Choosing a Retirement Date: The Best Time to Retire

Choosing Your Retirement Date: Here’s What You Should Know

Choosing a retirement date is one of the most important financial decisions you’ll ever make. Your retirement date can determine how much money you’ll need to save to achieve your desired lifestyle — and how many years that money will need to last.

Selecting an optimal retirement date isn’t an exact science. Instead, it involves looking at a number of different factors to determine when you can realistically retire. Whether you’re interested in retiring early or delaying retirement to a later age, it’s important to understand what can influence your decision.

The Importance of Your Retirement Date

When preparing to retire, the date you select matters for several reasons. First, your retirement date can influence other financial decisions, including:

•   When you claim Social Security benefits

•   How much of your retirement savings you’ll draw down monthly or annually

•   In what order you’ll withdraw from various accounts, such as a 401(k), Individual Retirement Account (IRA), pension, or annuity

•   How you’ll pay for health care if you’re retiring early and not yet eligible for Medicare

•   Whether you’ll continue to work on a part-time basis or start a business to generate extra income

These decisions can play a part in determining when you can retire based on what you have saved and how much money you think you’ll need for retirement.

It’s also important to consider how timing your retirement date might affect things like taxes on qualified plans or the amount of benefits you can draw from a defined benefit plan, if you have one.

If your employer offers a pension, for example, waiting until the day after your first-day-of-work anniversary adds one more year of earnings into your benefits payment calculation.

Likewise, if you plan to retire in the year you turn 59 ½, you’d want to wait until six months after your birthday has passed to withdraw money from your 401(k) in order to avoid a 10% early withdrawal penalty on any distributions you take.

💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.


Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.

Choosing Your Date for Retirement

There are many questions you might have when choosing the best retirement date: What is the best day of the month to retire? Is it better to retire at the beginning or end of the year? Does it matter if I retire on a holiday?

Weighing the different options can help you find the right date of retirement for you.

End of the Month

Waiting to retire at the end of the month could be a good idea if you want to get your full pay for that period. This can also eliminate gaps in pay, depending on when you plan to begin drawing retirement benefits from a workplace plan.

If you have a pension plan at work, for example, your benefits may not start paying out until the first of the following month. So, if you were to retire on the 5th instead of the 30th, you’d have a longer wait until those pension benefits showed up in your bank account.

Consider End of Pay Period

You could also consider waiting to the end of the pay period if you don’t want to go the whole month. This way, you can draw your full pay for that period. Working the entire pay period could also help you to accumulate more sick pay, vacation pay, or holiday pay benefits toward your final paycheck.

Lump Sums Can Provide Cash

If you’ve accumulated unused vacation time, you could cash that out as you get closer to your retirement date. Taking a lump sum payment can give you a nice amount of cash to start your retirement with, and you don’t have to worry about any of the vacation time you’ve saved going unused.

Other Exceptions to Consider

In some cases, your retirement date may be decided for you based on extenuating circumstances. If you develop a debilitating illness, for example, you may be forced into retirement if you can no longer perform your duties. Workers can also be nudged into retirement ahead of schedule through downsizing if their job is eliminated.

Thinking about these kinds of what-if scenarios can help you build some contingency plans into your retirement plan. Keep in mind that there may also be different rules and requirements for retirement dates if you work for the government versus a private sector employer.

Starting a Retirement Plan

The best time to start planning for retirement is yesterday, as the common phrase says, and the next best time is right now. If you haven’t started saving yet, it’s not too late to begin building retirement wealth.

An obvious way to do this is to start contributing to your employer’s retirement plan at work. This might be a 401(k) plan, 403(b), or 457 plan depending on where you work. You may also have the option to save in a Simplified Employee Pension (SEP) IRA or SIMPLE IRA if you work for a smaller business. Any of these options could help you set aside money for retirement on a tax-advantaged basis.

If you don’t have a workplace retirement plan, you can still save through an IRA. Traditional and Roth IRAs offer different types of tax benefits; the former allows for tax-deductible contributions while latter offers tax-free qualified distributions. You could also open a SEP IRA if you’re self-employed, which offers higher annual contribution limits.

If you decide to start any of these retirement plans, it may be helpful to use a retirement calculator to determine how much you need to save each month to reach your goals. Checking in regularly can help you see whether you are on track to retire or if you need to adjust your contributions or investment targets.

💡 Quick Tip: Can you save for retirement with an automated investment portfolio? Yes. In fact, automated portfolios, or robo advisors, can be used within taxable accounts as well as tax-advantaged retirement accounts.

Retirement Investing With SoFi

Choosing a retirement date is an important decision, but it doesn’t have to be an overwhelming one. Looking at the various factors that can influence how much you’ll need to save and your desired lifestyle can help you pin down your ideal retirement date. Reviewing contributions to your employer’s retirement plan and supplementing them with contributions to an IRA can get you closer to your goals.

Not everyone’s journey to retirement is going to look the same, so you should weigh your options. Think about your goals, and what tools you can use to help you reach them. If you need guidance, it may be a good idea to speak with a financial professional.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is it better to retire at the beginning or end of the month?

Retiring on the last day of the month is typically the best option. This enables you to collect all your paychecks during this period. You may also benefit from collecting any holiday pay that might be offered by your employer for that month. As a note, it doesn’t necessarily matter if the last day of the month is a work day for you.

What is the best day to retire?

The best day to retire can be the end of the month or the end of the year, depending on how pressing your desire is to leave your job. If you can wait until the very last day of the year, for example, you can collect another full year of earnings while maxing out contributions to your workplace retirement plan before you leave.

Is my retirement date my last day of work?

Depending on how your employer handles payroll, your retirement date is usually the day after your last day of work or the first day of the next month following the date you stop working.


Photo credit: iStock/Tatomm

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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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What Is a Senior Checking Account?

What Is a Senior Citizen Checking Account?

A senior citizen checking account is a type of bank account specifically designed for individuals who are typically aged 55 or older. These accounts often offer benefits such as higher interest rates, lower fees, and additional perks tailored to the needs of seniors, such as discounts on travel or entertainment.

Is it worth getting a senior checking account vs. a regular checking account? Sometimes — but not always. Here’s what you need to know.

How Does a Senior Checking Account Work?

A senior checking account works in the same way as a regular checking account. The only difference is that it may offer benefits and features customized for adults above a certain age, which might be 50, 55, or 62, depending on the bank or credit union. Senior checking accounts are more commonly offered by smaller regional banks or credit unions than by large national banks.

Like a standard checking account, senior checking accounts offer a place to safely store your money and manage day-to-day spending. They typically come with paper checks plus a debit card you can use for purchases or cash withdrawals. Checking accounts may also offer features like overdraft protection and direct deposit.

Recommended: 7 Tips for Managing a Checking Account

What Is the Difference Between a Senior Checking Account and a Normal Checking Account?

Overall, a senior checking account serves the same purpose as a regular checking account. However, a senior checking account may have certain age requirements and can come with unique benefits and senior discounts designed to appeal to older adults. Some of these benefits may include:

•   Free checks

•   No monthly service charges or low minimum balance requirement to waive monthly service fees

•   24/7 access to customer service by phone

•   Interest on checking account balances

•   A certain number of out-of-network ATM fees waived

•   Discounts on safe deposit boxes

•   Free services such as notary, cashier’s checks, money orders, and wire transfers

•   Special interest rates on certificates of deposit (CDs) or loans

•   Rewards points for using your debit card

These types of perks make it easier for senior citizens to manage their financial life.

Pros of a Senior Checking Account

A senior checking account generally offers all the benefits of traditional checking, plus some extras. Here’s a look at some of the advantages of opening a senior checking account.

•   Unique perks: Eligible account holders can often enjoy special perks like free checks, waived monthly service charges and transaction fees, and discounted banking services.

•   Earn interest: It’s not guaranteed everywhere, but some senior checking accounts allow account holders to earn interest on their deposits.

•   Security: Like regular checking accounts, funds stored in a senior checking account (up to a certain amount) are safe and secure, thanks to Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance,

•   Accessibility: As with any checking account, it’s easy to access your money from a senior checking account when you need it. You can usually make withdrawals in a variety of different ways, including at a branch with a teller, using a debit card at an ATM, writing a check, and making an online bank transfer.

•   Debit card: Typically, senior checking accounts come with debit cards which make it easy to pay for purchases without having cash on hand.

•   Direct deposits: Instead of waiting for paper checks in the mail, checking account holders can set up convenient direct deposits.

Cons of a Senior Checking Account

There are also disadvantages associated with senior checking accounts. Here are some to mull over.

•   Age requirements: Senior checking accounts often have age requirements. Depending on the bank or credit union, you may need to be 50-plus, 55-plus, or 62-plus.

•   Minimal interest: Some senior checking accounts offer interest. However, annual percentage yields (APYs) are generally low. You can likely get a significantly better return on your money by storing it in a high-yield savings account.

•   Minimum balance: Some senior checking accounts may require you to keep a minimum balance to avoid monthly maintenance fees or earn interest.

•   May not be better than a regular account: Many of the promoted perks of a senior checking account may also be available with a standard checking account.

•   Fees: While senior checking accounts tend to charge fewer or lower fees, they can come with account management fees, overdraft fees, and other fees

•   May get better perks with a regular checking account: If you keep a large balance in your checking account, you may be better off with a premium checking account, which could offer more perks and services than a senior checking account.

Things to Consider When Looking for a Senior Citizen Checking Account

Before opening a senior checking account, here are a few helpful things to keep in mind.

•   Convenience: Does the bank or credit union have enough branches and ATMs? Is their website easy to use? Do the bank’s customer service options fit your preferences?

•   Special services and features: Compare a few different senior citizen checking account options. What perks do they offer? Do these services and features matter to you? A free safety deposit box and a special rate on a CD won’t be useful if you don’t plan to use those products.

•   Minimum balance requirements: Does the account have a minimum balance requirement? Will this threshold be easy to meet? If not, you might end up paying a monthly maintenance charge.

•   Fees: Senior citizen checking accounts tend to have fewer fees than typical checking accounts. Still, it’s worth comparing the different fees each account charges. Consider overdraft fees, ATM fees, nonsufficient funds fees, as well as fees for services you may use, such as money orders or wire transfers.

Is a Senior Checking Account Worth It Over a Normal Checking Account?

It depends. Since there are numerous banking choices these days, including traditional banks and credit unions and online-only institutions, it generally pays to shop around and compare benefits and perks of different checking accounts.

As you shop around, keep an eye out for minimum balance requirements and monthly (and any other) fees. If a senior checking account will actually save you money, it could be worth it. If you could do better with a regular checking account, then you may want to skip the senior account.

How Can I Apply for a Senior Citizen Checking Account?

The process of opening a checking account for senior citizens is generally the same as opening a regular checking account. Here’s a look at the steps that are typically involved.

1.    Complete the application. You can generally do this either online or in person at a branch and will need all your basic information (including a government-issued photo ID, proof of address, and Social Security number).

2.    Designate beneficiaries. Once your application is approved, you can choose a beneficiary for your account.

3.    Deposit funds. If an opening deposit is required, you can typically do this by transferring funds from another account (either at the same or a different bank) or using a check, cash, or a debit card.

If you plan to close your other checking account, you’ll want to wait until all outstanding payments and deposits going in or coming out of that account have cleared. Also be sure to change any online bill payments and direct deposits from your prior checking account to your new checking account.

Recommended: How To Switch Banks in 3 Easy Steps

The Takeaway

Senior checking accounts generally come with benefits tailored to older adults, such as lower fees, higher interest rates, and additional perks like free checks or discounts on services.

If you’re over a certain age, prefer traditional banking services, and value these benefits, a senior checking account could be worth it. However, if you’re looking to switch your bank account, it’s wise to compare the features and fees of different accounts to determine which one offers the best value. Depending on your needs and goals, you might find that a checking account with no age requirements is a better fit.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is senior banking?

Senior banking refers to banking services and accounts specifically designed for older individuals, typically aged 55 or older. These accounts often come with features and benefits tailored to the needs of seniors, such as lower fees, higher interest rates, and additional perks like free checks or discounts on services. Senior banking may also include financial planning and retirement services to help seniors manage their finances more effectively.

What is the age restriction for senior checking accounts?

Depending on the bank or credit union, the age restriction for a senior checking account may be age 50, 55, or 62.

What is the age limit for a senior citizen bank account?

The age limit for a senior bank account can vary depending on the financial institution. In general, senior bank accounts are available to individuals who are aged 55 or older. However, some banks may offer senior accounts to individuals as young as 50, while others may set the age limit at 62 or older. It’s best to check with the specific bank or credit union to determine the age requirements for their senior banking products.


Photo credit: iStock/Deagreez

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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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Retiring With Student Loan Debt

Congratulations on being ready to retire! You’ve spent a lifetime working hard, and it’s just about time to sit back and relax.

Before you do, though, you’ll want to make sure you can afford to retire. If you have outstanding debts, these could put a damper on your plans.

If you’re still paying your student loans, you probably are wondering: do you have to pay student loans after retirement? And if so, how does that debt negatively impact your plans to retire?

Keep reading to learn more on paying back student loans in retirement, including options for forgiveness and how to save money on your loans.

Paying Back Student Loans After Retirement

You’ve been saving for retirement for years, and you’re ready to reap the rewards…except you’ve got student loan debt hanging over your head.

Student loans, just like any kind of debt, are financial obligations you must take care of. If not, you risk negative marks on your credit report.

If you’re planning to retire soon, make sure to factor that monthly student loan payment into your budget, as you will still be obligated to make your payments in retirement.

Pros of Paying Back Student Loans After Retirement

The first benefit to paying off student loans after retirement is keeping your credit report squeaky clean. When you pay your loan each month, the positive behavior of an on-time payment and a reduction in your debt is reflected on your credit report. This could help your score rise, which could help you qualify for better interest rates on mortgages, personal loans, and credit cards.

Also, you want to pay off your student loans as quickly as possible to minimize the interest you pay. The sooner you pay off the loan, the less interest you’ll pay overall.

And of course, clearing any debt you have will leave you with more disposable income. Take a cruise with a loved one, pay off your house, or do anything else you’ve always dreamed of doing in retirement!

Cons of Paying Back Student Loans After Retirement

Things get tricky when it comes to student loans and retirement. Because you now have a limited income, it may be challenging to make those monthly payments or to pay off the loan in its entirety.

However, just like the benefit to paying back your loan was positive marks on your credit report, skipping payments or making late payments could have a negative impact on your credit.

And making those payments to your student loan will limit what you can afford to spend your money on. You may have to defer some of your retirement plans until your student loans are paid off.

At What Age Can You Stop Paying Student Loans?

Unfortunately, there is no age when you can stop paying your student loans. Retirement has no impact on the requirement for you to pay off your student loan debts, and your monthly payment will continue to be due each month until the loan is paid off.

Student Loan Forgiveness Options

There are several student loan forgiveness programs offered by the U.S. Department of Education. One is the Public Service Loan Forgiveness, which forgives student loans for professionals who work in public services (teachers, government employees, and nonprofits, for example). There are also income-driven repayment (IDR) plans that also may qualify for loan forgiveness.

Check with your student loan account holder to see if you qualify for any loan forgiveness options.

Options for Paying Off Student Loans During Retirement

When it comes to student loans and retirement, the sooner you pay off your loan, the sooner you can enjoy retirement. It’s important to get a plan for how you’ll pay off your student loan when preparing for retirement.
Start with a student loan calculator so you know how much you owe and how much you’ll pay in interest over time. Then, explore the following options.

Lump Sum

If you can afford to do so, pay off your loan all at once. You’ll cut out the interest you would have paid if you paid it out over time, and you’ll immediately have access to more monthly disposable income since it won’t be going toward a monthly loan payment.

Consolidate Your Loans

If you have multiple student loans from different providers, consider student loan consolidation. With this option, you combine multiple federal student loans into one new loan with one new monthly payment. The interest rate is typically the average of the interest rates on the loans you’re consolidating. While consolidating student loans streamlines your monthly payments, it typically won’t save you money overall.

Note: You can only consolidate federal student loans that qualify. You aren’t able to consolidate private student loans.

Refinance Student Loans

If you have private student loans, or a combination of federal and private loans, you might want to consider refinancing your student loans. This involves taking out a new loan you can then use to pay off your outstanding student loans. Ideally, you’ll receive a lower interest rate or shorten your loan term.

Keep in mind, though, that if you refinance federal loans, you lose eligibility for federal benefits, such as income-driven repayment plans and student loan forgiveness.

Student Loan Refinancing Tips from SoFi

If you go the refinancing route, be sure to shop around for the best rate. The better your credit, the lower the interest you may qualify for. But not all lenders are the same — some charge origination fees and other fees that can add up. So it’s worth a little effort to find the best lender for you.

Even though your finances may be limited in retirement, it’s important to prioritize your student loan debt. This may mean cutting out luxuries for a while until the debt is paid off.

And if you haven’t yet retired, consider continuing to work a little longer so you have the means to pay off your student loans before retiring. It may seem like a major sacrifice to work another year, but you’ll be glad you did when you’ve completely wiped out your student loan debt!

Take control of your student loans.
Ditch student loan debt for good.


The Takeaway

Student loans and retirement may not go hand-in-hand, but you’re far from alone if you’re still struggling with your debt when you’re ready to retire. The important thing is to get a plan for paying it off, either all at once or over the shortest period possible.

One way to reduce your student loan debt is to refinance your student loans. By refinancing, you may be able to secure a lower interest rate or shorter loan term, enabling you to pay off your debt faster.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do you have to pay back student loans when you retire?

Yes, you are still responsible for paying back student loans, even in retirement.

How many years do you have to pay student loans?

There is no limit to how long you have to pay off student loans, but be aware that the longer it takes you, the more you will pay in interest.

Does your student loan get written off at 50?

No, your student loans do not get written off or canceled at any age.


Photo credit: iStock/maruco

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.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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How to Save for Retirement

Between paying for your regular expenses including groceries, rent or mortgage, student loans, and bills, it can seem nearly impossible to find a few dollars left over for saving for retirement — especially when that might be decades away. However, building up a nest egg isn’t just important, it’s urgent. The sooner you start, the more financially secure you should be by the time retirement rolls around.

So, how to save for retirement? Finding a solid retirement plan to suit your needs may be easier than you think. Here are 10 ways to save for retirement to help make those golden years feel, well, golden.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.


money management guide for beginners

Assess Your Retirement Goals and Needs

When it comes to saving for retirement, first do an inventory of your current financial situation. This includes your income, savings, and investments, as well as your expenses and debts. That way you’ll know how much you have now.

Next, figure out what you want your retirement to look like. Are you wondering how to retire early? Do you plan to travel? Move to a different location? Pursue hobbies like tennis, golf, or biking? Go back to school? Start a business?

You may not be able to answer these questions quickly or easily, but it’s important to think about them to determine your retirement goals. Deciding what you want your lifestyle to look like is key because it will affect how much money you’ll need for retirement saving.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.


Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.

Determine How Much You’ll Need to Retire

Now the big question: How much money will it take for you to retire comfortably? You may also be wondering, when can I retire? There are several retirement savings formulas that can help you estimate the amount of your nest egg. And there are various calculators that can help generate an estimate as well.

While using a ballpark figure may not sound scientific, it’s a good exercise that can help lay the foundation for the amount you want to save. And it may inspire you to save more, or rethink your investment strategy thus far.

As an example, you can use the following basic formula to gauge the amount you might need to save, assuming your retirement expenses are similar to your present ones. Start with your current annual income, subtract your estimated annual Social Security benefits, and divide by 0.04.

Example

Let’s say your income today is $100,000, and you went on the Social Security website using your MySSA account (the digital dashboard for benefits) to find out what your monthly benefits are likely to be when you retire: $2,000 per month, or $24,000 per year.

$100,000 – $24,000 = $76,000 / 0.04 = $1.9 million

That’s the target amount of retirement savings you would need, theoretically, to cover your expenses based on current levels. Bear in mind, however, that you may not need to replace 100% of your current income, as your expenses in retirement could be lower. And you may even be contemplating working after retirement. But this is one way to start doing the math.

10 Ways to Save For Retirement

So, how to save money for retirement? Consider the following 10 options part of your retirement savings toolkit.

1. Leverage the Power of Time

Giving your money as much time to grow as you possibly can is one of the most important ways to boost retirement savings. The reason: Compounding returns.

Let’s say you invest $500 in a mutual fund in your retirement account, and in a year the fund gained 5%. Now you would have $525 (minus any investment or account fees). While there are no guarantees that the money would continue to gain 5% every year — investments can also lose money — historically, the average stock market return of the S&P 500 is about 10% per year.

That might mean 0% one year, 10% another year, 3% the year after, and so on. But over time your principal would likely continue to grow, and the earnings on that principal would also grow. That’s compound growth.

2. Create and Stick to a Budget

Another important step in saving for retirement is to create a budget and stick to it. Calculating your own monthly budget can be simple — just follow these steps.

•   Gather your documents. Gather up all your bills including credit cards, loans, mortgage or rent, so that you can document every penny coming out of your pocket each month.

•   List all of your income. Find your pay stubs and add up any extra cash you make on the side using your after-tax take-home pay.

•   List all of your current savings. From here, you can see how far you have to go until you reach your retirement goals.

•   Calculate your retirement spending. Decide how much money you need to live comfortably in retirement so that you can establish a retirement budget. If you’re unsure of what your ideal retirement number is, plug your numbers into the formula mentioned above, or use a retirement calculator to get a better idea of what your retirement budget will be.

•   Adjust accordingly. Every few months take a look at your budget and make sure you’re staying on track. If a new bill comes up, an expensive life event occurs, or if you gain new income, adjust your budgets and keep saving what you can.

3. Take Advantage of Employer-Sponsored Retirement Plans

Preparing for retirement should begin the moment you start your first job — or any job that offers a company retirement plan. There are many advantages to contributing to a 401(k) program (if you work at a for-profit company) or a 403(b) plan (if you work for a nonprofit), or a 457(b) plan (if you work for the government).

In many cases, your employer can automatically deduct your contributions from your paycheck, so you don’t have to think about it. This can help you save more, effortlessly. And in some cases your employer may offer a matching contribution: e.g. up to 3% of the amount you save.

Starting a 401(k) savings program early in life can really add up in the future thanks to compound growth over time. In addition, starting earlier can help your portfolio weather changes in the market.

On the other hand, if you happen to start your retirement savings plan later in life, you can always take advantage of catch-up contributions that go beyond the 2024 annual contribution limit of $23,000 and 2023 annual contribution limit of $22,500. Individuals 50 and older are allowed to contribute an additional $7,500 a year to a 401(k), to help them save a bit more before hitting retirement age.

If you have a 403(b) retirement plan, it’s similar to a 401(k) in terms of the contribution limit and automatic deductions from your paycheck. Your employer may or may not match your contributions. However, the range of investment options you have to choose from may be more limited than those offered in a 401(k).

With a 457(b) plan, the contribution limit is similar to that of a 403(b). But employers don’t have to provide matching contributions for a 457(b) plan, and again, the investment options may be narrower than the options in a 401(k).

4. Add an Individual Retirement Account (IRA) to the Mix

Another strategy for how to save for retirement, especially if you’re one of the many freelancers or contract workers in the American workforce, is to open an IRA account.

Like a 401(k), an IRA allows you to put away money for your retirement. However, for 2024 the maximum contribution you can put into your IRA caps at $7,000 ($8,000 for those 50 and older). For 2023 the maximum contribution you can put into your IRA caps at $6,500 ($7,500 for those 50 and older).

Both the traditional IRA and 401(k) offer tax-deductible contributions. Roth IRAs are another option: With a Roth IRA, your contributions are taxed, which means your withdrawals in retirement will be tax free.

You control your IRA, not a larger company, so you can decide which financial institution you want to go with, how much you want to contribute each month, how to invest your money, and if you want to go Roth or traditional.

For those who can afford to invest money in both an IRA and a 401(k), and who meet the necessary criteria, that’s also an option that can boost retirement savings.

5. Deal With Debt

Should you save for retirement or pay off debt? And, more specifically, if you’re dealing with student loans, you may be wondering, should I save for retirement or pay off student loans? That is a financial conundrum for modern times. A good solution to this problem is to do both.

Just as it can be helpful to create a budget and stick to it, it can be helpful to create a loan repayment plan as well. Add those payments to your monthly budgeting expenses and if you still have dollars left over after accounting for all your bills, start socking that away for retirement.

If your student loan debt feels out of control, as it does for many Americans, you may want to look into student loan refinancing. By refinancing your student loan, you could significantly lower your interest rate and potentially pay off your debt faster. Once the loan is paid off, you will be able to reallocate that money to save for retirement.

6. Add Income With a Side Hustle

Working a side gig in your spare time can seriously pay off in the future, especially when you consider that the average side hustle can bring in several hundred dollars a month, according to one survey.

There are several things to consider when thinking of adding an extra job to your résumé, including evaluating what you’re willing to give up in order to make time for more work. But, if you can put your skills to use — such as copy editing, photography, design, or consulting — you can think about this as less of a side hustle and more of a way to hone your client list.

A side hustle should be one way to save for retirement that you’ll enjoy doing. And it could help if you find yourself dealing with a higher cost of living and retirement at some point.

7. Consider Putting Your Money in the Market

There’s no one best way to save for retirement — sometimes a multi-pronged approach can work best. If you already have a budget and an emergency savings account, and you’re maxing out your contributions to your 401(k), 403(b), 457, or IRA, then investing in the market could be another way to diversify your portfolio and potentially help build your nest egg. For instance, historically, stocks have been proven to be one of the best ways to help build wealth.

Putting your money in the market means you’ll have a variety of options to choose from. There are stocks, of course, but also mutual funds, exchange-traded funds, and even real estate investment trusts (REITs), which pool investor assets to purchase or finance a portfolio of properties.

However, investing in any of these assets, and in the market in general, comes with risk. So you’ll want to keep that in mind as you choose what to invest in. Consider what your risk tolerance is, how much you’re investing, when you’ll need the money, and how you might diversify your portfolio. Carefully weighing your priorities, needs, and comfort level, can help you make informed selections.

Once you have your asset allocation, be sure to evaluate it, and possibly rebalance it, to stay in line with your goals each year.

8. Automate Your Savings

Setting up automated savings accounts takes the thought and effort out of saving your money because it happens automatically. It could also help you hit your financial goals faster, because you don’t have to decide to save (or agonize over giving in to a spending temptation) and then do the manual work of putting the money into an account. It just happens like clockwork.

Enrolling in a 401(k), 403(b), or 457 at work is one way to automate savings for retirement. Another way to do it is to set up direct deposit for your paychecks. You could even choose to have a portion of your pay deposited into a high-interest savings account to help increase your returns.

9. Downsize and Cut Costs

To help save more and spend less, pull out that monthly budget you created. When you look at your current bills vs. income, how much is left over for retirement savings? Are there areas you can be spending less, such as getting rid of an expensive gym membership or streaming service, dialing back your takeout habit, or shopping a bit less?

This is when you need to be very honest with yourself and decide what you’re willing to give up to help you hit that target retirement number. Finding little ways to save for retirement can have a big impact down the road.

10. Take Advantage of Catch-Up Contributions

If you’re getting closer to retirement and you haven’t started saving yet, it’s not too late! In fact, the government allows catch-up contributions for those age 50 and older.
A catch-up contribution is a contribution to a retirement savings account that is made beyond the regular contribution maximum. Catch-up contributions can be made on either a pre-tax or after-tax basis.

For 2023 and 2024, catch-up contributions of up to $7,500 are permitted on a 401(k), 403(b), or 457(b).

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Common Retirement Savings Mistakes to Avoid

These are some of the biggest retirement pitfalls to watch out for.

•   Not having a retirement plan in place. Neglecting to make any kind of plan means you’ll likely be unprepared for retirement and won’t have enough money for your golden years.

•   Failing to take advantage of employer-sponsored plans. If you haven’t enrolled in one of these plans, you’re potentially leaving free money on the table. Sign up for a 401(k), 403(b), or 457(b) to tap into employer-matching contributions, when available.

•   Underestimating how much money you’ll need for retirement. Financial specialists typically advise having enough savings to last you for 25 to 30 years after you retire.

•   Accumulating too much debt. Try to avoid taking on too much debt as you get closer to retirement. And work on paying down the debt you do have so you won’t be saddled with it when you retire.

•   Taking Social Security too early. It’s possible to file for Social Security at age 62, but the longer you wait (up until age 70), the higher your benefit will be — approximately 32% higher, in fact.

The Takeaway

It’s never too early to start planning for retirement. And there are many ways to start saving, and set up a system so that you’re saving steadily over time. You can contribute to a retirement plan that your employer offers; you can set up your own retirement plan (e.g. an IRA); and you can choose your own investments.

The most important thing to remember is that you have more control than you think. While your retirement vision may change over time, starting to save and invest your nest egg now will give you a head start.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is the fastest way to save for retirement?

Take a two-pronged approach: First, invest as much as you can in your employer-sponsored retirement account like a 401(k). You’ll likely get some matching contributions from your employer, as well as tax advantages. You can invest up to $23,000 in a 401(k) in 2024 and $22,500 in a 401(k) in 2023, plus an extra $7,500 if you are 50 or older.

Second, if you qualify you can also set up and invest in a Roth IRA. You can contribute $7,000 in a Roth IRA in 2024 and $6,500 in a Roth IRA in 2023 ($7,500 if you’re 50 or older).

Having these two accounts could really help you start building up your retirement savings.

How much do I need to save for retirement?

To estimate how much you need to save for retirement, use this retirement savings formula: Start with your current income, subtract your estimated Social Security benefits, and divide by 0.04. That’s the approximate amount of total retirement savings you’ll need, based on your current income and expenses. You can try other calculators or formulas that might indicate that you’ll need less in retirement. It all depends.

Financial professionals typically advise having enough savings for 25 to 30 years’ worth of retirement.

How do I save for retirement without a 401(k)?

If you don’t have a 401(k), you can set up another type of tax-advantaged account for retirement, such as a traditional IRA and/or a Roth IRA. With a traditional IRA, the money grows tax free and is taxed when you withdraw it during retirement.

A Roth IRA, on the other hand, doesn’t provide a tax break upfront, but the funds you withdraw after age 59 ½ are tax free, as long as you’ve had the Roth IRA account for at least five years. You can contribute up to $7,000 to both types of IRAs for 2024 and $6,500 to both types of IRAs for 2023 ($7,500 if you’re 50 or older).

What is the average monthly income for a person who is retired?

The average monthly retirement income for a person who is retired, adjusted for inflation, is $4,381, according to a 2022 U.S. Census report.

How do taxes affect retirement income?

You will need to pay taxes on any withdrawals you make from tax-deferred investments like a 401(k) or traditional IRA. You will also have to pay federal taxes on a pension, if you have one. At the state level, some states tax pensions and some don’t. Additionally, you might have to pay tax on a portion of your Social Security benefits, depending on your overall income.

How can I supplement my income in retirement?

In addition to any retirement plans and pensions you have plus Social Security, you can supplement your retirement income with such strategies as: making investments generally considered to be safe, like investing in CDs (certificate of deposit), getting a part-time job or starting a small business, or renting out any additional property you might own, such as a vacation cabin, to make some extra money.


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.

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.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Guide to IRA Margin Accounts

Guide to IRA Margin Accounts

An IRA margin account is a retirement account that allows investors to trade securities with unsettled cash. It’s a more lenient structure versus a cash account, where you must wait for trades to settle before using the money for further trading. But an IRA margin account isn’t a true margin account in that you can’t use leverage.

Nonetheless, an IRA margin account offers a few advantages, including the ability to defer or avoid short-term capital gains tax, and you’re protected against good faith violations. That said, there are still restrictions, so before setting up an IRA margin account, it may be beneficial to learn more about how these accounts work.

What Is an IRA Margin Account?

An IRA margin account presents a more flexible option to invest for retirement than a traditional IRA. First, you can trade with unsettled funds, meaning that if you close a position you don’t have to wait the standard two days after you trade, you can use those funds right away.

There are also tax benefits. In a traditional IRA margin account capital gains taxes are deferred until funds are withdrawn. This is similar to a regular IRA, where you don’t pay taxes on contributions or gains until you withdraw your money.

But can you use margin in a Roth IRA? Yes, and there may be even more tax benefits when using limited margin in a Roth IRA. You don’t pay any capital gains because Roth accounts are tax-free, since Roth contributions are made with after-tax money.

As noted, an IRA margin account, also called a limited margin account, lets investors trade with unsettled cash. However, a limited margin IRA is just that — limited. It is not a true margin account and does not allow you to short stocks or use leverage by borrowing money to trade with margin debits. In that sense, it is different from margin trading in a taxable brokerage account.

You can use limited margin in several IRA types. In addition to having margin IRAs with traditional and Roth accounts, rollover IRAs, SEP IRAs, and even small business SIMPLE IRAs are eligible for the margin feature. While mutual funds are often owned inside an IRA, you cannot buy mutual funds on margin.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

How Does Limited Margin Work?

Limited margin works by allowing investors to trade securities without having to wait for funds to settle. You can think of it like an advance payment from positions recently sold.

The first step is to open an IRA account and request that the IRA margin feature be added. Once approved, you might have to request that your broker move positions from cash to margin within the IRA. This operational task will also set future trades to the margin type.

IRA margin accounts will state your intraday buying power — you should use this balance when day trading stocks and options in the IRA.

An advantage to trading in limited margin IRAs is that you can avoid or defer capital gains tax. Assuming you earn profits from trading, that can be a major annual savings versus day trading in a taxable brokerage account. If you trade within a pre-tax account, such as a traditional or rollover IRA, then you simply pay income tax upon the withdrawal of funds. When using Roth IRA margin, your account can grow tax-free forever in some cases.

The drawback with an IRA margin account versus day trading in a taxable account is you are unable to borrow money from your broker to create margin debits. You are also unable to sell securities short with an IRA margin account. So while it is a margin account, you do not have all the bells and whistles of a full margin account that is not an IRA.

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 11%* and start margin trading.


*For full margin details, see terms.

Who Is Eligible for a Margin IRA?

Some brokerage firms have strict eligibility requirements such as a minimum equity threshold (similar to the minimum balances required in full margin accounts). When signing up, you might also be required to indicate that your investment objective is the “most aggressive.” That gives the broker a clue that you will use the account for active trading purposes.

Another restriction is that you might not be able to choose an FDIC-insured cash position. That’s not a major issue for most investors since you can elect a safe money market fund instead.

IRA Margin Calls

An advantage to having margin in an IRA is that you can more easily avoid margin calls by not having to wait for cash from the proceeds of a sale to settle, but margin calls can still happen. If the IRA margin equity amount drops below a certain amount (often $25,000, but it can vary by broker), then a day trade minimum equity call is issued. Until you meet the call, you are limited to closing positions only.

To meet the IRA margin call, you just have to deposit more cash or marginable securities. Since it is an IRA, there are annual contribution limits that you cannot exceed, so adding funds might be tricky.

💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

Avoiding Good Faith Violations

A good faith violation happens when you purchase a security in a cash account then sell before paying for the purchase with settled cash. You must wait for the funds to settle — the standard is trade date plus two days (T+2 settlement) for equity securities. Only cash and funds from sale proceeds are considered “settled funds.” Cash accounts and margin accounts have different rules to know about.

A good faith violation can happen in an IRA account without margin. For example, if you buy a stock in the morning, sell it in the afternoon, then use those proceeds to do another round-trip trade before the funds settle, that second sale can trigger a good faith violation. Having margin in an IRA prevents good faith violations in that instance since an IRA margin account allows you to trade with unsettled funds.

Pros and Cons of Limited Margin Trading in an IRA

Can IRA accounts have margin? Yes. Can you use margin in a Roth IRA? Yes. Should your IRA have the limited margin feature added? It depends on your preferences. Below are the pros and cons to consider with IRA margin accounts.

Pros

Cons

You are permitted to trade with unsettled cash. You cannot trade using actual margin (i.e. leverage).
You can avoid good faith violations. You cannot engage in short selling or have naked options positions.
You take on more risk with your retirement money.

The Takeaway

An IRA margin account allows people investing in individual retirement accounts to trade securities a bit more freely versus a cash account. The main benefit to having an IRA with limited margin is that you can buy and sell stocks and options without waiting for lengthy settlement periods associated with a non-margin account.

But remember: Unlike a normal margin account, this type doesn’t allow you to use leverage. That means a margin IRA doesn’t permit margin trading that creates margin debit balances. You are also not allowed to have naked options positions or engage in selling shares short.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Get one of the most competitive margin loan rates with SoFi, 11%*

FAQ

Is an IRA a cash or a margin account?

An IRA can either be a cash account or a limited margin account. While a cash account only lets you buy and sell securities with a traditional settlement period, a limited margin IRA might offer same-day settlement of trades. You are not allowed to borrow funds or short sell, however.

Is day trading possible in an IRA?

Yes. You can day trade in your IRA, and it can actually be a tax-savvy practice. Short-term capital gains can add up when you day trade in a taxable brokerage account. That tax liability can eat into your profits. With a limited margin IRA that offers same-day settlement, however, you can buy and sell stocks and options without the many tax consequences of a non-IRA. The downside is that, in the case of losses, you cannot take advantage of the $3,000 capital loss tax deduction because an IRA is a tax-sheltered account. Another feature that is limited when day trading an IRA is that you cannot borrow funds to control more capital. A final drawback is that you are limited to going long shares, not short.

Can a 401(k) be a margin account?

Most 401(k) plans do not allow participants to have the margin feature. An emerging type of small business 401(k) plan — the solo brokerage 401(k) — allows participants to have a margin feature. Not all providers allow it, though. Also, just because the account has the margin feature, it does not mean you can borrow money from the broker to buy securities.


Photo credit: iStock/Drazen_

*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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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