Pros & Cons of the F.I.R.E Movement

Most people dream of the day they clock in for the very last time. Of course, in most cases, we imagine that’ll be when we’re a little more gray around the ears. What if you could take the freedom and independence of retirement and experience it, say, thirty years earlier?

That’s the basic principle of the F.I.R.E. movement, a community of young finance people who aim to put themselves in a position to retire in their 30s or 40s rather than their 60s and 70s.

And while it may sound like the perfect life hack, attempting to live out this dream does come with some serious challenges.

This article will review the basic tenets of the F.I.R.E. movement and talk about the tactics people take to achieve their goal of early retirement.

Let’s dig into some of the pros and cons, so those interested can see if they’re able to incorporate any elements of the F.I.R.E. movement into their financial lifestyles.

What Is the F.I.R.E. Movement?

F.I.R.E stands for “financial independence, retire early,” and it’s a movement wherein people attempt to gain enough wealth to retire far earlier than the traditional timeline calls for.

The movement can trace its roots to a 1992 book called “Your Money or Your Life” by Vicki Robin and Joe Dominguez, and started to gain a lot of traction, particularly amongst millennials, in the 2010s.

In order to achieve retirement at such a young age, F.I.R.E proponents devote 50% to 75% of their income to savings.

They also use dividend-paying investments in order to create passive income streams they can use to support themselves throughout their retired lives.

Of course, accumulating the amount of wealth needed to live up to 60 years without working is a considerable feat, and not everyone who aims at F.I.R.E. succeeds. The F.I.R.E. retirement timeline differs significantly from the conventional one most working people expect to take on, and making up the difference in time can be a challenge.

F.I.R.E. vs. Traditional Retirement Timelines

Before diving more thoroughly into the F.I.R.E. approach, let’s take a moment to review the traditional retirement timeline.

Most working people expect to retire sometime around the age of 65 or so, which is also when traditional retirement accounts and benefits start to kick in. For those born after 1960, Social Security benefits can begin at age 60, but full Social Security benefits don’t kick in until age 67.

Specialized, tax-incentivized retirement accounts, like 401(k)s and IRAs, also carry age-related restrictions which have a de facto impact on most folks’ retirement age; for example, 401(k)s generally can’t be accessed before age 59 ½ without incurring a penalty, but account holders are required to begin making withdrawals from these and other retirement accounts by age 70 ½. These obligatory withdrawals are also known as “required minimum distributions,” or RMDs.

Even a traditional retirement timeline can be difficult to keep up with. In fact, recent data shows that approximately a quarter of Americans have no retirement savings whatsoever.

Online calculators and budgeting tools can you figure out the answer to the question, “Am I on track for retirement?”—and are customizable to your exact retirement goals and specifications.

Retiring Early

Given the challenge of saving enough for retirement even by age 60 or 70, what kinds of lengths do the proponents of the F.I.R.E. movement go to?

Some early retirees blog about their experiences and offer tips to help others follow in their footsteps. For instance, Mr. Money Mustache is a prominent figure in the F.I.R.E. community, and advocates achieving financial freedom through, in his words, “badassery.”

His specific advice includes reshaping simple (but expensive) habits—like eliminating smoking cigarettes or drinking alcohol, and limiting dining out.

Of course, the basic premise of making financial freedom a reality is simple on its face: spend (much) less money than you make in order to accumulate a substantial balance of savings.

Investing those savings can potentially make the process more attainable by providing, in the best-case scenario, an ongoing passive income stream.

However, it’s important to note that many people who achieve F.I.R.E. are able to do so in part because of generational wealth or special privileges that aren’t guaranteed.

For instance, Mr. Money Mustache and his wife both studied engineering and computer science and had “standard tech-industry cubicle jobs,” which tend to pay pretty well—and require educational and professional opportunities not all people have equal access to.

And in almost all cases, pursuing retirement with the F.I.R.E. movement requires a lifestyle that could be described as austere, foregoing common social and leisure expenses like restaurant dining and travel.

Financial Independence Retire Early: Pros and Cons

Although financial independence and early retirement are undoubtedly appealing, getting there isn’t all sunshine and rainbows.

There are both benefits and drawbacks to this particular approach to finances that should be weighed before undertaking the F.I.R.E. strategy.

Pros of the F.I.R.E. Approach

Benefits of the F.I.R.E. lifestyle include:

•   Having more flexibility with your time. Those who retire at 35 or 40, as opposed to 65 or 70, have more of their lifetimes left to spend pursuing and enjoying the activities they choose.
•   Building a meaningful, passion-filled life. Retiring early can be immensely freeing, allowing someone to shirk the so-called golden handcuffs of a job or career; when earning money isn’t the primary energy expenditure, more opportunities to follow one’s true calling can be taken.
•   Learning to live below one’s means. “Lifestyle inflation” can be a problem amongst many working-age people, who find themselves spending more money as they earn more income. The savings strategies necessary to achieve early retirement and financial independence require its proponents to learn to live frugally, which can help them save more money in the long run—even if they don’t end up actually retiring early.
•   Less stress. According to a survey by BlackRock , money is one of the leading worries for many Americans. Gaining enough wealth to live comfortably without working would thus wipe out a major cause of stress, which could lead not only to a more enjoyable, but also a healthier, life.

Cons of the F.I.R.E. Approach

Drawbacks of the F.I.R.E. lifestyle include:

•   Unpredictability of the future. Although many people seeking early retirement map out their financial plan well, the future is unpredictable. Social programs and tax structures, which may figure into future budgeting, can change unexpectedly, and life can also throw wrenches into the operation. For instance, an expense like a major illness or unexpected child could wreak havoc on even the best-laid plans for financial independence.
•   Some actually find retirement boring. While never having to go to work again might sound heavenly to those who are on the job, some people who do achieve financial independence and early retirement struggle with figuring out what to do with themselves. Without a career or any specific non-career goals, the years without work can become difficult to fill.
•   Finding oneself unable to rejoin the workforce. If someone achieves F.I.R.E. and then learns it’s not right for them—or is compelled back into the workforce due to an extenuating circumstance—they may find themselves facing a challenging reintegration. Without continued in-office experience, one’s skill set may not match the needs of the economy… and job searching, even in the best of circumstances, can be difficult.
•   F.I.R.E. is hard! Even very dedicated proponents of the financial independence and early retirement approach acknowledge that the lifestyle can be difficult—both in the extreme savings strategies necessary to achieve it and in the ways it changes day-to-day life. For instance, extroverts may find it difficult to forego the consistent human interaction facilitated by an office job. Others find it challenging to create a sense of personal identity that doesn’t revolve around a career.

Investing for F.I.R.E.

An important part of achieving financial independence is investing. Investing allows F.I.R.E. proponents—and others—earn income in two important ways.

Dividend income is earned by shareholders when companies have excess profits. They’re generally offered on a quarterly basis, and all one has to do to earn them is simply hold shares of a stock.

However, because dividend payments depend on company performance, they’re not guaranteed, so other income sources (including substantial savings accounts) should be in place to back up this income stream for early retirees.

Investors can earn profit through market appreciation when they sell stocks and other assets for a higher price than they paid for them in the first place.

Even for those who seek retirement at a traditional pace, investing is one of the most common tactics used to create the kind of exponential growth over time that can build a substantial fund to draw off for the remainder of one’s life. There are many accounts built specifically for retirement investing, such as 401(k)s, IRAs, and 403(b)s.

However, these accounts carry age-related restrictions and contribution limits which means that those interested in pursuing retirement on a F.I.R.E. timeline will need to explore additional types of accounts and saving and investing options.

For example, brokerage accounts allow investors to access their funds at any point—and to customize the way they allocate their assets in such a way to maximize growth.

How SoFi Invest Can Help You Get Started on Your F.I.R.E. Journey

Whether you’re hoping to shorten your retirement timeline from 30 years to only 15 down the road or you’re just hoping to do the traditional timeline justice—or even if you’re just looking to grow your wealth in preparation for a major, shorter-term financial goal, like buying a new car—investing can be one of the most effective way to reach your objectives.

And if you’re looking for a way to start investing from scratch on your own terms, SoFi’s active investing platform could be the perfect way to do so.

SoFi Invest® allows members to learn the ropes as they go, joining a community of other people interested in finance who are doing the exact same thing—and who are invited to gather at exclusive events and educational experiences.

Investors can start their investing journey without worrying about any account minimums, and we don’t charge annoying transaction fees you may run into at other brokerages.

Invest account holders with SoFi also have access to a suite of investing tools that can help them become more knowledgeable investors, including a personalized stock watchlist.

You’ll also have the ability to buy fractional shares, so you can get access to major companies’ assets even if you’re just getting started.

SoFi also offers members access to SoFi Financial Planners who can provide personalized insight and help investors plan for their unique financial goals at no cost.

Want to learn more about how SoFi’s Invest® could help you on the way to early retirement—or another important personal financial goal? Learn more today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.
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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A Guide to the 403b Retirement Plan

Saving for retirement is an important financial goal—but not everyone understands all of the retirement plans available. After all, it does look a little bit like alphabet soup: 401(k), IRA, 403(b)—what’s the difference?

Each type of retirement plan has its own rules, benefits, and drawbacks, and understanding which type is right for an individual’s needs starts with learning what each is all about.

In this article, we’re going to dive into the nitty-gritty details of 403(b) plans, also known as tax-sheltered annuities or TSAs. What are they, how do they work, and who is eligible?

What Is the 403(b) Retirement Plan?

The 403(b) retirement plan is a type of incentivized investment vehicle designed to help account holders save for retirement. It’s offered by certain public schools and 501(c)(3) organizations to their employees. (In layman’s terms: it’s the 401(k) of the nonprofit world.)

Like a 401(k), 403(b) plans facilitate regular contributions toward an employee’s retirement goal. Contributions are tax-deductible in the year they’re made, and taxes aren’t paid on the funds until they’re distributed from the plan later.

Unlike a 401(k), however, the funds in a 403(b) are sometimes invested in an annuity contract provided through an insurance company, rather than allocated toward stocks and bonds on the market. The monies may also be entrusted to a custodial account that invests in mutual funds.

Like other retirement plans, 403(b)s are governed by limits on how and when participants can take distributions, and generally the funds can’t be touched until the account holder reaches age 59.5.

Furthermore, required minimum distributions, or RMDs, apply to 403(b) plans and kick in either in the account holder’s early 70s or when they retire.

Let’s break down the 403(b) retirement plan more thoroughly.

403(b) Plan Participation

Only employees of specific public and nonprofit employers are eligible to participate in 403(b)s, as are some ministers. You may have access to a 403(b) plan if you’re any of the following:

•   An employee of a tax-exempt 501(c)(3) nonprofit organization
•   An employee of the public school system, including state colleges and universities, who is involved in the day-to-day operations of the school
•   An employee of a public school system organized by Indian tribal governments
•   An employee of a cooperative hospital service organization
•   A minister who works for a 501(c)(3) nonprofit organization and is self-employed, or who works for a non-501(c)(3) organization but still functions as a minister in their day-to-day professional life

An eligible employee of a qualified employer may be automatically enrolled in a 403(b) plan, though opting out is possible. Of course, participating in an employer-sponsored retirement plan is one good way to start saving for retirement.

403(b) Contributions

Contributions to a 403(b) plan are generally made only by the employer, though these contributions may include elective employee deferrals as set aside through a salary reduction agreement.

This is similar to the way it works with a 401(k)—the employee agrees to have a certain amount of their salary redirected to the retirement plan during each pay period, and it’s automatically contributed on the employee’s behalf.

However, other types of contributions are also eligible, including:

•   Nonelective contributions from your employer, such as matching or discretionary contributions
•   After-tax contributions, which can be made by an employee and reported as income in the year the funds are earned for tax purposes. These funds may or may not be designated Roth contributions, in which case separate accounting records will be needed for Roth contributions, gains, and losses

One notable difference between 403(b) plans and 401(k) plans is that profit sharing is not legal in a 403(b)—workplaces that are 403(b)-eligible aren’t working toward a profit.

And even though employer matches are technically legal, they’re not common in a 403(b), since nonprofits generally have less funding available for such bonuses and don’t want to lose their Employee Retirement Income Security Act (ERISA) tax exemption.

403(b) Plan Investments

One way 403(b) plans do diverge from other types of retirement plans, like 401(k)s and even IRAs, is the method in which the funds are invested. Whereas many other retirement plans allow account holders to invest in stocks, bonds, and ETFs, 403(b)s are commonly invested in annuity contracts, which are sold by insurance companies.

In fact, part of the reason these plans are known as “tax-sheltered annuities” is because they were once restricted to annuity investments alone—a limit which was removed in 1974.

These days, some 403(b)s are still invested in annuities. But they might also be invested in mutual funds, as managed by a third-party custodian, or in a retirement income account set up specifically for church employees.

Investment transfers and exchanges may be made while the account is still in service, given the transaction meets certain requirements and is permitted by the plan.

403(b) Loan Distributions

As discussed above, 403(b)s are governed by similar rules to other retirement accounts, which limit how and when the funds can be accessed.

Generally, employees (or their beneficiaries) can’t take distributions, without penalties, from their 403(b) plan until one of the following occurrences:

•   They reach age 59.5
•   They have an employment severance
•   They become disabled
•   They die

However, some 403(b) plans do allow loans and hardship distributions. Loans would be governed by the plan itself, and hardship distributions require the employee to demonstrate immediate and heavy financial need in order to avoid the typical early withdrawal penalty.

As with other retirement accounts, distributions taken outside of the permitted limits are subject to a 10% early distribution tax, as well as the regular income taxes that are still owed on the money.

403(b) Written Plan Requirement

The IRS states that a 403(b) plan “must be maintained under a written program which contains all the terms and conditions.” In other words, in order for the plan to be legitimate, paperwork is required.

This paperwork may not necessarily be a single document, however, so an employee may get a whole packet of information as part of the onboarding process, including salary reduction agreement terms, eligibility rules, explanations of benefits, and more.

In certain limited cases, an employer may not be subject to this requirement. For example, church plans that don’t contain retirement income aren’t required to have a written 403(b) plan.

403(b) Coverage

Employers are required to offer 403(b) coverage to all qualified employees if they offer it to one, a policy known as “universal availability.” However, certain employees may be legally excluded from the plan, including those under the following circumstances:

•   Employees working fewer than 20 hours per week
•   Employees who contribute $200 or less to their 403(b) each year
•   Employees who are participating in another employer-sponsored retirement plan, like a 401(k) or 457
•   Employees who are non-resident aliens
•   Employees who are students performing certain types of services

However, the same laws that allow these coverage limits also require employers to meet non-discrimination standards and require employers to give employees notice of certain important plan changes, like whether or not they have the right to make elective deferrals.

403(b) Termination

An employer has the right to terminate a 403(b), but they’re required to distribute all accumulated benefits to employees and beneficiaries “as soon as administratively feasible.”

An employee may be eligible to roll their 403(b) funds over into a new retirement fund upon termination.

403(b) Plans and Investing in Your Future

Even if an employee doesn’t have access to an employer-sponsored account, there are plenty of ways to prepare for the golden years.

For instance, IRAs are a popular option among the self-employed and freelancers, who can use their tax benefits to help get a leg up on their retirement savings.

IRAs come in a variety of options, but the two most common for individuals are Roth and traditional—with after-tax and pre-tax contributions, respectively. (In other words, you pay taxes on funds contributed to a Roth before they go into the account, whereas you pay taxes on funds contributed to a traditional IRA after you take the distribution.)

While the tax incentives and special early distribution rules built into retirement-specific accounts are attractive, the main motivator for most retirement investors is the power of compound interest.

By regularly contributing to an investment account and keeping the funds allocated, account holders could see an exponential amount of growth over time.

If a company doesn’t offer a 401(k) or 403(b), or if an employee has financial goals to meet in addition to retirement, a regular investment account could be a great option.

For those who are ready to learn the ropes and get an early start on growing their nest egg, SoFi Invest®️ could be a good solution.

SoFi’s unique investing platform offers a wide range of features to suit a variety of investors’ needs and skill levels.

Along with regular investment accounts, SoFi also offers a range of retirement account options, including both Roth and traditional IRAs.

Investors could open an IRA even if they have an employee-sponsored retirement account, like a 401(k) or 403(b), and contributing to both could help maximize retirement savings.

SoFi also has an automated investing product—great for those who don’t have the time or energy to do all the footwork for themselves.

No matter what your needs, and whether you’re saving purely for retirement or for another medium-term goal, like buying a new car or becoming a homeowner, investing might help turn your carefully stashed savings into a passive income stream.

Want to learn more about how SoFi Invest could help you start saving for your retirement — or just your future? Learn all the ways you can get started.


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 Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.
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.

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Pros & Cons of Using Retirement Funds to Pay for College

In a perfect world, everyone would have a 529 plan—or another education savings account—full of funds to cover their children’s college years. But there are many reasons why that may not be the case for you. Don’t fret, there are other options for paying for college.

You may be considering dipping into your retirement funds. Depending on the type of retirement account you have, you may be able to take an early withdrawal or a loan from your retirement account, which you can use to fund your child’s education.

But using retirement funds to pay for college isn’t always the best move. Before you do it, consider both the benefits and the drawbacks, as well as some potentially less costly alternatives.

Before we jump in, it’s important that you know this article is a basic, high-level overview of some potential options when it comes to using retirement funds to pay for college. Further, because these topics (taxes and investments) are complex, none of what’s written here should be taken as tax advice or investment guidance.

Always talk to qualified tax and investment professionals with questions about your retirement accounts; never rely on blog posts (like this one) to make important financial decisions.

A Few Pros of Using Retirement Funds to Pay for College

If you already have the money saved up, getting money out of your retirement funds to prevent your child from having to take out student loans can have some upsides.

You Could Avoid an Early Withdrawal Penalty

If you have an individual retirement account (IRA), taking an early withdrawal typically results in income taxes on the withdrawal amount plus a 10% penalty. However, if you withdraw funds for qualified higher education expenses, the 10% penalty is waived .

That said, the withdrawn funds will be still considered taxable as income. Also, this tax break doesn’t apply to 401(k) accounts. But if you roll over your 401(k) into an IRA, the funds would be eligible to avoid the penalty.

You Could Avoid Taxes Altogether

If you have a Roth IRA, you can withdraw up to the amount you’ve contributed to the account over the years without any tax consequences at all.

You’re Paying Interest to Yourself With a 401(k) Loan

In addition to allowing you to take early withdrawals, some 401(k) plans also allow you to borrow from the amount you’ve saved and earned over the years.

If you borrow from a 401(k) account, that money won’t be subject to taxes like an early withdrawal. Also, the money you pay in interest goes back into your account rather than to a lender.

Drawbacks of Using Retirement Funds to Pay for College

Before you raid your retirement to pay for your child’s college tuition, here are some negative aspects to consider.

Tax Consequences

Even if you manage to avoid a 10% early withdrawal penalty on your retirement account, some or all of the money you withdraw from a retirement account may be considered taxable income. Depending on how much it is, you could face a huge tax bill when you file your tax return for the year.

401(k) Loan Rules

If you take out a large loan from your 401(k), then leave your job, you may be required to pay the loan in full right then, regardless of your original repayment term. If you can’t repay it, it’ll likely be considered an early withdrawal and be subject to income tax and the 10% penalty.

You May Have to Work Longer

Taking money out of a retirement account not only lowers your balance but it also means that the money you’ve withdrawn is no longer working for you.

Due to compound interest, the longer you have money invested, the more time it has to grow. But even if you replace it over time, the total growth may not be as much as if you were to leave the money where it is from the start.

Alternatives to Using Retirement Funds to Pay for College

Can you use retirement funds to pay for college? Absolutely. But before you do, consider these alternatives.

Scholarships and Grants

One of the best ways to pay for a college education is with scholarships and grants, since you typically don’t have to pay them back.

Check first with the school your child is planning to attend or is already attending to see what types of scholarships and grants are available.

Make sure your child fills out the Free Application for Federal Student Aid (FAFSA®) form. The information provided in the FAFSA will help determine their federal aid package, which typically includes grants, federal student loans, and/or work-study.

You and your child can search millions of scholarships from private organizations on websites like Scholarships.com and Fast Web . While your child may not qualify for all of them, there may be enough they do qualify for to help reduce their tuition bill.

Federal Student Loans

As mentioned above, filling out the FAFSA will give your child an opportunity to qualify for federal student loans from the U.S. Department of Education.

These loans have low fixed interest rates, plus access to some special benefits, including loan forgiveness programs and income-driven repayment plans.

With most federal student loans, there’s no credit check requirement, so you don’t have to worry about needing to cosign a loan with your child.

Parent PLUS Loans

If you’re concerned about the effect of student loan debt on your child, you can opt to apply for a federal Parent PLUS loan to help cover the costs of college.

Keep in mind that the terms aren’t usually as favorable with Parent PLUS loans as they are with federal loans for undergraduate students. The interest rates are currently higher, and you may be denied if you have certain negative items on your credit history.

Private Student Loans

If your child can’t get federal student loans or they’ve maxed out what they can borrow and pursued all their other options, private student loans may be worth considering to make up the difference.

To qualify for private student loans, however, you will need to undergo a credit check. If your child is new to credit, you may need to cosign to help them get approved by being a cosigner—or you can apply on your own.

Private student loans don’t typically offer income-driven repayment plans or loan forgiveness programs, but if your credit and finances are strong, it may be possible to get a competitive interest rate.

Balance Your and Your Child’s Needs

Using retirement funds to pay for college is one way to help your child. But you probably don’t want to risk your future financial security. Take the time to help your child consider all of their options to get the money they need to pay for school.

If you do decide a private student loan is the right fit for their education, SoFi is happy to help. In the spirit of complete transparency, we want you to know that we believe you should exhaust all of your federal grant and loan options before you consider

SoFi as your private loan lender. We offer flexible payment options and terms, and don’t worry, there are no hidden fees.

If you’re considering a private student loan, you can find your SoFi rate today.


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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.
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What Is the Average Retirement Age?

There are certain milestones that people expect by certain ages. By 16, you hope to hit the road with your shiny new drivers license.

The first election year after turning 18, you can’t wait to head to the polls. For 21-year-olds, a champagne toast is in order. Eventually, everyone stops worrying about age-related milestones—we’re all on our own paths after all.

But then comes 65, the year many expect to retire. Easier said than done, right? Career, life, and family choices can all affect the age workers retire by.

Before diving into how someone can prepare for a financially comfortable retirement, let’s look at what the average retirement age in the USA really is.

65 is Not a Guarantee

Sixty-five may be the age most of us envision for retirement, but not all regions of America are hitting this goal. According to the U.S. Census Bureau’s American Community Survey :

•   Hawaii, Massachusetts, and South Dakota residents retire at the average age of 66.
•   Washington, D.C., residents aren’t retiring until 67.
•   Residents of Alaska and West Virginia retire around age 61.

A lower cost of living may be what’s helping West Virginia residents retire so young. West Virginia was one of the top 10 most affordable states in the country in 2019, according to U.S. News & World Report .

While those previously mentioned states give a look at two ends of the average retirement age spectrum in the United States, many states have average retirement ages falling closer to what one might expect.

Colorado, Connecticut, Iowa, Kansas, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, North Dakota, Rhode Island, Texas, Utah, Vermont, and Virginia residents retire at an average age of 65.

Overall, the average retirement age in the U.S. is 64.

Expectations vs. Reality

Expectations can lead to disappointment. Any kid with an overly ambitious wishlist for Santa Claus knows that.

Now imagine a person spending most of their adult life expecting to retire at 65 and then realizing their retirement savings just isn’t enough. Ideally, that won’t happen, but it has happened to many.

The Employee Benefit Research Institute 2019 Retirement Confidence Survey Summary Report found that workers expect to retire at age 65, but as noted previously, the average retirement age in the US is 64. Retiring earlier than initially planned could lead to not having enough money to retire comfortably.

Especially, if a person doesn’t retire early by choice. Over four in 10 people retired earlier than they expected, mostly because of health problems, disabilities, or changes within their organizations.

It can be difficult for workers to exactly predict at what age they will retire due to circumstances that may be out of their control.

The right time to retire might have more to do with how much a person has saved rather than their age. According to the PGIM Investments 2018 Retirement Preparedness Study, there has been a shift to this way of thinking.

The survey found that half of Gen Xers and 62% of millennials reported they believe they will be ready to retire once they’ve saved enough money, not when they reach a certain age.

In order to bridge any financial gap caused by not having enough retirement savings, 51% of pre-retirees expect they will earn an income during their retirement by working either full time or part time.

While the survey found that respondents are aware of what they need their retirement savings to look like, there is a gap between their expectations and their actions. Seventy-nine percent of pre-retirees reported that they agree they should be doing more to prepare for their retirement.

However, only 48% reported having a strong retirement plan in place, with 19% of Gen Xers and 31% of millennials admitting to not saving for retirement at all.

A lack of awareness seems to be leading to a lack of preparedness: 25% of pre-retirees surveyed said they aren’t sure how much money they are currently saving for retirement.

It’s Never Too Early to Start Saving

Retirement can last 30 years or more. As lovely as that sounds, financial security is key to enjoying a relaxing retirement.

To retire comfortably, the IRS recommends having up to 80% of a person’s current annual income saved for each year of retirement. With the average Social Security monthly payment being $1,177, retirees may need to do a decent amount of saving to cover the rest of their future expenses.

Any day is a good day to start saving, but saving for retirement while a person is young could help put them on the path toward a more secure retirement and might allow them to take advantage of compounding interest.

Compounding interest can take small investments and grow them into larger ones with the earned interest. That is to say, the money in a savings account, individual stocks, or mutual funds will earn interest, then that interest goes on to earn more interest. As savings grows, interest grows with it.

The Department of Labor (DOL) estimates that for every 10 years a person waits to begin saving for retirement, they will have to save three times as much every month to play catch up.

One of the first steps a person could take toward their retirement saving journey is to estimate how much money they need to save. According to the DOL, just 40% of Americans have calculated the retirement savings they will need. Once potential retirees have an idea of how much to save for retirement, they could start making progress toward that goal.

It might be worth considering what retirement savings options may be available, whether that is an employer-sponsored 401(k), an IRA, or a simple savings account. Contributing regularly is key, even if big contributions can’t be made to retirement savings right now.

Making small additions to savings can add up, especially if extra money from finishing car payments, getting a holiday bonus, or earning a raise can be diverted to a retirement savings account.

If an employer offers a 401(k) match, it might be beneficial to take advantage of that feature and contribute as much as the employer is willing to match.

Along with receiving free money from an employer, there are also tax benefits of contributing to a 401(k). Contributions to a 401(k) happen pre-tax—that lowers taxable income, which means paying less in income taxes on each paycheck.

In addition, 401(k) contributions aren’t taxed when deposited, but they are taxed upon withdrawal. Withdrawing money early, before age 59½, also adds a 10% penalty.

If access to an employer-sponsored 401(k) plan isn’t available, or even if it is, investors might want to consider putting money into an IRA. IRAs allow investors to put up to $6,000 a year into their account.

There are two options for opening an IRA—a traditional IRA or a Roth IRA, both of which have different tax advantages.

Any contributions made to a traditional IRA can be either fully or partially deductible, and typically, earnings and gains of an IRA aren’t taxed until distribution.

For Roth IRAs, earnings are not taxable once distributed if they are “qualified,” which means they meet certain requirements for an untaxed distribution.

If an investor needs a little help sticking to a retirement savings plan, they could consider setting up an automatic monthly deposit from a checking or savings account into an IRA.

Late to the Retirement Savings Game?

Starting to save for retirement late is better than not starting at all. In fact, the government allows catch-up contributions for those over the age of 50. Catch-up contributions of up to $6,500 are allowed on a 401(k), 403(b), SARSEP, or governmental 457(b).

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.

As retirement gets closer, future retirees can plan their savings around their estimated Social Security payments. The official Retirement Estimator tool provided by the U.S. Social Security office could help by basing the estimate on an individual’s actual Social Security earnings record.

While this estimate is not a guarantee, it might give a retiree an idea of how much they might consider saving to supplement these earnings.

Social Security benefits can begin at age 62, which is considered the Social Security retirement age minimum. However, full benefits won’t be earned until full retirement age, which is 65 to 67 years old, depending on birth year.

Investing money on your own could help with retirement savings as well. If investing still seems confusing, SoFi Invest® could help. Choose between active investing or automated investing once you decide how involved you want to be.

Opt for SoFi active investing and you can be in the driver’s seat, choosing exactly what you want to invest in.

Or go with SoFi automated investing, choose your risk level, and you can sit back and relax as SoFi takes care of any auto-investing or auto-adjusting that is required to get the job done.

Ready to open a retirement account with SoFi? Let’s talk about it!


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 Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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What To Invest In Besides Your 401k

Investing has taken on increasing complexity in recent years. The wide range of options can make it difficult to determine which investment accounts are right for you. Contributing to a 401k through your employer is a smart way to begin saving for retirement.

While there are minor drawbacks to investing in your workplace 401k, like limited control over investment options, administrators, or investment fees, it’s still a great place to start if the option is available to you.

With the tax deferment benefits and employer-matched contributions, 401ks can be especially advantageous. It is important to start saving for retirement as early in your career as possible, because the longer you save, the more you can potentially benefit from compound interest.

But once you’ve reached the max 401k contribution, your next consideration should be where to invest besides your 401k. There are a number of viable options, depending on your overall financial strategy and goals. Let’s dive in.

What Is the Max 401k Contribution?

The current limit on 401k contributions is $19,500 (age 50 and older can contribute an additional $6,500 as a catch-up contribution). The limit for your 401k contribution and your employer match is $56,000. The $6,500 catch-up amount for age 50 and older would be in addition to the $55,000 limit.

Understanding IRAs

While 401k plans are sponsored by your employer, an IRA (Individual Retirement Account) enables you to save for retirement on your own. You can absolutely have both. The IRA limit is currently at $6,000—and those age 50 and older can contribute an additional $1,000 annually.

A traditional IRA is tax-deferred, which means you don’t pay tax until you withdraw your funds, hopefully in retirement. When investing in a Roth IRA, on the other hand, you pay tax on your income before you make contributions to your Roth IRA.

While there are no initial tax benefits, this allows your investment to grow tax-free, and you do not have to pay income tax when you withdraw funds in retirement.

If you are single or married and filing separately, and you earn more than $139,000, you’ll no longer be allowed to contribute to a Roth IRA. If you are married and filing jointly, The Roth IRA income limit is $206,000.

Additional rules and requirements exist depending on your specific situation. There are no income limits for traditional IRAs, though there are income limits on the tax deductions traditional IRAs entitle you to.

As you can see, it can become challenging to keep up with the complex array of qualifications, limits and other requirements related to IRA contributions. Limits can vary depending on your income status and career shifts, and potentially on new federal tax rules.

You may find it beneficial to enlist the help of a tax attorney along with your financial advisor to help guide you toward an investment strategy that makes sense for you.

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Beyond the 401k and IRA

A 401k and IRA aren’t your only options. If you’d like to use your invested savings sooner than retirement, an after-tax investment account might be right for you.

When searching for an investment account, you’ll generally want to look for an account that offers low fees, a low minimum balance requirement, and flexibility as you consider new places to invest. Ideally, your account will be easy to use and give you access to a financial advisor.

You’ll also want to look for an account that helps you diversify your investments. While investing can be risky, spreading your investments over many different asset classes, sectors, companies, or countries is a way to help reduce some overall portfolio risk.

It’s also important to rebalance your investments regularly to ensure your portfolio is aligned with your risk tolerance. Your individual risk tolerance can inform your investment strategy, and regular rebalancing can help keep that investment strategy on track.

SoFi Invest

At SoFi, we offer automated investing. We take the stress out of investing by helping you with the hard part: goal setting, rebalancing, and diversifying your money. We can also work with you to help establish your baseline retirement goals and to map out a plan.

By curating diverse portfolios and rebalancing your investments automatically, a SoFi account can be a helpful part of your overall investment approach.

If you’re trying to determine which investment account is for you, consider a SoFi Invest account. A SoFi Invest® account offers no SoFi management fees, low minimums, and complimentary access to our team of financial advisors.


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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.

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