Credit Cards Are for Spending, Not Saving, Right? Not Necessarily.

Credit Cards Are for Spending, Not Saving, Right? Not Necessarily.

Whether you’re new to saving for retirement or an old pro, you can use your credit card for funding your IRA or other retirement accounts.

How exactly does this work?

5 Steps for Using a Credit Card To Save for Retirement

Step 1: Learning About IRAs & Other Retirement Funds

If you don’t already have a retirement account, it’s a good idea to familiarize yourself with the different types that are available. You may want to consider opening an IRA, stocks, or a mutual fund — a package of stocks and bonds that includes many different companies — to help offset risk.

💡 Recommended: Understanding the Different Types of Retirement Plans

Step 2: Finding the Right Credit Card

Once you’ve figured out how and where you want to invest, you can begin your search to find the right credit card; specifically, a cash-back credit card. These cards offer a percentage back (most offer about 2%) for every dollar you spend. But instead of putting that money directly into your regular bank account or using “points” (which usually don’t have as much value) to shop or get discounts, you can flip that money into your shiny new retirement fund, where it will earn compound interest.

💡 Recommended: How to Choose a Credit Card That Fits You

Step 3: Putting Your Cash-back Rewards To Work

As with any credit card, it’s important to keep your spending in check so that you can pay it off every month. After all, paying interest pretty much negates the whole cash-back thing. But it can be a good idea to put big purchases on your card (as long as you can pay it off that month).

So if you need a new computer for work, you can buy it with your credit card. Bonus: Your card may offer insurance on such a purchase. So it’s a good idea to read the fine print and find out.

Same goes for paying rent with your credit card, as long as your landlord doesn’t charge a fee for credit card payments. Your monthly bills too. The average American pays about $8,600 a year in bills (not including rent or mortgage). If you have to pay for these services anyway, why not earn a few hundred dollars a year by paying them with your credit card?

Again, in order to really benefit from these cash-back rewards, it’s important to pay off your credit card bill every month. Paying interest will just eat into your rewards.

💡 Recommended: Guide to Cash-Back Rewards

Step 4: Mixing & Matching Your Cash-back Cards

Some cards give you a flat cash-back rate. Others offer tiered rewards for specific purchases like groceries, gas, or dining out. If you want to get the most cash-back rewards possible, it’s a smart idea to look at your spending. Figure out what areas you spend the most on each month, and choose a card (or multiple cards) that offer the best rewards for those categories.

Step 5: Automating Your Payments & Investments

To make sure you don’t give in to temptation, you may want to consider automating the cash-back payments to your retirement fund. While you’re at it, you can automate your monthly bill payments so you don’t have to lift a finger to earn those cash-back rewards. You can do the same with your monthly credit card payment to ensure you always pay it on time.

💡 Recommended: Guide to Investing With Credit Card Rewards

The Takeaway

The keys to saving successfully for retirement are to start early, pay off debt quickly, and be consistent with investments. That’s especially true if you want to retire early. And while credit cards can be dangerous when used carelessly, they can obviously offer a great advantage for people who can pay off their credit card bills every month.

If you want to get started on saving for your retirement with a credit card, you can check out SoFi’s very own credit card, which offers 2% cash-back rewards points. Pair it with a SoFi IRA, and you’re in business.

FAQ

How do credit cards help save money?

Credit card companies are essentially providing you with free loans, but only if these two things are true: First, you pay off your bills in full every month to avoid accruing interest. And second, you’re paying no annual fee. In that case, you can say that credit cards are saving you money.

Can I fund my IRA with a credit card?

Yes, you can actually fund your IRA with a credit card. The way it works: Investment companies like Schwab, Fidelity, and Morgan Stanley partner with credit cards offering cash back. The cash back you earn on those cards can be directly deposited into your IRA with that company. You’d have to spend $300,000 to earn $6,000 in cash back — the 2022 IRA limit for people under 50 — but it’s possible.

How do I contribute to an IRA?

The first step is to open an IRA account, either through your employer, a bank, traditional investment company, or online financial institution. Then make one or more deposits up to the annual limit. Deposits can come directly from your paycheck, an online transfer, or even a cash-back credit card.


Photo credit: iStock/RgStudio

1See Rewards Details at SoFi.com/card/rewards.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Members earn 2 rewards points for every dollar spent on eligible purchases. If you elect to redeem points for cash deposited into your SoFi Checking or Savings account, SoFi Money® account, fractional shares or cryptocurrency in your SoFi Active Invest account, or as a payment to your SoFi Personal, Private Student, or Student Loan Refinance, your points will redeem at a rate of 1 cent per every point. If you elect to redeem points as a statement credit to your SoFi Credit Card account, your points will redeem at a rate of 0.5 cents per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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.
SOIN0622041

Read more
How Much Should I Have in My 401k by Age 30?

How Much Should I Have in My 401k by Age 30?

A 401(k) can be a great way to save for retirement on a pre-tax basis, while enjoying the added benefit of an employer match. But it can be hard to know if you’re saving enough. You might be wondering, How much should I have in my 401(k) at 30? A common rule of thumb is to have at least one year’s salary saved in your 401(k) by the time you turn 30.

Your actual 401(k) balance, however, may be higher or lower depending on when you started saving, how much of your salary you defer into the plan, and the amount your employer matches. We’ll break down the average target balance for workers from age 25 to 65, and what to do if you’re not quite hitting that goal.

Recommended: Should I Sell My House Now or Wait

Check your score with SoFi Insights

Track your credit score for free. Sign up and get $10.*


Recommended: What is The Difference Between Transunion and Equifax

How Much You Ideally Have Saved for Retirement

It’s never too early to ask “am I on track for retirement?” The sooner you do, the more time you’ll have to catch up if you’re falling short. Just know that the answer can be a moving target, depending on a number of variables.

First of all, your retirement savings objective will depend largely on your retirement goals. Someone who wants to retire at 50 is going to need a much larger nest egg by age 30 than someone who plans to wait until age 70 to retire.

Many other factors also come into play. By way of example, let’s calculate the 401(k) savings for one 30-year-old professional woman. Retirement experts often recommend saving 10% to 15% of your income in a workplace retirement plan each year. Following that advice, our hypothetical saver:

•   starts contributing to her plan at age 25.

•   defers 10% of her $60,000 salary annually for five years.

•   earns a 7% annual rate of return — a pretty average rate of return on 401(k) investments.

•   benefits from an employer match of 50% of contributions, up to 6% of her salary.

By age 30, our professional would have $46,539 saved in her 401(k). This is a great start. However, you can see how her balance might be significantly higher or lower if we changed up one or more details. For instance, by contributing 15% of her pay instead, she’d have $64,439 on her Big 3-0. On the other hand, if she started saving later, earned a lower rate of return, or enjoyed a less generous employer match, her balance could be lower.

Bottom line? How much you should have saved in a 401(k) by age 30 (or any other age) is subjective. It varies based on where you’re starting from and how aggressively you’re saving each year.

Recommended: When Can I Retire?

How Much Do You Need to Retire

While you might hear financial experts say that you need $1 million or even $2 million to enjoy a comfortable retirement, that’s a guideline rather than a set-in-stone number. The amount you’ll need to retire can depend on:

•   How long you plan to continue working

•   When you anticipate taking Social Security benefits

•   Your desired lifestyle in retirement

•   How much you expect to spend on basic living expenses in retirement

•   Whether you have a spouse or partner

•   Whether you anticipate needing long-term care at some point

Assessing your personal retirement goals can help you come up with a realistic number that you should be targeting. It’s also helpful to consider how things like changing health care needs, increases (or cuts) to Social Security and Medicare, and inflation may impact the dollar amount you need to save and invest to avoid falling short in retirement.

Recommended: Does Net Worth Include Home Equity

Average and Median 401(k) Balance by Age

Looking at the average savings by age can give you some idea of whether you’re on track. Just keep in mind that your progress and savings should match up with your specific goals.

Age

Average Account Balance

Median Account Balance

Under age 25 $6,264 $1,786
25 to 34 $37,211 $14,068
35 to 44 $97,020 $36,117
45 to 54 $179,200 $61,530
55 to 64 $256,244 $89,716
65+ $279,997 $87,725

Using a chart like this can make it easier to see where you are on the savings spectrum. So if you’re wondering “how much should I have saved by 40?,” for example, you can see at a glance that the average 40-something has close to $100,000 in retirement savings.

Remember that average numbers reflect outlier highs and lows, while the median represents where people in the middle of the pack land. Between them, median can be a more accurate or reliable number to measure yourself against.

Recommended: Is My 401(k) Enough for Retirement?

Tips to Save for Retirement

Enrolling in your 401(k) is one of the easiest ways to begin building retirement savings. Your employer may have enrolled you automatically when you were hired. If you’re not sure, contact your HR department. You can also check your default contribution rate to see how much you’re contributing to the plan.

It’s a good idea to contribute at least enough to get the full company match if one is offered. Otherwise, you’re leaving free money on the table.

If you’re worried you’re not saving enough, consider supplementing your 401(k) with an Individual Retirement Account (IRA).

An IRA is another tax-advantaged savings option. You can open a traditional IRA, which offers the benefit of tax-deductible contributions, or a Roth IRA. With a Roth IRA, you can’t deduct contributions, but qualified withdrawals are 100% tax-free.

Not sure how to start a retirement fund? It’s actually easy to do through an online brokerage. You can create an account, choose which type of IRA you want to open, and set up automatic contributions to start building wealth.

How Much Should You Contribute to Your 401(k) Per Year

The amount you should contribute to your 401(k) each year should reflect your retirement savings goal, how many years you have to save, and your expected annual rate of return.

When deciding how much to save, first consider your budget and how much of your income you can commit to your 401(k). Next, look at the amount you need to contribute to get the full company match. You can then plug those numbers, along with your salary, into a 401(k) calculator to get an idea of how likely you are to hit your retirement savings goal.

For instance, you might figure out that you need to save 15% of your pay each year. But if you’re not making a lot yet, you might only be able to afford saving 8% each year. So what do you do then? A simple solution is to increase your contribution amount each year and work your way up to the 15% threshold gradually.

Example of Impact of Compounding Interest on Retirement

Does it matter when you start saving for retirement? Yes, and in a big way, thanks to compounding interest. Compound interest is the interest you earn on your interest. The longer you have to save and invest, the better. In fact, the best way to build wealth in your 30s is simply to continue contributing what you can to your retirement savings, and then let it sit there for a few decades.

Going back to the 401(k) example mentioned at the beginning, someone who starts saving 10% of their pay at age 25 and earns a steady 7% rate of return would have just over $1.6 million saved for retirement by age 65. That assumes they earn the same $60,000 throughout their career. If they were to get a 2% annual raise, their 401(k) balance would be over $2 million by the time they retire.

Now, assume that same person waits until age 35 to start saving. Even with a 2% annual raise, they’d have just $938,897 saved by age 65. That’s still a decent chunk of money, but it’s far less than they would have had if they’d gotten an earlier start. This example illustrates how powerful compounding interest can be when determining how much you’ll end up with in retirement.

Don’t Panic If You’re Behind on Saving

Having a lot of money in your 401(k) by age 30 is great, but don’t feel bad if you’re not where you need to be. Instead of fretting over what you haven’t saved, focus on what you can do next to increase your savings efforts.

That can mean:

•   Increasing your 401(k) contribution rate

•   Opening an IRA to go along with your 401(k)

•   Choosing low-cost investments to minimize fees

•   Investing through a taxable brokerage account

What if you have no money to invest? In that case, you might need to go back to basics. Getting on a budget, for example, can help you rein in overspending and find the extra money that you need to save. A free budget app is a simple and effective way to keep tabs on spending and saving.

The Takeaway

How much you should have in your 401(k) at 30 isn’t a simple number that applies to everyone. Your savings goal depends on a number of factors, such as your anticipated retirement age, when you started saving, your rate of return, and so on. Many retirement experts recommend saving 10% to 15% of your salary in a tax-advantaged retirement plan. From there, compounding interest over a long period of time will multiply your earnings. The bottom line is to save as much as you comfortably can.

Retirement planning starts with getting to know your spending habits and budget. If you’re not using a budget app yet, then a money tracker like SoFi Insights may be just what you need. Insights tracks all of your money in one place for free. You can track spending, get financial insights, and even monitor your credit right from your mobile device.

Download the Insights app and take control of your money.

FAQ

What is the average 401(k) balance for a 35-year-old?

The average 401(k) balance for a 35-year-old is $97,020, according to Vanguard’s How America Saves report. Average 401(k) balances are typically higher than median 401(k) balances across all age groups, as they reflect higher and lower outliers.

How much will a 401(k) grow in 20 years on average?

The amount that a 401(k) will grow over a 20-year period can depend on how much someone contributes to the plan annually, how much of that contribution their employer matches, and their average rate of return. Someone who saves consistently, increases their contribution rate annually, and chooses investments that perform well will likely see more growth than someone who saves only the bare minimum or hands back a chunk of their returns in 401(k) fees.

What is a good 401(k) balance at age 30?

A good 401(k) balance by age 30 is at least one year’s worth of salary. So if you make $75,000 a year you’d ideally want to have $75,000 in your retirement account. Whether that number is realistic for you can depend on how much you earn, when you started saving in your 401(k), and your rate of return.


Photo credit: iStock/Burak Kavakci

SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
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.
SORL0922004

Read more
The Average 401k Balance by Age

The Average 401(k) Balance by Age

A 401(k) can be a valuable part of a retirement savings plan. But how much should you have saved in your 401(k) at different ages or career stages?

Charting the average 401(k) balance by age can help put your own savings in perspective. Seeing what others are saving in their 20s, 30s, 40s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Keep reading to learn about these possible benchmarks and smart ways to handle common savings challenges people may face at different phases of life. After all, the point isn’t to see whether you measure up but to ensure you keep progressing toward your retirement goals.

Average 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average 401(k) balance by age, we’ll use data from Vanguard’s “How America Saves 2022” report . Specifically, we’ll look at the average and median 401(k) balances by age for savers in 2021.

Why look at the average balance amounts, as well as the median? Because there are people who save very little as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average with the median amount — the number in the middle of the savings curve — provides a bit of a reality check as to how other retirement savers in your cohort may be doing.

Age Group

Average 401(k) Balance

Median 401(k) Balance

Under 25 $6,264 $1,786
25-34 $37,211 $14,068
35-44 $97,020 $36,117
45-54 $179,200 $61,530
55-64 $256,244 $89,716
65+ $279,997 $87,725
Source: Vanguard

Ages 35 and Younger

The average 401(k) balance for savers 35 and younger can be split into two groups:

•   Under age 25: $6,264

•   Ages 25 to 34: $37,211

Median 401(k) balances for both age groups are lower. The median balance is a dividing point, with half of savers having more than that amount saved for retirement in their 401(k) and the other half having less.

It makes sense that the under 25 group would have the lowest balances in their 401(k) overall, as they’ve had the least time to save for retirement. They’re also more likely to earn lower starting salaries versus workers who may have been on the job for 5 to 10 years. The youngest workers may not have as much income to put towards a 401(k).

Key Challenge for Savers

Debt often presents a big challenge for younger savers, many of whom may still be paying down student loan debt or who may have credit card debt (in some cases, both). How do you save for retirement when you want to pay off debt ASAP?

It’s a familiar dilemma, but not an insurmountable one. While being debt-free is a priority, it’s also crucial at this age to establish the habit of saving — even if you’re not saving a lot. The point is to save steadily (e.g., on a biweekly or monthly schedule) and, whenever possible, to automate your savings.

Then, when your debt is paid off, you can shift some or all of those payments to your savings by upping your retirement contribution.

Ages 35 to 44

•   Average 401(k) balance: $97,020

•   Median 401(k) balance: $36,117

The average 401(k) balance for workers in the 35 to 44-year-old group is $97,020. The median 401(k) balance for these workers is $36,117. That’s quite a gap! So what is a good average balance to have in your 401(k) by this point?

One rule of thumb suggests having three times your annual salary saved for retirement by the time you reach your 40s. So, if you’re making $100,000 annually, ideally, you should have $300,000 invested in your 401(k). This assumes that you’re earning a higher income at this point in life, and you can contribute more to your plan because you’ve paid off student loans or other debts.

Key Challenge for Savers

While it’s true that being in your late 30s and early 40s can be a time when salaries range higher — it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, investing in a business — and it can feel more important to focus on the ‘now’ rather than the future.

The good news is that most 401(k) plans offer automatic contributions and the opportunity to increase those contributions each year automatically. Even a 1% increase in savings each year can add up over time. Take advantage of this feature if your plan offers it.

Ages 45 to 54

•   Average 401(k) balance: $179,200

•   Median 401(k) balance: $61,530

Among 45 to 54-year-olds, the average 401(k) balance is $179,200, while the median balance is $61,530.

The rule of thumb for this age suggests that you stash away six times your salary by age 50. So again, if you make $100,000 a year, you should have $600,000 in your 401(k) by your 50th birthday. Whether this is doable can depend on your income, 401(k) deferral rate, and overall financial situation.

Key Challenge for Savers

For some savers, these are peak earning years. But children’s college costs and the need to help aging or ailing parents are among the challenges savers can face at this stage. The great news is that starting at age 50, the IRS allows you to start making catch-up contributions. For 2022, the regular 401(k) contribution limit is $20,500 – but add in $6,500 in catch-up contributions, and you can save $27,000 annually in a 401(k).

While you may feel strapped, this could be the perfect moment to renew your commitment to retirement savings because you can save so much more.

Ages 55 to 64

•   Average 401(k) balance: $256,244

•   Median 401(k) balance: $89,716

The average 401(k) balance among 55 to 64-year-olds is $256,244. The median balance is much lower, at $89,716.

By this stage, experts typically suggest having eight times your annual salary saved. So going back to the $100,000 annual salary example from earlier, you’d need to have $800,000 tucked away for retirement by age 60.

Key Challenge for Savers

As retirement draws closer, it can be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement money in your 401(k). But starting at 62 gives you a lower monthly payout — for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a higher benefit. And if you can wait until age 70 to take Social Security, that can increase your benefit amount by 32% versus taking it at 66.

Ages 65 and Older

•   Average 401(k) balance: $279,997

•   Median 401(k) balance: $87,725

The average 401(k) balance for those 65 and older is $279,997. The median balance is $87,725. So, is nearly $280,000 enough to retire, assuming you’re fully vested in your 401(k)?

Most experts would say no, unless you have other resources set aside for retirement. A pension plan, for example, or an Individual Retirement Account (IRA) could supplement your 401(k) savings. Investing in an annuity is also an option worth considering if you’re interested in creating a guaranteed income stream for retirement.

Key Challenge for Savers

Just because you turn 65, a common shorthand for “retiree,” doesn’t mean you’re at the end of the line or out of options. After all, 70 is the new 60 for many people these days, and you may be embarking on a new chapter in life, love, or business that could change your financial circumstances. The challenge here is to revisit your retirement plan and possibly speak with a financial professional, if you haven’t done so, to maximize all potential income streams and ways to save.

And don’t forget: A 2019 law eliminated the long-standing age limit of 70 ½ for making retirement contributions to your IRA (and Roth IRAs don’t have age limits). If life permits, you can (and should) keep saving.

Is your retirement piggy bank feeling light?

Start saving today with a Roth or Traditional IRA.


401(k) Savings Potential by Age

Suppose an investor maxes out their 401(k) contribution of $20,500 annually beginning at age 25. Also, assume that the 401(k) has an average rate of return of 9.5%. By the age of 65, the investor will have contributed a total of $840,500 of their own money into their 401(k), but because of compounding returns, it could result in a 401(k) savings potential of nearly $9 million.

However, these figures are just hypotheticals to show the power of compounding returns in a 401(k) account. This does not account for fees, changes in contribution limits, a possible 401(k) employer match, or fluctuations in the market. Nonetheless, by contributing to a 401(k) early and often, investors may be able to build up a substantial retirement nest egg.

Hypothetical 401(k) Balance by Age, Assuming 9.5% Annual Rate of Return

Age

Total Contributions

Potential 401(k) Balance

25 $20,500 $20,500
30 $123,000 $156,187
35 $225,500 $369,790
40 $328,000 $706,052
45 $430,500 $1,235,409
50 $533,000 $2,068,743
55 $635,000 $3,380,610
60 $738,000 $5,445,802
65 $840,500 $8,696,908

Tips on Improving Your 401(k) Return

Getting the best rate of return on your 401(k) can help you to fund your retirement goals. But different things can affect your returns, including:

•   Investment choices

•   Market performance

•   Fees

Time is also a consideration, as the longer you have to invest, the more room your money has to grow through the power of compounding interest. If you’re interested in maximizing 401(k) returns, here are some things to keep in mind.

1. Review Your Contribution Rate

The more you contribute to your 401(k), the more growth you can see. If you haven’t checked your contribution rate recently, it may be a good idea to calculate how much you’re saving and whether you could increase it. At the very least, it’s a good idea to contribute enough to qualify for the full employer matching contribution if your company offers one.

As noted above, if your plan offers automatic yearly increases, take advantage of that feature. Behavioral finance studies have repeatedly shown that the more you automate your savings, the more you save.

2. Make Catch-Up Contributions If You’re Eligible

As mentioned, once you turn age 50, you have an opportunity to contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) can help you grow your account balance faster.

3. Take Appropriate Risk

The younger you are, the more time you have to recover from market downturns and, thus, the more risk you can generally take with your investments. This is important to note as some risk is necessary to grow your portfolio. On the other hand, being too conservative with your 401(k) investments could cause your account to underperform and fall short of your goals.

4. Pay Attention to Fees

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the risk/reward profile and the cost of different funds. Specifically, look at the expense ratio for any mutual funds or exchange-traded funds (ETFs) offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

Creating or Reassessing Your Retirement Goals

If you’re still working on putting your retirement savings plan together, a 401(k) can be a good place to start. As you decide how much to save, ask yourself these questions:

•   What kind of lifestyle do I want to live in retirement?

•   When do I plan to retire?

•   How much of my income can I afford to save in a 401(k)?

•   Is there an employer match available, and if so, how much?

•   How much risk am I willing to take with 401(k) investments?

A retirement calculator can help you estimate how much you might need to save for retirement. Some calculators can factor in how much you’ve already saved to tell you if you’re on track with your goals.

💡 Recommended: When Can I Retire? This Formula Will Help You Know

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

Improving Your Retirement Readiness

The best way to improve your retirement readiness is to start saving early and often. A good rule of thumb is to save and invest at least 10-15% of your income for retirement. The more you can save now, the greater chance it has to grow because of compounding returns.

But you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, ETFs, and mutual funds, to help diversify your portfolio and minimize risk.

Additionally, you can make your money work harder for you by contributing to an IRA and a 401(k). These accounts offer tax advantages that can help you save more money for retirement.

Finally, be sure to monitor your retirement account balances and make adjustments as needed to ensure you are on track to reach your retirement goals.

The Takeaway

What is the average 401(k) balance by age? It’s a tricky question to answer as there’s no single source of information for these numbers. And it’s important to remember that the average 401(k) balance by age is just an average; it doesn’t necessarily reflect your ability to save for retirement.

That said, the average and median 401(k) balances noted above reflect some important realities for different age groups. It’s clear that some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but the choices you make. Every stage of life brings unique challenges that can derail your retirement, but with a bit of forethought and planning, it’s possible to keep your retirement on track.

Also, keep in mind that a 401(k) isn’t the only way to save and invest money for the future. You could also save for retirement with a Traditional or Roth IRA. By opening an online IRA with SoFi, you can get access to a broad range of investment options, member services, and our robust suite of planning and investment tools.

Easily manage your retirement savings with a SoFi IRA.

FAQ

How much do you need to retire?

Determining how much money you need to retire depends on your lifestyle, goals for retirement, and your specific cost of living.

How much should someone in their 60s have in their 401(k)?

The amount someone in their 60s should have in their 401(k) will vary depending on factors such as income, investment goals, and retirement plans. However, as a general guideline, it is recommended that individuals in their 60s aim to have at least eight to 10 times their salary saved in their 401(k) to ensure a comfortable retirement.

How much should I have in my 401(k) by age 30?

Ideally, you should aim to have saved at least the equivalent of your annual salary in your 401(k) by age 30. So, if you make $50,000 annually, you should try to have $50,000 in savings by age 30. This will help ensure that you are on track to retire comfortably.


Photo credit: iStock/kate_sept2004

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOIN0922047

Read more
How Does a Thrift Savings Plan (TSP) Loan Work?

How Does a Thrift Savings Plan (TSP) Loan Work?

Thrift Savings Plans (TSPs) are retirement plans for federal employees and members of the uniformed services. They offer the same kinds of benefits and tax advantages that private employers can offer their employees through a 401(k).

Like 401(k)s, TSPs allow savers to take out loans from their own savings. Borrowing against your retirement can be risky business, so it’s important to understand the ins and outs of TSP loans before you make a decision.

What Are Thrift Savings Plan Loans?

A TSP loan allows federal workers to borrow from their retirement savings. They must pay interest on the loan; however, that interest is paid back into their own retirement account. In 2022, interest rates were 3%, typically lower than the rate private employees pay on 401(k) loans.

Before you can borrow from your account the following must be true:

•  You have at least $1,000 of your own contributions invested in the account.

•  You must be currently employed as a federal civilian worker or member of the uniformed services.

•  You are actively being paid, as loan repayments are deducted from your paycheck.

•  You have not repaid a TSP loan in full within the last 30 days.

How Do Thrift Savings Plan Loans Work?

There are two types of TSP loans. General purpose loans may be used for any purpose, require no documentation, and have repayment terms of 12 to 60 months.

Primary residence loans can only be used to buy or build a primary residence. They must be repaid in 61 to 180 months, and they require documentation to qualify. You cannot use primary residence loans to refinance or prepay an existing mortgage, add on to or renovate your existing home, buy another person’s share in your home, or buy land only.

Recommended: A Guide to Personal Loans to Buy Land

Pros and Cons of a Thrift Savings Plan Loan

As you weigh whether or not it’s a good idea to borrow from your retirement savings, consider these pros and cons.

Pros of a TSP Loan

Chief among the advantages of borrowing from a TSP are the relatively low interest rates compared to most other loans. Consider that the average interest rate for personal loans is 9.41% according to the St. Louis Federal Reserve.

What’s more, repayment is simple, coming from payroll deductions. There is no penalty for paying back the loan early. And you don’t need to submit to a credit check to qualify for the loan.

Cons of a TSP Loan

Despite the benefits, borrowing from a TSP is often considered a last resort due to certain disadvantages.

First and foremost, when you borrow from your retirement you are removing money from your account that would otherwise benefit from tax-advantaged compounding growth.

If you leave your job with an unpaid loan, you will have 90 days to repay it. Fail to meet this deadline and the entire loan may be reported as income, and you’ll have to pay income taxes on it.

TSP loans are not reported to the credit reporting bureaus, so they don’t help you build credit.

Does a Thrift Savings Plan Loan Affect Your Credit?

TSP loans are not reported to the three major credit reporting bureaus — TransUnion, Equifax, and Experian — so they do not affect your credit score.

Recommended: How Do I Check My Credit Score Without Paying? 

How Long Does a Thrift Savings Plan Loan Take to Get?

Applying for a TSP is a relatively simple process. You can fill out an application online on the TSP website . There is a $50 processing fee for general purpose loans and a $100 fee for primary residence loans. Borrowers who are married will need spousal approval before taking out a loan.

Once the application is approved, borrowers receive the loan amount via check within eight to 13 days.

How Much Can You Borrow From a Thrift Savings Plan?

The minimum you have to borrow with a TSP loan is $1,000. Rules for determining your maximum are rather complicated. You’ll be limited to the smallest among the following:

•  Your own contributions and their earnings in your TSP.

•  $50,000 minus your largest loan during the last 12 months, if any.

•  50% of your own contributions and their earnings, or $10,000, whichever is greater, minus your outstanding loan balances.

According to these rules, $50,000 is the most you can borrow, and you may be limited to as little as $1,000.

Should You Take Out a Thrift Savings Plan Loan?

Because a TSP loan can have a lasting effect on your retirement savings, be sure to exhaust all other loan options before deciding to apply for one. If you are experiencing financial hardship or poor credit has made it hard for you to qualify for another type of loan, a TSP may be worth exploring.

Thrift Savings Plan Loan Alternatives

Before choosing a TSP loan, take the time to research other alternatives.

Credit Card

Credit cards typically carry very high interest rates. The average interest rate is around 14.56%, according to the St. Louis Federal Reserve. That said, if you use a credit card to make a purchase and pay off your debt on time and in full at the end of the billing cycle, you will not have to pay interest on your debt.

Credit cards only get expensive when you carry a balance from month to month, in which case you’ll owe interest. What’s more, the amount of interest you owe will compound. In order to carry a balance, you must make minimum payments or risk late penalties or defaulting on your debt.

Recommended: Differences and Similarities Between Personal Lines of Credit and Credit Cards

Passbook Loan

Passbook loans allow you to borrow money at low interest rates, using the money you have saved in deposit accounts as collateral. That money must remain in your account over the life of the loan. And if you default on the loan, the bank can use your savings to recoup their losses.

Signature Loan

Unlike passbook loans, signature loans do not require that you put up any items of value as collateral. Also known as “good faith loans,” signature loans require only that you provide your lender with your income, credit history, and your signature. Signature loans are considered to be a type of unsecured personal loan.

Personal Loan

A personal loan can be acquired from a bank, credit union, or online bank. They are typically unsecured loans that don’t require collateral, though some banks offer secured personal loans that may come with lower interest rates.

Loan amounts can range from a few hundred dollars to $100,000. These amounts are repaid with interest in regular installments.

Personal loans place few restrictions on how loan funds can be spent. Common uses for personal loans range from consolidating debt to remodeling a kitchen.

The Takeaway

For borrowers in a financial pinch, TSP loans can provide a low-interest option to secure funding. However, they can also have a permanent negative impact on retirement savings, so it makes sense for borrowers to explore other options as well.

SoFi offers low fixed interest rates on personal loans of $5,000 to $100,000. There are no fees required, and borrowers only pay principal and interest.

SoFi’s Personal Loan was named NerdWallet’s 2022 winner for Best Online Personal Loan overall.

FAQ

What does TSP loan stand for?

TSP stands for Thrift Savings Plan, a retirement account the federal government offers to its civilian employees and members of the uniformed services.

What is a TSP loan?

A TSP loan allows Thrift Savings Plan holders to borrow from their retirement account. Loans are repaid automatically through payroll deductions, and interest payments are made back to the account.

How long does it take to get a TSP loan?

It takes eight to 13 days to receive a TSP loan from the time of application.


Photo credit: iStock/SDI Productions
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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, 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.
SOPL0322001

Read more
Investing for Retirement: Guide to Emerging Markets

Guide to Investing in Emerging Markets

Investing for retirement often includes both stocks and bonds, and within your equity allocation, emerging market stocks can play an important role in diversifying your portfolio.

Emerging market investments include owning shares in companies from countries like China, India, Brazil, and South Africa, among others. There are pros and cons to owning emerging market investments, but these stocks are a significant part of the global market.

Why invest in emerging markets when building a retirement portfolio? While it’s true that they can be volatile investments, this niche can provide strong returns and diversification benefits when preparing for retirement.

Understanding Emerging Markets

Opening a retirement account and including emerging markets in your portfolio may be a successful investing strategy.

Emerging markets are economies that are in the middle between the developing and developed stages. Emerging markets risk can be high since these areas often see rapid growth and high volatility with booms and busts. Some of the most well-known and biggest countries weighted in the emerging markets index include China, Taiwan, India, Brazil, and Saudi Arabia.

Emerging market investments are generally seen as a higher-risk area of the global stock market. Volatility can spike during periods of political upheaval and when emerging market recessions strike.

As investors get older, risk must be managed through diversified investment plans. You should consider reducing emerging market exposure in your portfolio as your time horizon shortens and retirement nears.

Why Invest in Emerging Markets?

Emerging market investments have been popular for decades. It became easy to own a broad emerging market index fund within an investment portfolio in the early 2000s when exchange-traded funds (ETFs) took off. That’s also when this group of stocks started to outperform U.S. equities.

The decade of the 2000s featured strong outperformance from the high-risk, high-reward profile of emerging market investments. But volatility in these markets has also been a factor.

People like to invest in areas of the stock market that exhibit rapid growth potential along with having the potential for diversification. High economic growth rates, such as those in China and India, often attract investors seeking to benefit from stocks of those nations. Indeed, there can be periods like the 2000s when strong bull markets take place.

Moreover, owning high-growth areas within a tax-advantaged account can be a savvy retirement savings strategy. When choosing a retirement plan, it’s helpful to consider what assets to own in which account.

Can You Build a Retirement Portfolio With Emerging Markets?

Retirement and emerging markets can go together. Boosting retirement savings can be done through this group of securities. Also consider that emerging market bonds are a growing piece of the global fixed-income market.

In addition, owning emerging market investments in retirement accounts is easier than ever with low-cost ETFs and both active and passive mutual funds. Moreover, many 401(k) plans offer an emerging markets fund so you can have exposure through your workplace retirement account.

When thinking about emerging markets, you should put them in context. Emerging markets stocks represent just 11% of the global stock market. Emerging market bonds comprise roughly a quarter of the global bond market. Those are significant weights, and you can own both areas in your retirement portfolio through low-cost funds.

Is your retirement piggy bank feeling light?

Start saving today with a Roth or Traditional IRA.


Pros of Investing in Emerging Markets

There are many pros and cons of investing in emerging markets. When you start saving for retirement, that can be a great time to own emerging market stocks since you have a long time horizon to weather volatility.

Growth Opportunity

Many people contend that higher economic growth in emerging market nations can translate into growth potential for their stock markets. What’s more, many U.S. companies have significant emerging markets exposure through their global sales. So, corporations see opportunities in this space, too.

Also consider that nearly 80% of the world’s population lives in emerging market countries, while just 11% of the global stock market is weighted to them. Investing for retirement should have at least some exposure to this area for risk-tolerant individuals.

Diversification Benefits

International investments can help offset the ebbs and flows of U.S. stocks through diversification. Consider that the domestic equity market is 61% of the global market. So if the U.S. goes into a bear market, foreign shares might outperform. Retirement investing should have a diversified approach.

Cons of Investing in Emerging Markets

Emerging markets can be volatile, and they expose investors to a host of risk factors. Political, economic, and currency risks can all hamper emerging market investments’ growth.

Due to the many risks, it’s common for retirement investors to tone down their stock allocation as they approach retirement. Reducing exposure to the emerging markets area also makes sense, but it should still be considered for your equity sleeve in retirement.

Recent Underperformance

Emerging market stocks have done poorly over the last decade, particularly compared to how well the domestic stock market performed. In 2022, Russian equities were the latest area to pressure the emerging markets index hard. That stock market was forced to close, and its stocks plummeted in other markets.

Correlations Might Be Changing

Some argue that emerging markets today have more correlation to other markets, so having exposure might simply expose someone to the risks and not the benefits.

Highly Volatile

Older investors might want to steer away from the boom-and-bust nature of emerging markets. The process of evolving from an emerging market to a developed market is usually fraught with risk. In some areas, political turmoil might cascade into a full-blown economic recession.

Emerging market fixed-income investors can also suffer when high-risk currency values fall during such periods of volatility. Back in 1998, the “Asian Contagion” was an emerging markets-led debacle that caused a big decline in markets across the globe.

Uncertainty in China

China is now the biggest weighting in many emerging market indexes, up to one-third in some funds. That can be a lot in just one country, particularly in one as uncertain as China, given its one-party controlled economy.

Start Investing for Retirement With SoFi

Building a retirement portfolio often includes owning many areas of the global stock market. Emerging market investments can play a pivotal role to ensure your allocation has higher growth potential, but you must be mindful of the risks.

SoFi offers all the retirement planning tools you need, including online resources and complimentary access to financial advisors for SoFi members. When you’re ready to start investing for retirement, it only takes a small amount to open a traditional or Roth IRA account. Using the secure SoFi app, you can invest your retirement portfolio in stocks, exchange-traded funds (ETFs), fractional shares, and more. Get started now!

FAQ

Is it worth investing in emerging markets?

Strong growth potential and diversification benefits are reasons to own emerging markets for your retirement portfolio. That said, emerging markets are a small part of the global stock market. A diversified retirement portfolio should include this slice of the market, but investors also must recognize the risks. There are periods during which emerging market investments can underperform the U.S. stock market.

What is the best emerging market to invest in?

When figuring out emerging markets, you might be curious which one is the best. It is hard to say there is one in particular. Emerging market risk can be high, so to help mitigate that, owning the entire basket can help ensure the benefits of diversification.

Should my entire retirement portfolio be in emerging markets?

Building a retirement portfolio with emerging markets is common but putting all your eggs in the emerging market basket might not be the wisest move. Young investors can perhaps own a larger weight in this volatile equity area, but older investors should think about winding down their emerging markets stock exposure as they near retirement.


Photo credit: iStock/Kateywhat

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
SOIN0422052

Read more
TLS 1.2 Encrypted
Equal Housing Lender