark estimate.

The Rule of 25 recommends saving 25 times your annual expenses in order to retire. Why? Because according to a well-known retirement formula in the industry, you should only spend 4% of your total nest egg every year. By limiting your spending to a small percentage of your savings, the logic goes, your money is more likely to last.
Here’s an example: if you spend (not earn, spend) $75,000 a year, you’ll need a nest egg of $1,875,000 in order to retire.

$75,000 x 25 = $1,875,000

With that amount saved, and assuming an annual withdrawal rate of 4%, you would have $75,000 per year in income.

Obviously, this is just an example. You might need less income in retirement or more — perhaps a lot less or a lot more, depending on your situation. If your desired income is $50,000, for example, you’d need to save $1,250,000. You can plug-and-play with different amounts.

Remember, once you reach the traditional retirement age of 62, you would then be able to claim Social Security. (Age 67 is considered “full retirement” age, and you can wait to claim benefits until age 70.) The longer you wait to claim Social Security, the higher your monthly payments will be. Depending on your needs, you could add those Social Security benefits to your income or consider reinvesting the money, depending on your circumstances as you get older.

The bigger question, then, is how do you save the amount of money you’d need for your early retirement plan?

8 Early Retirement Tips

Following are eight steps that can help you build a nest egg that’s substantial enough for you to consider an early retirement. Note that this article is focused on cash savings, as well as investments (including different types of retirement plans). We are not including the potential value of real estate or business assets here. Of course, the beauty of the Rule of 25 is that it’s flexible enough to include details that are particular to your plan.

Speaking of your plan …

1. Make an early retirement roadmap

The first step in your early retirement plan is to commit to this new path, and all that it will entail. An early retirement requires determination and, in many cases, making changes to how you think as well as some of your day-to-day habits. Divide your plan into two parts: Money and Vision.

Money

•  Start by doing the math, using the Rule of 25. Be brave. Based on your current nest egg, how much more would you need to save to get to your goal?

•  Next: If you hypothetically needed to save $500,000 more to reach your goal, divide that by the number of years until your early retirement date. If you have 15 years until your early retirement, you’d have to save about $33,333 per year, or $2,777 per month, to save an extra $500,000.

•  Use a calculator to explore different potential investment returns. While there’s no way to predict what your investments will earn over time, a conservative return rate of, say, 5% isn’t unreasonable considering that the average stock market return of the last decade was about 13.9%, although it’s always important to remember that past performance is no guarantee of future performance.

  Also, that historic return rate assumes being invested 100% in stocks, so a lower rate of return would reflect the assumption that you’d also invest in bonds or cash, and/or that market returns might be lower in the future.

Vision

Schedule a few check-ins with yourself, and/or a partner or loved ones, to discuss what “early retirement” means, and what it might look like. Not working? Working a little? Working in a different field? Starting a business? Going back to school? Volunteering? Traveling?

It’s different for everyone, so the clearer you can get about the details now, the smarter you can be about how much money you need to make your plan work.

2. Find a budget you can live with

By now you’ve probably realized that having a budget you can live with is critical to making this plan a success. The essential word here isn’t budget, it’s the whole phrase: a budget you can live with.

There are countless ways to manage how you spend and save (a.k.a. budgets). There’s the 50-30-20 plan, the envelope method, the zero-based budget, etc. One suggestion: Search up what types of spending plans other people in the early retirement community are using.

Test a couple of them for a couple of months each. Find one you can live with.

The reason you need a budget to retire early is because few people have the stamina and self-discipline to stick to a plan unless they have specific numbers to work with.

Recommended: Typical Retirement Expenses to Prepare For

3. Take advantage of employee benefits

If your employer offers a retirement plan like a 401(k) or 403(b), that’s the first thing you want to take advantage of — especially if there is an employer match involved (e.g. your employer matches a percentage of your savings). These employer-sponsored plans allow you to invest in mutual funds, target date funds, and more.

The other reason to save and invest in an employer-sponsored plan is that in most cases the money you save reduces your taxable income. So the more you save, the less you might pay in taxes.

The caveat here is that you can’t access those funds before you’re 59½ without paying a penalty. So if you plan to early retire at 50, you will need to tap other savings for roughly the first decade to avoid the withdrawal penalties you’d incur if you tapped your 401(k) or Individual Retirement Account (IRA) early.

Be sure to find out, from HR and from your colleagues, if there are any other employee benefits you might qualify for: e.g. stock options, a pension, deferred compensation, etc.

4. Consider a Health Savings Account (HSA)

If your employer offers a Health Savings Account as part of your employee benefits, you might consider opening one.

Even though your 401(k) and IRA may have contribution caps, a Health Savings Account allows you to save additional money: In 2022, the HSA contribution caps are $3,650 for individuals and $7,300 for those with family coverage.

Your contributions are considered pre-tax, similar to 401(k) or IRA contributions, and the money you withdraw for qualified medical expenses is tax free (although you’ll pay taxes on money spent on non-medical expenses).

The downside of saving in an HSA is that your investment options may be limited. If you find they are too limited, you may want to consider saving more in your employer plan

5. Open a Roth IRA

The advantage of saving in a Roth IRA vs. a regular IRA is that you’re contributing after-tax money that can be withdrawn penalty and tax free at any time.

To withdraw your earnings without paying taxes or a penalty, though, you must have had the account for at least five years (the so-called 5 Year Rule), and you must be over 59½.

If you already have the bulk of your savings in a 401(k), you might want to consider doing a Roth conversion for some of that money. Although you’d have to pay taxes on the money you rolled over into a Roth (because a Roth must be funded with after-tax dollars), this would enable you to withdraw those contributions penalty free.

6. Pay off debt

Obviously, it’s very difficult to achieve a big goal like saving for an early retirement if you’re also trying to pay down debt. It’s wise to start your plan with a clean slate, and work first to pay off any and all debts you might have (credit card, student loan, personal loan, car loan, etc.).

That’s not only because being debt free feels better — it saves you money. For example, the interest rate you’re paying on credit card or store cards can be quite high, often above 10% or 15%. If you own $6,000 on a credit card at 17% interest, for example, when you pay that off, you’re essentially saving the 17% that debt was costing you each year.

7. Invest early and often

How do you invest to retire early? You can invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), target date funds, and more.

One factor to consider is how aggressively you want to invest. That means: Are you ready to invest more in equities, say, taking on the potential for greater risk in order to reap potential gains? Or would you feel more at ease if you invested using a more conservative strategy, with less exposure to risk (but potentially less reward)?

Whichever strategy you choose, you may want to invest on a regular cadence. This approach, called dollar-cost averaging, is one way to maximize potential market returns and mitigate the risk of loss.

8. Stay within your spending limits in retirement

The budget you make in order to save for an early retirement is probably a good blueprint for how you should think about your spending habits after you retire. Unless your expenses will drop significantly after you retire (e.g. if you move, if you need one car instead of two, etc.), you can expect your spending to be about the same.

That said, you may be spending on different things. You may be spending less on commuting and gas and work-related expenses and more on your new business or on travel. Whatever your retirement looks like, though, it’s wise to keep your spending as steady as you can, to keep your nest egg intact.

Investing for Early Retirement With SoFi

SoFi makes it easy to get started on your early retirement journey when you open a SoFi Traditional or Roth IRA.

If early retirement is your priority, taking the steps to not only save your money but actually invest it can help you make progress toward that goal.

You might consider a so-called robo advisor, like SoFi’s automated investing portfolio. Once you identify your retirement goal, a computer algorithm helps you set up a portfolio that matches your preferences. It also helps rebalance and manage the portfolio over time. While there are no guarantees of specific outcomes with any investing strategy, using an automated investing portfolio may help you stick to your plan and invest steadily over time — habits that might help you reach your early retirement goal.

The Takeaway

An early retirement may appeal to many people, but it takes a real commitment to actually embrace that as your goal. These days, many people are using movements like FIRE (financial independence, retire early) to help them take the steps necessary to retire in their 30s, 40s, and 50s.

You can make progress toward an early retirement too, by following some of the steps outlined in this article. And by opening an investment account with the SoFi Invest® online brokerage, you not only have the ability to start an IRA, but to invest in stocks, ETFs, and even crypto. Even better, SoFi members have complimentary access to financial advice from a professional, who could likely help to answer some of your questions about making an early retirement plan that works for you.

Learn more about SoFi Invest and get started on your retirement planning.


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Your Financial Checklist: Financial Moves to Make During a Job Transition

Your Financial Checklist: Financial Moves to Make During a Job Transition

So your dream job didn’t work out.

Maybe you had a change of heart. Maybe your life circumstances changed. Or maybe you never even got the job. Indeed.com estimates that between the ages of 18 to 24, the average American changes jobs about 5.7 times, and they change jobs an average of 2.4 times between 25 to 34 years old. So if you’re in the middle of a job transition, you’re in good company.

Still, transitioning from one job to another can be a stressful time no matter the reason, especially for those who may be transitioning from the public to private sector, or vice versa. No matter if you’re about to start the transition from one job to another or if you’re still looking for your next career move, there are a few things you can check off your financial to-do list in the meantime to make sure your job transition doesn’t wreak havoc on your financial life.

How to Financially Manage a Job Transition

1. Build an Emergency Fund

Building an emergency fund is a great first step when you’re transitioning from one job to another. Doing so can give you a better idea of your financial situation and if you have enough savings to cover an emergency (such as your job transition taking longer than expected). Most experts advise you have at least six months’ worth of expenses saved up.

2. Use Vacation and Sick Days

According to Expedia’s 2021 Vacation Deprivation Survey , Americans took the fewest vacation days (eight, on average) out of 16 countries surveyed. So if you’ve accumulated any vacation or sick days, check with your HR department to see if you can cash them in. Many companies pay exiting employees a preset rate for unused vacation and sick days, as outlined in their contracts.

3. Take an Honest Look at Your Finances

Is buying locally important to you? Does your gym membership help you feel healthier, both mentally and physically? You’ve heard the adage that nothing is free, so take a deep dive into what you’re spending your money on and ensure that discretionary spending matches up with your values, life goals, and your budget.

4. Look for Easy Spending Cuts

When was the last time you actually read that knitting magazine? Are you ordering food delivery for every other meal? Take a look at your credit and debit card charges and pick off the easy things that you don’t need to be spending money on. This could be a quick way to build a cushion in your budget during your job transition.

5. Fend off Lifestyle Creep

If you’re still getting a coffee every morning even if you’re not going to work, you may have fallen victim to lifestyle creep. You can look for easy fixes, such as buying a coffee maker, to hedge against it and build better financial habits even after your transition from one job to another is complete.

6. Don’t “Orphan” Your Retirement Fund

Many people abandon their 401(k) after they leave a job. That is, they assume the account is owned by their ex-employer, and by quitting they’ve forfeited their funds. However, the money that you contribute to a 401(k) stays with you even after changing jobs. So you may want to check into your current or former employer’s 401(k) policy for insight on how you might claim these funds or roll them over into a new retirement account.

7. Combine Your Retirement Accounts

Do you have multiple retirement accounts? Now may be a good time to review your account details and decide whether it makes sense for you to consolidate your retirement accounts.

8. Create a ‘Career Change’ Budget

Once you have a better idea of what your expenses will look like as you transition from one job to another, it may be time to create a career change budget. This can be a temporary budget that’s adjusted for the period of time between now and when you start your next job. If you don’t currently have your new job lined up, you can still use a temporary career change budget as a starting point to test out potential permanent budget changes, such as cutting streaming services.

9. Do Your Homework

No matter if you’re just started a new career or if you’re still looking for one, now may be an ideal time to delve into your new industry’s average salary expectations. Being armed with this information could help you know your worth and provide data points to help you negotiate your starting salary, bonuses and reach your financial and career goals.

10. Make Money off Your Passions

Do you love gaming? Or maybe you have a passion for making candles or pottery. You may be able to make some side cash streaming on Twitch or selling goods on Etsy. Doing so may help you relieve stress since you’re doing something you love while also bringing in a few extra bucks.

11. Check Your Health Insurance Options

In the U.S., most health insurance options are tied to your jobs. As such, a job transition may be a good time to see what your insurance covers or even if you need less or additional insurance. Researching what type of insurance options are generally offered in your new career may also be beneficial.

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12. Keep Extra Cash in Your Bank Account

Do you usually only keep a couple hundred bucks in your checking or savings account? Having extra money in your bank account during a job transition may be wise. If you have a new job lined up, you may have to go longer than usual to get your next check, such as getting paid monthly instead of bi-weekly. And if you don’t have a job quite yet, keeping more cash in your account than usual can save you from hefty overdraft fees.

13. Cash in on Networking

Most people don’t have a Rolodex anymore, but they do have a network of professionals they’ve accumulated throughout their career. Now may be a good time to log into LinkedIn and send some messages to people who may be able to help you get a job. You could also invest in online courses on sites like LinkedIn and Coursera that are related to your new career, especially if you don’t have much experience in the career you’re transitioning into.

14. Invest in Networking Events

Even during COVID-19, you can find a plethora of networking opportunities both in person and online. While some of these won’t be free, they still may be a wise investment to not only help you learn about your new industry, but also to meet new people who could open doors for your career. As such, networking can be a great financial move while you transition from one job to another.

15. Keep Track of Work-Related Expenses

If you do attend networking events or pay for industry-specific training or webinars, you may want to keep track of these expenses. You may be able to write off work-related training and other expenses during your job transition, especially if you’re a freelancer or contract employee.

16. Use Extra Time To Learn about Investing

Do you not know what a blue chip stock is? Or maybe you’re confused about the differences between stocks and bonds. Leveraging your time during a career transition to decode investing could help you learn how to make smart investment moves that your future self may thank you for.

17. Re-evaluate Your Savings Accounts

You may be surprised at the number of savings accounts you actually have, be them health savings accounts, high-yield savings accounts, money market accounts, CDs and yes, even your 401(k). Before transitioning from one job to another, you may want to ensure you have a handle on your current savings accounts and how they may be affected by a career change, especially if your income level is likely to change.

18. Purchase or Update Your Life Insurance Policy

Because different industries have different levels of risk and danger, your life insurance offerings may change during a job transition. Knowing what your life insurance needs are and how they may change in a new career could help you save money if you start researching and comparing insurance options now.

19. Set Up Automatic Payments & Transfers

Got a late fee because you forgot that credit card bill was due last Thursday? You can avoid these fees by setting up automatic payments. You can also set up your bank account to automatically transfer funds to another account, such as a savings account, on pay day. Of course, you only avoid a fee, though, if you don’t overdraw your account, so you may want to make sure you’ll have the funds available before setting up automatic payments or transfers.

20. Deal with Debt

Student loans, credit card balances, medical bills, car loans, mortgages: It’s easy to build up debt, but it’s not-so-easy to tear it down. If your student loan interest rates are soaring higher than your income, it may be worth checking into student loan refinancing options. Debt consolidation may also be worthwhile if a budget overhaul isn’t enough to put a dent into your debt. Having less debt going into your new career could relieve some of your financial stress as you wait for that first check to come in.

21. Consider Getting a New Credit Card

While it may not seem like an obvious option, applying for a new credit card during a job transition could make sense for you. Having more lines of credit could help you build your credit score (as long as you pay your bill, of course!) It could also help you make ends meet in the short-term, especially if you take advantage of cashback bonuses or other credit card rewards.

22. Re-Evaluate Your Financial Goals

Don’t like the idea of having a furry friend anymore after hearing about that big vet bill your friend just paid? Maybe you want to move that pet fund into a travel budget or prioritize paying off your student loans instead. You may want to use your time now to reevaluate your financial goals so you know what you’re saving for once you start your new career.

23. Evaluate Your Housing Situation

Many early career professionals are eager to stake down their roots and buy into that American dream of a white picket fence and a big backyard. But a big backyard doesn’t come cheap (and neither do white picket fences). If you’re living in a big city studio apartment but your job transition could mean you work remotely or in another market, it may be worth the savings to break out your moving checklist and head for cheaper horizons. And if you’re not ready to give up your expensive apartment just yet, you may want to consider roommates or even renting out your cool pad on Airbnb when you’re away.

24. Check in with Financial Mentors

Nothing in this world is free … or is it? Maybe you have an investment-savvy uncle or a friend who works in accounting. Asking a trusted financial mentor or friend for advice may be the closest thing to free financial guidance you can get; however, you may want to be sure you really trust this individual with details about your financial life and take their advice with a grain of salt.

25. Consult an Expert or Two

While your friends and family could be a good place to start, a financial advisor could help you make the most out of your finances during a career transition. An advisor could help you learn more about how to adjust your financial situations if your new career path changes your income, be it lowering or raising your expected income. Being prepared for a change in income before it happens could help you create a budget ahead of time so you’re not scrambling to adjust after that first paycheck clears.

The Takeaway

Transitioning from one job to another can be stressful, especially if you’re unsure of when your net paycheck will be. However, there are several money moves you can make during a job transition to help yourself both now and in the future. A major life event like transitioning to another job is a good time to take stock of your financial situation and reevaluate your budgets and money goals.

If you need a tighter grip on your funds during a career transition, signing up for a new bank account with SoFi Checking and Savings could be part of your financial checklist. Its mobile interface literally puts cash management at your fingertips and there are zero account fees. Plus, SoFi Checking and Savings holders get access to free one-on-one career services to help with career transitions.

Photo credit: iStock/Chalirmpoj Pimpisarn


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How Much Life Insurance Do I Need?

If you’re reading this, you’ve probably already decided that you are going to buy life insurance. Smart move: Life insurance will, in the case of your untimely death, protect your loved ones. If you keep up with your monthly premiums, your beneficiaries will receive a lump sum payment that will help them replace the money you would have otherwise earned. Expenses like your mortgage, a child’s education, monthly utilities and more need to be factored in.

Wondering how to do the math? Let us help you out with some simple methods for calculating that amount of coverage that will give you peace of mind.

How to Manually Calculate How Much Life Insurance You Need

Here’s a great way to get started: Take out a piece of paper or open a document on a computer and start making lists. In one list, you are going to look at all the financial obligations that lie ahead. In another, you’ll consider all the assets you have that could be used to fund these expenses for your loved ones if you were not around.

For the financial obligations ahead, make sure you come up with a figure that includes:

•   Your income over the term of the insurance policy.

•   Daily living expenses (food, utilities, medical care) if you don’t think the income in the line above would cover that sufficiently.

•   Your mortgage. If this is covered by your income, you don’t need to add this, but if not, you want to make sure your loved ones can pay this loan off over the years.

•   Any other debts. Do you have a chunk of credit card debt? Student loans? Those will need paying. Also think about end-of-life costs. Grim as it may be, you don’t want loved ones struggling to pay for funeral costs. These are not insignificant. In 2021, the cost of a funeral and burial was typically almost $8,000. In addition to that, there may be additional costs for gravestones, an obituary, and the like.

•   Tuition. Think about how many children you have or plan to have. The current annual cost for an in-state student at a public 4-year institution is $25,615; for a private university, that number rises to $53,949. Don’t forget to account for inflation, too.

•   Childcare if applicable. Think about whether your income alone would cover this, or if more funds would be needed to pay for these costs.

Add these costs up, and those are your life insurance needs. But now, let’s look at assets that might go towards paying these costs were you not alive. Include the following:

•   Savings. What do you have in savings (include your retirement accounts if you believe your loved ones would tap into those versus keeping them aside)? Also look at any investment accounts you may own.

•   Other insurance policies. You may already have some insurance. Just keep in mind if it is something you have via a group life insurance policy at work, it will probably end if and when you change jobs.

•   College funds. If you already have, say, a 529 account that will help pay for your children’s higher education, add that to the assets list.

To find out how much insurance you need, take the first number (your financial obligations to be covered) and subtract from it the assets you have (the second number). Ta-da: You now have a number that you’d like your life insurance policy to at least equal.

3 Ways to Quickly Estimate Your Life Insurance Needs

Not everyone wants to do the math above, we get it. Here are a few other ways that may be a better match for you when it comes to estimating how much life insurance you need.

1. The DIME Formula

The DIME formula — an acronym that stands for debts, income, mortgage, and education — is a time-tested way to determine the right amount of life insurance to buy. Here’s how it works:

Debts Add them up, including car loans, student loans, personal loans, credit card balances (even if it’s a cringe-worthy number you plan on whittling down, you’ve got to include it), and so forth. Include everything except mortgage payments — because that’s the “M” portion of this formula — and add them up. What’s the total?

Income The goal of having a life insurance policy is to replace income that was coming in but would stop because of the death of the policy holder. Multiply your income and the potential number of years you want covered by life insurance.

Mortgage If you’re a homeowner, what balance remains on your home loan? If you are considering buying a home, what size mortgage would you get?

Educational costs If you have or are planning to have kids, estimate how much tuition would cost for each and determine the total needed to fund higher education.

Add up these D, I, M, and E amounts, and that’s how much life insurance coverage you need. Worth noting: This technique doesn’t recognize any assets you might have, so it might tend to have you buy more life insurance than you need.

2. Use an Online Calculator

Sometimes it’s easier to use a digital tool that holds your hand through calculations like these. If you love clicking your way to answers, try a life insurance calculator to help streamline the process. Many are available online.

3. Try the Multiplication Trick

Some people like to use a formula to figure out how much life insurance they should get. Typically, this says to take your income, multiply it by a number (usually 10, but sometimes much lower or higher) and bingo! That’s the amount. Prevailing wisdom, though, is that this can be a very inaccurate figure. And it certainly doesn’t take into account the subtleties of your situation, whether that means you have to pay whopping student loans from grad school, alimony, caregiving expenses for a parent, or another expense. So while you may hear about this shortcut, it’s not considered reliable.

Who Needs Life Insurance?

Many people would benefit from life insurance, and most Americans do have a policy. Buying life insurance protects your dependents in the event of your dying; it provides a lump sum payment that can keep them financially afloat.

If, however, you are a person without dependents or any shared debt (such as being a co-signer with your parents for a student loan or with a partner on a mortgage), then you may not need to buy a policy. But for those who do have people depending on their earning power, life insurance can be a wise buy.

Many people get a policy when they are anticipating the major “adulting” milestones of marriage or parenthood. It’s likely to be particularly important if you are the primary earner in your marriage. If tragedy were to strike and you died, your spouse could be hard-pressed to maintain their standard of living and pay the bills. The rule of thumb is that the sooner you get insurance, the better. Rates go up as you age.

Next Step: Buying Life Insurance

Once you know how much life insurance you need, it’s almost time to start shopping. Almost. Let’s take a quick look at the two main types of life insurance, term life versus whole life insurance — and the key differences between them.

Although they share the same goal of protecting families financially when a tragic loss occurs, the elements of the policies, how much they cost, their terms, and more can be quite different.

Term Life Insurance

As the name suggests, this kind of policy lasts for a certain period of time, or term. The policy is taken out for a designated dollar amount, usually with fixed premium payments — and, if the policy holder dies during that time frame, then designated beneficiaries can receive the payout they’re due. This can work well for people who think that, at the end of the term, they’ll have saved enough money that they no longer need income replacement. Or, they may believe that beneficiaries will have gained financial independence by the time the policy ends.

Whole Life Insurance

This option offers coverage for your “whole life” as the name suggests, and is a popular choice among the different kinds of permanent, or lifelong, insurance policies. Payments are typically higher, perhaps as much as five to 15 times more than the same amount of coverage as a term life policy, but part of this whole life premium is a contribution to the policy’s cash value account. This savings vehicle can grow and may be borrowed against if needed.

Choosing Term or Whole Life Insurance

If affordability is especially important, then term life insurance can make more sense. Term life may also be the right choice if coverage is only needed for a certain period of time, perhaps while money is still owed on a mortgage or young adult children are in college.

Another reason why some people may choose term insurance is because they take the difference between that premium and what they’d pay for a whole life premium, and then invest those dollars in another way.

That said, some people prefer the ongoing coverage of whole insurance and the peace of mind it can bring. Others may like watching their cash account grow. It’s a personal decision; only you can judge which kind of life insurance best suits your specific needs.

The Takeaway

Buying life insurance is an important step. It secures the financial future of your loved ones who rely on you and your income. Figuring out just how much life insurance you need is a necessary part of the process that can feel complicated. Fortunately, there are a number of different ways to get a solid estimate for that figure. The ideas we’ve shared not only help you do just that, they may also give you a deeper understanding of you and your family’s financial future.

Let SoFi Help Protect You

Once you have a rough idea of how much life insurance you’d like to buy, why not consider what SoFi is offering: affordable term life insurance in partnership with Ladder. Applicants can receive a quote in just a few minutes for policies that range from $100,000 to $8 million. It’s quick and easy to set up a policy, and the coverage amount and associated premiums can be adjusted at any time with just a couple of clicks. No hassles.

Rates are competitive with Ladder and, because the agents do not work on commission, there are no fees. Plus there are no medical exams required for qualifying applicants buying $3 million or less in coverage.

Interested in the fast, easy, and reliable route to life insurance? Check out what’s offered by SoFi in partnership with Ladder.


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.
External Websites: 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.
Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
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8 Popular Types of Life Insurance for Any Age

No matter what your age, it’s probably a good time (and not too late!) to think about getting life insurance. It’s a key step in financial planning, so let’s get to know the two main types – term and permanent – so you can understand which is the right option to protect your loved ones.

First, a crash course in what insurance is: When you purchase a life insurance policy, you make recurring premium payments. Should you die while covered, your policy will pay a lump sum that you’ve selected to the beneficiaries you have designated. It’s an important way to know that if you weren’t around, working hard, your loved ones’ expenses (housing, food, medical care, tuition, etc.) would be covered. Granted, no one wants to imagine leaving this earth, but buying life insurance can give you tremendous peace of mind.

Types of Life Insurance

Now that the basic concept is clear, let’s take a closer look at the two types of life insurance policies: term and permanent. Term life insurance offers coverage for a certain amount of time, while permanent life insurance provides coverage for the policyholder’s whole life as long as premiums are paid. (These policies come in a variety of options. We’ll break those down for you in a moment.) There’s no right or wrong type; only a policy that is right for you and your needs. Figuring out which one will be easier once you understand the eight different kinds of life insurance and the needs they were designed to satisfy.

1. Term Life Insurance

Term life insurance, as the name suggests, protects a policyholder for a set amount of time. It pays a death benefit to beneficiaries if the insured person dies within that time frame. Term life insurance coverage usually ranges from 5 to 30 years. Typically, all payments and death benefits are fixed.

There are several reasons why a term life insurance policy might be right for you. Perhaps there is a specific, finite expense that you need to know is covered. For instance, if covering the years of a mortgage or college expenses for loved ones is a priority, term life insurance may make the most sense. These policies can be helpful for young people too. If, say, you took out hefty student loans that are coming due and your parents co-signed, you might want to buy a life insurance policy. The lump sum could cover that debt in a worst-case scenario.

Another reason to consider term life insurance: It tends to be more affordable. If you don’t need lifelong coverage, a term policy might be an excellent choice that’s easier on your budget.

A few variables to be aware of:

•   Term life insurance may be renewable, meaning its term can be extended. This is true “even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy,” according to the Insurance Information Institute. Renewal of a term policy will probably trigger a premium increase, so it’s important to do the math if you’re buying term insurance while thinking, “I’ll just extend it when it ends.”

•   If you would be comfortable with your coverage declining over time (that is, the lump sum lowering), look into the option known as decreasing term insurance.

2. Whole Life Insurance

Whole life insurance is the most common type of permanent life insurance, which protects policyholders for the duration of their lives.

As long as the premiums are paid, whole life insurance offers a guaranteed death benefit whenever the policyholder passes. In addition to this extended covered versus term life insurance, whole life policies have a cash value component that can grow over the policy’s life.

Here’s how this works: As a policyholder pays the premiums (these are typically fixed), a portion goes toward the cash value, which accumulates over time. We know the terminology used in explaining insurance can get a little complicated at times, so note there’s another way this may be described. You may hear this referred to as your insurance company paying dividends into your cash value account.

This cash value accrues on a tax-deferred basis, meaning you, the policyholder, won’t owe taxes on the earnings as long as the policy stays active. Also worth noting: If you buy this kind of life insurance and need cash, you can take out a loan (with interest being charged) against the policy or withdraw funds. If a loan is unpaid at the time of death, it will lower the death benefit for beneficiaries.

The cash value component and lifelong coverage of this type of life insurance can be pretty darn appealing. And it may be perfect for funding a trust or supporting a loved one with a disability. However, buying a whole life policy is pricey; it can be many multiples of the cost of term insurance. It’s definitely a balancing act to determine the coverage you’d like and the price you can pay.

For those who are not hurting in the area of finances, whole life can have another use. A policy can also be used to pay estate taxes for the wealthy. For individuals who have estates that exceed the current estate tax exemption (IRS guideline for 2021) of nearly $11.7 million , the policy can pay the estate taxes when the policyholder dies.

3. Universal Life Insurance

Who doesn’t love having freedom of choice? If you like the kind of protection that a permanent policy offers, there are still more varieties to consider. Let’s zoom in on universal life insurance, which may provide more flexibility than a whole life policy. The cash account that’s connected to your policy typically earns interest, similar to that of a money market. While that may not be a huge plus at this moment, you will probably have your life insurance for a long time, and that interest could really kick in. What’s more, as the cash value ratchets up, you may be able to alter your premiums. You can put some of the moolah in your cash account towards your monthly payments, which in some situations can really come in handy.

This kind of policy is also sometimes called adjustable life insurance, because you can decide to raise the benefit (the lump sum that goes to your beneficiaries) down the road, provided you pass a medical exam.

4. Variable Life Insurance

Do you have an interest in finance and watch the market pretty closely? We hear you. Variable life insurance could be the right kind of permanent policy for you. In this case, the cash value account can be invested in stocks, bonds, and money market funds. That gives you a good, broad selection and plenty of opportunity to grow your funds more quickly. However, you are going to have more risk this way; if you put your money in a stock that fizzles, you’re going to feel it, and not in a good way. Some policies may guarantee a minimum death benefit, even if the investments are not performing well.

This volatility can play out in other ways. If your investments are performing really well, you can direct some of the proceeds to pay the premiums. But if they are slumping, you might have to increase your premium payment amounts to ensure that the policy’s cash value portion doesn’t fall below the minimum.**

This kind of variable life insurance policy really suits a person who wants a broader range of investment options for the policy’s cash value component. While returns are not guaranteed, the greater range of investments may yield better long-term returns than a whole life insurance policy will.

5. Variable Universal Life Insurance

Variable universal life insurance is another type of a permanent policy, but it’s as flexible as an acrobat. If you like to tinker and tweak things, this may be ideal. Just as the name suggests, it merges some of the most desirable features of variable and universal plans. How precisely does that shake out for you, the potential policyholder? For the cash account aspect of your policy, you have all the rewards (and possible risks) of a variable life insurance policy that you just learned about above. You have a wide array of ways to grow your money, which puts you in control.

The features that are borrowed from the universal life model are the ability to potentially change the death benefit amount. You can also adjust the premium payments. If your cash account is soaring, you can use that money towards your monthly costs…sweet! It’s a nice bonus, especially if funds are tight.

6. Indexed Universal Life Insurance

This is another type of permanent life insurance with a death benefit for your beneficiaries as well as a cash account. You may see it called “IUL.” In this instance, the cash account earns interest based on how a stock-market index performs. For instance, the money that accrues might be linked to the S&P (Standard & Poor’s) 500 composite price index, which follows the shifts of the 500 biggest companies in America. These policies may offer a minimum guaranteed rate of return, which can be reassuring. On the other hand, there may be a cap on how high the returns can go. A IUL insurance plan may be a good fit if you are comfortable with more risk than a fixed universal life policy, but don’t want the risk of a variable universal life insurance product.

7. Guaranteed or Simplified Issue Life Insurance

With most life insurance policies, some form of medical underwriting is required. “Underwriting” can be one of those mysterious insurance terms that is often used without explanation. Here’s one aspect of this that you should know about. Part of the approval process for underwritten policies involves using information from exams, blood tests, and medical history to determine the applicant’s health status, which in turn contributes to the calculated monthly costs of a policy. Underwriting serves an important purpose: It helps policyholders pay premiums that coincide with their health status. If you work hard at staying in excellent health, you are likely to be rewarded for that with lower monthly payments.

However, sometimes insurance buyers don’t want to go through that process. Maybe they have health issues. Or perhaps they don’t want to wait the 45 or 60 days that underwriting often requires before a policy can be issued. With guaranteed or simplified issue life insurance, the steps are streamlined. Applicants may not have to take a medical exam to qualify and approvals come faster.

These policies tend to have lower death benefits (think $10,000, $50,000, or perhaps $250,000 at the very high end) than the other types of life insurance we’ve described. Less medical underwriting also means policies tend to be more expensive. Who might be interested in this kind of insurance? It may be a good option for someone who is older (say, 45-plus), has an underlying medical condition that would usually mean higher insurance rates, or has been rejected for another form of insurance. The coverage may suit the needs of someone looking for insurance really quickly, like the uninsured people who, during the COVID-19 pandemic, wanted to sign up ASAP.

One point to be aware of: Many of these policies have what’s called a graded benefit or a waiting period. This usually means that the beneficiaries only receive the full value of the policy if the insured has had it for over two years. If the policyholder were to die before that time, the payout would be less; perhaps just the value of the premiums that had been paid.

Of the two kinds we’ve mentioned, guaranteed is usually the easiest to qualify for (as the name suggests) but costs somewhat more than the simplified issue variety, which tends to have a few more constraints. You might be deemed past the age they insure or a medical condition might disqualify you.

Worth noting: You may hear these life insurance policies are known as final expense life insurance or burial insurance. As with any simplified issue or guaranteed issue life insurance policies, no medical exam is required. These plans typically have a small death benefit (up to $50,000 in many cases) that is designed to cover funeral costs, medical bills, and perhaps credit card debt at the end of life.

8. Group Life Insurance

Group life insurance is often not something you go out and buy. Typically, it’s a policy that’s offered to you as a benefit by an employer, a trade union, or other organization. If it’s not free, it is usually offered at a low cost (deducted from your payroll), and a higher amount may be available at an affordable rate. Since an employer or entity is buying the coverage for many people at once, there are savings that are passed along to you.

That said, the amount of coverage is likely to be low, perhaps between $20,000 and $50,000, or one or two times your annual salary. Medical exams are usually not required, and the group life insurance will probably be a term rather than permanent policy,

A couple of additional points to note:

•   There may be a waiting period before you are eligible for the insurance. For instance, your employer might stipulate that you have to be a member of the team for a number of months before you can access this benefit.

•   If you leave your job or the group providing coverage, your policy is likely to expire. You may have the option to convert it to an individual plan at a higher premium, if you desire.

Deciding Which Life Insurance Is Best for You

So many factors go into creating that “Eureka!” moment in which you land on the right life insurance policy for you. Your age, health, budget, and particular needs play into that decision.

If you need life insurance only for a certain amount of time, you may want to select a term life insurance policy that dovetails with your needs. Covering a child’s college and postgraduate years is a common scenario. Another is taking out a policy that lasts until your mortgage is paid off, to know your partner would be protected.

A term life insurance policy may also be a good fit for someone who has a limited budget but needs a substantial amount of coverage. Since term policies have a specific coverage window, they are the more affordable option.

For someone who needs coverage for life and wants a cash accumulation feature, a permanent policy such as whole life insurance might be worth considering. Not only will this policy stay in place for life (as long as the premiums are paid), but the cash value element allows use of the funds to pay premiums or any other purpose. Permanent life insurance lets you know that, whenever you pass on, funds will be there for your dependents. It can be a great option if you have, say, a loved one who can’t live independently, and you want to know they will have financial coverage. Whole life insurance is more expensive than term life insurance, but the premium remains the same for the insured’s life.

In terms of when to buy life insurance, here are a few points to keep in mind:

•   It’s best to apply when you’re young and healthy so you can receive the best rate available.

•   Typically, major life events signal people to buy life insurance. These are moments when you realize someone else is depending on your (and, not to sound crass, your income). It could be when you marry or have a child. It could be when you realize a relative will need long-term caregiving.

•   Even if you are older or have underlying health conditions, there are options available to you. They may not give as high an amount of coverage as other life insurance policies, but they can offer a moderate benefit amount and give you a degree of peace of mind.

The Takeaway

Picking out the right life insurance policy can seem complicated, but in truth, the number of choices just reflects how easy it is to get the right coverage for your needs. There’s truly something for everyone, regardless of your age or budget. Whether you opt for term, permanent, group, or guaranteed issue, you’ll get the peace of mind and protection that all insurance plans bring.

Taking the Next Step

Are you among the millions of people who learn about life insurance and say, “A term policy is right for me!”? If that’s the way you want to protect your loved ones, we have good news: You can apply for a policy in a matter of minutes online. It’s a simple, straightforward way to tailor a policy to your needs without a lot of meetings or endless phone calls with an agent.

SoFi teamed up with Ladder to offer term life insurance that’s affordable and easy to understand. Get started today.


Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal 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.
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