Nov

2023

The Strategic Guide to Early Retirement

By AJ Smith | Budgeting & Goals, invest, Life & Career, Preparing for Retirement | No Comments

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

If you’d like to retire early, there are concrete steps you can take to help reach your goal. Here’s what you need to know about how to retire early.

Understanding Early Retirement

Early retirement typically refers to retiring before the age of 65, which is when eligibility for Medicare benefits begins. Some people may want to retire just a few years earlier, at age 60, for instance. But others dream of retiring in their 40s or 50s or even younger.

Clarifying Early Retirement Age and Goals

You’re probably wondering, how can I retire early? That’s an important question to ask. First, though, you have to decide at what age to retire.

Schedule a few check-ins with yourself, and/or a partner or loved ones, to discuss what “early retirement” means. Is it age 50? Age 55? And what might your early retirement look like? Will you stop working completely? Work part-time? Or maybe you want to switch to a different field or start a business? Perhaps you dream of going back to school, volunteering, or traveling.

Early retirement is different for everyone. So the clearer you can get about the details now, the smarter you can be about how much money you need to make your plan work.

Insights into the Financial Independence, Retire Early (FIRE) Movement

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

Here’s how it works: In order to retire at a young age, people who follow the FIRE movement allocate 50% to 75% of their income to savings. However, that can be challenging because it means they have to sacrifice certain lifestyle pleasures along the way. For instance, they might not be able to eat out or travel.

Once they retire, FIRE proponents tend to use investments that pay dividends as passive income sources to help support themselves. However, dividend payments depend on company performance and they’re not guaranteed. So a FIRE adherent would likely need other sources of income in retirement as well.

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

Financial Planning for Early Retirement

In order to start planning to retire early, you need to calculate how much money you’ll need to live on once you stop working. How much would you have to save and invest to arrive at an amount that would allow you to retire early? Here’s how to help figure that out.

Estimating Retirement Costs and Income Needs

Many people wonder: How much do I need to retire early? There isn’t one answer to that question. The right answer for you is one that you must arrive at based on your unique needs and circumstances. That said, to learn whether you’re on track for retirement it helps to begin somewhere, and the Rule of 25 may provide a good ballpark estimate.

The Rule of 25 recommends saving 25 times your annual expenses in order to retire. Why? Because according to one rule of thumb, you should only spend 4% of your total nest egg every year. By limiting your spending to a small percentage of your savings, the logic goes, your money is more likely to last.

Here’s an example: if you spend $75,000 a year, you’ll need a nest egg of $1,875,000 in order to retire.

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

With that amount saved, and assuming an annual withdrawal rate of 4%, you would have $75,000 per year in income.
Obviously, this is just an example. You might need less income in retirement or more — perhaps a lot less or a lot more, depending on your situation. If your desired income is $50,000, for example, you’d need to save $1,250,000.

Once you reach the traditional retirement age of 62, you would then be able to claim Social Security. (Age 67 is considered “full retirement” age for those born in 1960 and later, and you can wait to claim benefits until age 70.) The longer you wait to claim Social Security, the higher your monthly payments will be. You could add those Social Security benefits to your income or consider reinvesting the money, depending on your circumstances as you get older.

Effective Savings Strategies

How do you save the amount of money you’d need for your early retirement plan?

Having a budget you can live with is critical to making this plan a success. The essential word here isn’t budget, it’s the whole phrase: a budget you can live with.

There are countless ways to manage how you budget. There’s the 50-30-20 plan, the envelope method, the zero-based budget, and so on. You could test a couple of them for a couple of months each in order to find one you can live with.

Another strategy for saving more is to get a side hustle to bring in some extra income. You can put that money toward your early retirement goal.

Adjusting Your Financial Habits

As you consider how to retire early, one of the first things you’ll need to do is cut your expenses now so that you can save more money. These strategies can help you get started.

Lifestyle Changes to Accelerate Savings

Take a look at your current spending and expenses and determine where you could cut back. Maybe instead of a $4,000 vacation, you plan a $2,000 trip instead, and then save or invest the other $2,000 for retirement.

You may be able to live more of a minimalist lifestyle overall. Rather than buying new clothes, for instance, search through your closets for items you can wear. Eat out less and cook at home more. Cut back on some of the streaming services you use. Scrutinize all areas of your spending to see what you can eliminate or pare back.

Debt Management Before Retirement

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

That’s not only because being debt-free feels better — it also saves you money. For example, the interest rate you’re paying on credit card or store cards can be quite high, often above 15% or even 20%. If you owe $6,000 on a credit card at 17% interest, for example, when you pay that off, you’re essentially saving the interest that debt was costing you each year.

Health Care Planning: A Critical Component of Early Retirement

When you retire early, you need to think about health insurance since you’ll no longer be getting it through your employer. Medicare doesn’t begin until age 65, so start researching the private insurance market now to understand the different plans available and what you might need.

It’s critical to have the right health insurance in place, so make sure you devote proper time and attention to this task.

Investment Management for Future Retirees

Next up, you’ll need to decide what to invest in and how much to invest in order to grow your savings without putting it at risk.

Understanding Your Investment Options

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

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

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

Balancing Growth and Risk in Your Investment Portfolio

Because you have less time to save for retirement, you will likely want your investments to grow. But you also need to consider your risk tolerance, as mentioned above. Think about a balanced, diversified portfolio that has the potential to give you long-term growth without taking on more risk than you are comfortable with.

As you get closer to your early retirement date, you can move some of your savings into safer, more liquid assets so that you have enough money on hand for your living, housing, and healthcare expenses.

Retirement Accounts: 401(k)s, IRAs, and HSAs

If your employer offers a retirement plan like a 401(k) or 403(b), that’s the first thing you want to take advantage of — especially if your employer matches a percentage of your savings.

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

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

Be sure to find out from HR if there are any other employee benefits you might qualify for, such as stock options or a pension, for instance.

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

A Health Savings Account allows you to save additional money: In 2023, the HSA contribution caps are $3,850 for individuals and $7,750 for family coverage.

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

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

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

💡 Quick Tip: Did you know that a traditional Individual Retirement Account, or IRA, is a tax-deferred account? That means you don’t pay taxes on the money you put in it (up to an annual limit) or the gains you earn, until you retire and start making withdrawals.

The Pillars of Early Retirement

Retiring early means you’ll need to have income coming in to help support you. You may have a pension, which can also help. Once you’ve identified the income you’ll be generating, you’ll need to withdraw it in a manner that will help it last over the years of your retirement.

Establishing Multiple Income Streams

Having different streams of income is important so that you’re not just relying on one type of money coming in. For instance, your investments can be a source of potential income and growth, as mentioned. In addition, you may want to get a second job now in addition to your full-time job — perhaps a side hustle on evenings and weekends — to generate more money that you can put toward your retirement savings.

The Role of Social Security and Pensions in Early Retirement

Social Security can help supplement your retirement income. However, as covered above, the earliest you can collect it is at age 62. And if you take your benefits that early they will be reduced by as much as 30%. On the other hand, if you wait until full retirement age to collect them, you’ll receive full benefits. If you were born in 1960 or later, your full retirement age is 67. You can find out more information at ssa.gov.

If your employer offers a pension, you should be able to collect that as another income stream for your retirement years. Generally, you need to be fully vested in the plan to collect the entire pension. The amount you are eligible for is typically based on what you earned, how long you worked for the company, and when you stop working there. Check with your HR department to learn more.

The Significance of Withdrawal Strategies: Rules of 55 and 4%

When it comes to withdrawing money from your investments after retirement, there are some rules and guidelines to be aware of. According to the Rule of 55, the IRS allows certain workers who leave their jobs to take penalty-free distributions from their current employer’s workplace retirement account, such as a 401(k) or 403(b), the year they turn 55.

The 4% rule is a general rule of thumb that recommends that you take 4% of your total retirement savings per year to cover your expenses. To figure out what you would need, start with your desired yearly retirement income, subtract the annual amount of any pension or additional revenue stream you might have, and divide that number by 0.4. The resulting amount will be 4%, and you can aim to withdraw no more than that amount every year. The rest of your money would stay in your retirement portfolio.

Monitoring Your Progress Towards Early Retirement

To stay on course to reach your goal of early retirement, keep tabs on your progress at regular intervals. For instance, you may want to do a monthly or bi-monthly financial check-in to see where you’re at. Are you saving as much as you planned? If not, what could you do to save more?

Using an online retirement calculator can help you keep track of your goals. From there you can make any adjustments as needed to help make your dreams of early retirement come true.

How to Manage Early Retirement When You Get There

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

That said, you may be spending on different things. Whatever your retirement looks like, though, it’s wise to keep your spending as steady as you can, to keep your nest egg intact.

The Takeaway

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

You can also make progress toward an early retirement by determining how much money you’ll need for post-work life, budgeting, and cutting back on expenses . And by saving and investing wisely, you may be able to make your goal a reality.

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

Invest with as little as $5 with a SoFi Active Investing account.

FAQs

How much do you need to save for early retirement?

There isn’t one right answer to the question of how much you need to save for early retirement. It depends on your specific needs and circumstances. However, as a starting point, the Rule of 25 may give you an estimate. This guideline recommends saving 25 times your annual expenses in order to retire, and then following the 4% rule, and withdrawing no more than 4% a year in retirement to cover your expenses.

Is early retirement a practical goal?

For some people, early retirement can be a practical goal if they plan properly. You’ll need to decide at what age you want to retire, and how much money you’ll need for your retirement years. Then, you will need to map out a budget and a concrete strategy to save enough. It will likely require adjusting your lifestyle now to cut back on spending and expenses to help save for the future, which can be challenging.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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SOIN1023142

Nov

2023

The Investor’s Guide to Navigating 401(k) Fees

By Pam O’Brien | Budgeting & Goals, invest, Preparing for Retirement | No Comments

Approximately 60 million Americans have 401(k) plans through their employer. But many of them aren’t aware of the fees these plans charge. In fact, the majority of investors have no idea how much they’re paying in 401(k) fees, according to a 2022 survey.

Learning about these fees is important because 401(k) fees can add up to tens of thousands of dollars over time and cut into your retirement savings. That’s why you’ll want to find out what these fees consist of and how much they are.

Read on to learn more about 401(k) fees and the steps you may be able to take to help reduce them.

Understanding the Basics of 401(k) Fees

401(k) fees are charged by the provider of your 401(k) plan and the investment funds within the plan. There are three main types of 401(k) fees: investment fees, administrative fees, and service fees. Here’s what these fees cover.

Investment fees: Sometimes also referred to as the expense ratio, investment fees cover an investment’s operating and management costs. These fees are deducted from the investment’s performance and are generally expressed as a percentage.

Administrative fees: These are used to cover the management of your account, including record keeping, accounting, and customer service, among other things. They may be a flat fee or a percentage of the account’s total balance.

Service fees: These fees cover additional services related to your 401(k), such as taking out a 401(k) loan or using financial advisory services. You are only charged these fees if you use the services.

The Impact of Fees on Your Retirement Savings

According to the Investment Company Institute, the average 401(k) participant is in a plan with fees of 0.55%. That means the fees on the average 401(k) account balance of $141,542 would be approximately $778 a year. Over 20 years, that would add up to $15,560 in fees. Over 30 years, fees would total $23,340.

As you can see, this could significantly reduce your retirement savings. And, of course, the greater your account balance, the more fees you would pay.

The types of investments you make will also affect the fees you pay. For instance investments that are actively traded tend to have higher fees, while those that are passively traded typically have lower fees.

How to Interpret Fees on Your 401(k) Statement

Fees are included in your 401(k) statement or prospectus, as required by the U.S. Department of Labor. They may be listed as “Total Asset Based Fees,” “Total Operating Expenses,” or “Expense Ratios.”

Fees should be listed for each investment in your plan. For instance, if a fund had 1.25% of Total Operating Expenses, that means 1.25% of the fund’s assets are used to cover the fund’s operating expenses. So for every $1,000 invested in that fund, the operating expense fees are $12.50.

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

How Your 401(k) Fees Stack Up

Once you find the fees in your 401(k) plan, you can determine how they compare to standard 401(k) fees. Here’s a look at what 401(k) fees generally are.

What Are Typical 401(k) Fees?

401(k) fees are based on such factors as the size of the plan, the number of employees in the plan, and the provider offering the plan. These fees can run anywhere from 0.5% to 2%. As mentioned earlier, the average 401(k) participant’s plan fees are approximately 0.55%.

The Significance of Expense Ratios and Industry Averages

You may hear the term “expense ratio” and wonder what it is. An expense ratio is how much you’ll pay over the course of a year to own a particular investment fund such as a mutual fund or an exchange-traded fund (ETF). This fee typically covers the cost of operating and managing the fund. In 2022, the average expense ratio for actively managed mutual funds was 0.66%.

Practical Ways to Minimize 401(k) Fees

While you can’t avoid 401(k) fees, there are some actions you can take to reduce their impact on your retirement savings.

Identifying and Reducing Excess Fees

The fee charged by the plan’s provider is a set fee, however, you may be able to lower the investment fees you pay. To do that, review the expense ratios for the different investment funds in the plan. Then, if it makes sense with your overall investment strategy, pick funds within the plan that have lower expense ratios and avoid funds with higher fees.

In addition, if you think the 401(k) fees charged by your plan are too high in general, speak to your human resources department and ask if they would consider switching to another 401(k) plan with lower fees. This may not be possible, but it doesn’t hurt to ask.

Addressing Hidden Fees in Your 401(k)

The fees in your 401(k) aren’t technically hidden. But they do go by names you may not be familiar with. Here’s how to spot them.

Tools for Uncovering Hidden Fees

The best way to find the fees in your 401(k) is to carefully read through your plan’s prospectus. You now know to look for investment fees or expense ratios, administration fees, and service fees. In addition, look for “12-b1” fees. You may find them fees listed under marketing and distribution. These fees are for the agent or broker who sold the 401(k) plan to your employer. 12-b1 fees are capped at 0.75% of a fund’s assets annually.

Understanding Revenue Sharing and Its Implications

Revenue sharing means adding non-investment fees to a fund’s operating expenses. A 12-b1 fee is one example of this. Revenue sharing fees typically pay for things like record keeping.

Not every 401(k) plan uses revenue sharing, and not all investment funds use them either. Revenue sharing tends to be more likely for actively managed funds rather than passively managed funds like index funds.

That means if you have more actively managed funds, you could be paying more than a colleague who has index funds.

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

How Fees Affect Your Retirement Savings Over the Long-Term

401(k) fees can add up over the years, substantially reducing your retirement savings. And one percentage point in the amount of fees you pay can make a big difference.

Case Studies: The Cumulative Effect of Fees Over Time

Let’s say two individuals work for different companies with different 401(k) plans. Person A has a 401(k) that charges 0.50% in fees, and Person B has a plan that charges 1% in fees. If they each invest $100,000 over 20 years with a 4% annual return, 401(k) fees would reduce the value of Person A’s retirement savings by $10,000, while Person B’s retirement savings would be reduced by almost $30,000.

Proactive Measures to Safeguard Your Retirement Funds

In order to minimize the impact of fees on your retirement savings, find out what fees your 401(k) charges. Also, look at the expense ratios for each fund in the plan and choose funds with lower expenses if you can.

In addition, if you leave your job and move to a new employer, you may pay additional 401(k) fees if you keep your old plan with your former employer. And if you’ve changed jobs multiple times and left your 401(k)s with your former employers, then you could be paying 401(k) fees on multiple accounts.

Fortunately, there are steps you can take to avoid these 401(k) fees. You aren’t required to keep your account with your former employer, and you won’t be forced to liquidate it. Instead you could roll over your 401k into your new 401k plan with your new employer, or roll it over into an IRA managed by you.

The benefit of setting up a separate account is that the next time you change jobs, you will automatically have somewhere to rollover your 401(k). With your money in one place, you can more easily see whether you are on track to reach your retirement goals.

The Takeaway

401(k) fees could potentially cost you tens of thousands of dollars or more and substantially reduce your retirement savings. If you have a 401(k), it’s important to learn about the fees charged by your plan. Read over your statements and the plan’s prospectus to find out what and how much these fees are. If possible, choose investment fund options with lower fees to help save money.

And when you leave a job, rather than letting the 401(k) sit with your former employer, consider rolling it over to your new employer’s 401(k) or into a traditional or Roth IRA. One advantage of an IRA is that you will likely have more investment options to choose from and more control of your retirement funds.

Invest with as little as $5 with a SoFi Active Investing account.

SOIN1023138

Nov

2023

The Ultimate Guide to SIMPLE IRAs for Employees and Small Businesses

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

If you’re exploring retirement plans, you may be wondering, what is a SIMPLE IRA? A SIMPLE IRA is one type of tax-advantaged retirement savings plans to help self-employed individuals and small business owners put money away for their future.

You may already be familiar with traditional individual retirement accounts (IRAs). A SIMPLE IRA, or Saving Incentive Match Plan for Employees, is one type of IRA.

What Is a SIMPLE IRA?

SIMPLE IRA plans are employer-sponsored retirement accounts for businesses with 100 or fewer employees. They are also retirement accounts for the self-employed. If you’re your own boss and self-employed, you can set one up for yourself.

For small business owners, SIMPLE IRAs are an easy-to-manage, low-cost way to contribute to their own retirement while at the same time helping employees to contribute to their savings as well.

How Does a SIMPLE IRA Work?

Now that you know the answer to the question, what is a SIMPLE IRA?, you are probably wondering how this plan works. A SIMPLE IRA is one of the different types of retirement plans available. In order for an employee to participate, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, or they must expect to make $5,000 in the current calendar year.

It is possible for employers to set less restrictive rules for SIMPLE IRA eligibility. For example, they could lower the amount employees are required to have made in a previous two-year time. However, they cannot make participation rules more restrictive.

Employers can exclude certain types of employees from the plan, including union members who have already bargained for retirement benefits and nonresident aliens who don’t receive their compensation from the employer.

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

Simple IRA vs. Traditional IRA

When it comes to a SIMPLE IRA vs. Traditional IRA, the two plans are similar. However, there are some key differences between the two. A SIMPLE IRA is for small business owners and their employees. A traditional IRA is for anyone.

The eligibility criteria is different for the two plans. To be eligible for a SIMPLE IRA, an employee must have earned at least $5,000 in compensation over the course of two years prior — or expect to make $5,000 in the current calendar year. With a traditional IRA, an individual must be under age 70 and have earned income in the past year.

And while both types of IRAs are tax deferred, a traditional IRA allows individuals to make tax deductible contributions, while only an employer or sole proprietor can make tax deductible contributions to a SIMPLE IRA.

One of the biggest differences between the two plans is the contribution amount. Individuals can contribute $6,500 in 2023 to a traditional IRA (or $7,500 if they are age 50 or older), while those who have a SIMPLE IRA can contribute $15,500 (plus an extra $3,500 for those age 50 and older) in 2023.

Simple IRA vs. 401(k)

SIMPLE IRAs have some similarity to 401(k)s. Both are employer-sponsored plans that eligible employees can contribute to, contributions made to both are made with pre-tax dollars, and the money in the accounts grows tax-deferred. Both types of plans give the employer the option to make matching contributions to employees’ plans.

One major difference between the two plans is that while self-employed individuals can’t open a 401(k), they can set up a SIMPLE IRA for themselves.

Additionally, individuals can contribute much more to a 401(k) than they can to a SIMPLE IRA. In 2023, those with a 401(k) can contribute $22,500 to the plan, plus an extra $7,500 for those 50 and older. In comparison, individuals can contribute $15,500 to a SIMPLE IRA, plus $3,500 extra for those 50 and up.

SIMPLE IRA Contribution Rules

Employer Contribution and Matching Rules

When an employer sets up a SIMPLE IRA plan, they are required to contribute to it each year. They have two options: They can either make matching contributions of up to 3% of an employee’s compensation, or they can make a nonelective contribution of 2% for each eligible employee, up to an annual limit of $330,000 in 2023.

If the employer chooses the latter option, they must make a contribution to their employees’ accounts, even if those employees don’t contribute themselves. Contributions to employee accounts are tax deductible.

Employee Contributions

Eligible employees can choose to contribute to the plan, as well. In 2023, SIMPLE IRA contribution limits are up to $15,500 in deferrals. Those over the age of 50 can contribute an extra $3,500 in catch-up contributions, which brings their annual maximum contributions up to $19,000. Those contribution levels may change over time, as the government adjusts them to account for inflation.

Contributions reduce employees’ taxable income, which gives them an immediate tax benefit, lowering their income taxes in the year they contribute. Contributions can be invested inside the account and grow tax-deferred until the employee makes withdrawals when they retire.

IRA withdrawal rules are particularly important to pay attention to as they can be a bit complicated. Withdrawals made after age 59 ½ are subject to income tax. If you make withdrawals before then, you may be subject to an additional 10% or 25% penalty. Account holders must make required minimum distributions from their accounts when they reach age 73.

Establishing and Operating a SIMPLE IRA Plan

SIMPLE IRAs are relatively easy to put in place, since they have no filing requirements for employers. Employers cannot offer another retirement plan in addition to offering a SIMPLE IRA.

If you’re interested in opening a SIMPLE IRA, banks and brokerages may have a plan, known as a prototype plan, that’s already been approved by the IRS.

Otherwise you’ll need to fill out one of two forms to set up your plan:

• Form 5304-SIMPLE allows employees to choose the financial institutions that will receive their SIMPLE IRA contributions.

• You can also fill out Form 5305-SIMPLE, which means employees will deposit SIMPLE IRA contributions at a single financial institution chosen by the employer.

Once you have established the SIMPLE IRA, an account must be set up by or for each employee, and employers and employees can start to make contributions.

Notice Requirements for Employees

There are minimal paperwork requirements for a SIMPLE IRA. Once the employer opens and establishes the plan through a financial institution, they need to notify employees about it. This should be done by October 1 of the year the plan is intended to begin. Employees have 60 days to make their elections.

Eligible employees need to be notified about the plan annually. Any changes or new terms to the plan must be disclosed. At the beginning of each annual election period, employers must notify their employees of the following:

• Opportunities to make or change salary reductions.

• The ability to choose a financial institution to receive SIMPLE IRA contribution, if applicable.

• Employer’s decisions to make nonelective or matching contributions.

• A summary description provided by the financial institution that acts as trustee of SIMPLE IRA fund, and notice that employees can transfer their balance without cost of penalty if the employer is using a designated financial institution.

Participant Loans and Withdrawals

No loans are allowed to participants in a SIMPLE IRA. Withdrawals made before age 59 ½ are subject to a possible 10% or 25% penalty.

Rollovers and Transfers to Other Retirement Accounts

For the first two years of participating in a SIMPLE IRA, participants can only do a tax-free rollover to another SIMPLE IRA. After two years, they may be able to roll over their SIMPLE IRA to other non-Roth IRAs or an employer-sponsored plan such as 401(k).

The Advantages and Drawbacks of a SIMPLE IRA Plan

While SIMPLE IRAs offer a lot of benefits, including immediate tax benefits, tax-deferred growth, and employer contributions, there are some drawbacks. For example, SIMPLE IRAs don’t allow employees to save as much as other retirement plans such as 401(k)s and Simplified Employee Pension (SEP) IRAs.

In 2023, employees can contribute up to $22,500 to a 401(k) account, with an extra $7,500 in catch-up contributions for those 50 and older. Individuals with a SEP IRA account can contribute up to 25% of their employee compensation, or $66,000, whichever is less, in 2023.

The good news is, employees with SIMPLE IRAs can make up some of that lost ground. Employers may be wondering about the merits of choosing between a SIMPLE and traditional IRA, but they can actually have both.

Employers and employees can open a traditional or Roth IRA and fund it simultaneously. For 2023, total contributions to IRAs can be up to $6,500, or $7,500 for those ages 50 and older.

Here some pros and cons of starting and funding a SIMPLE IRA at a glance:

Pros of a SIMPLE IRA	Cons of a SIMPLE IRA
Easy to set up, with less paperwork than other retirement accounts, such as 401(k)s.	Lower contribution limits than other plans, such as 401(k)s and SEP IRAs.
Employers have lower upfront and management costs to run the plan.	Withdrawals made before age 59 ½ are subject to a possible 10% or 25% penalty.
Contributions are tax deductible for employers and employees.	There is no Roth option that would allow employees to fund the retirement account with after-tax dollars that would translate to tax-free withdrawals in retirement.
There are no filing requirements with the IRS.

Eligibility and Participation in a SIMPLE IRA

As mentioned previously, there are some rules about who can participate in a SIMPLE IRA. Here’s a quick recap.

Who Can Establish and Participate in a SIMPLE IRA?

Small business owners with fewer than 100 employees and self-employed individuals can set up and participate in a SIMPLE IRA, along with any eligible employees.

Employers can’t offer any other type of employer-sponsored plan if they set up a SIMPLE IRA.

Employees’ Eligibility and Participation Criteria

In order for an employee to be eligible to participate, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, or they must expect to make $5,000 in the current calendar year.

Employees can choose less restrictive requirements if they choose. They may also exclude certain individuals from a SIMPLE IRA, such as those in unions who receive benefits through the union.

Investment Choices and Account Maintenance

The employer chooses investment options for the SIMPLE IRA and maintains the plan. Employees then select the investment options they want.

Investment Choices Under a SIMPLE IRA

Typically, there are more investment choices with a SIMPLE IRA than there with a 401(k). Investment options can include stocks, mutual funds, exchange-traded funds (ETFs), and bonds.

Understanding SIMPLE IRA Distributions

There are particular rules for SIMPLE IRA distributions, and it’s important to be aware of them. This is what you need to know.

Withdrawal Rules and Tax Consequences

As discussed previously, withdrawals made before age 59 ½ are subject to income tax plus a potential 10% or 25% penalty. Withdrawals made after age 59 ½ are subject to income tax only and no penalty. Account holders must make required minimum distributions from their accounts when they reach age 73.

The 2-Year Rule and Early Withdrawal Penalties

There is a two-year rule for withdrawals from a SIMPLE IRA. If you make a withdrawal within the first two years of participating in the plan, the penalty may be increased from 10% to 25%.

The Takeaway

SIMPLE IRAs are one of the easiest ways that self-employed individuals and small business owners can help themselves and their employees save for retirement, whether they’re experienced retirement investors or they’re opening their first IRA.

These accounts can even be used in conjunction with certain other retirement accounts and investment accounts to help individuals save even more.

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

Help grow your nest egg with a SoFi IRA.

Photo credit: iStock/shapecharge

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

SOIN1023152

Nov

2023

Am I on Track for Retirement?

By Austin Kilham | invest, Life & Career, Preparing for Retirement | No Comments

If everyone got a dollar every time they wondered, “Am I on track for retirement?” and “How much do I need to retire?” we’d all be a lot closer to retiring.

Joking aside, there’s no one answer to the perplexing question of how much you really need to retire. It’s a personal calculation based on numerous factors, including your income, your age, how much you’ve already saved, and when you can tap retirement and Social Security benefits.

That said, it is possible with the help of a few guidelines to get a sense of what size nest egg you’ll need to retire comfortably.

How Much Do I Need to Retire, Really?

The amount of money you need to save for retirement depends largely on your goals, health, and lifestyle. However, one rule of thumb suggests that an individual will likely spend 80% of their current income each year in retirement. So, if you earn $100,000, you’ll need about $80,000 per year when you retire.

This figure is flexible, and can be adjusted based on the amount of Social Security you can claim, and how much your retirement lifestyle might cost. You may need more income if you’re planning to retire and start a small business, or less if you’re planning to downsize or work part time.

You likely want to take into account what your health or medical expenses might be, and whether your retirement nest egg is meant to cover two people or one.

It’s worth spending some time thinking about, and perhaps having some candid conversations with your spouse and family members, about your retirement plan. The amount of money you think you need may be different than the amount you actually will need. It’s important to explore the options, since there are different ways to slice this pie.

The 4% Rule

How much do you need to retire? To understand the amount of total savings you might need if you’re aiming to replace 80% of your income each year, you can use the 4% rule. This guideline recommends you withdraw no more than 4% of your total retirement savings to cover your annual expenses. The theory behind this rule is that by withdrawing a small percentage of your nest egg each year, you can leave the bulk of your portfolio intact and hopefully growing steadily over time.

So if you consider your desired annual income of $80,000, and subtract, say, $20,000 in annual Social Security benefits (learn more about Social Security below), you would need about $60,000 to come from savings or other income.

Then, divide this target income amount by 4% to get the approximate total you’ll need to save. For example, for a target annual income of $60,000, divide $60,000 by 4% (60,000/0.04) you get about $1.2 million.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Target Retirement Savings By Age

Because lifestyle, standard of living, and individual costs can vary so widely, there’s no exact recommendation for how much different age groups should have already saved for retirement. However, once again, there are some useful guidelines.

Age	How Much Should You Have Saved?
30	By age 30, experts recommend you have saved an amount equal to your annual salary. Start by saving 10%-15% of your gross income, beginning in your 20s.
40	Three or four times your annual salary.
50	Six times your annual salary
60	Eight times your annual salary
67	10 times your annual salary. So if you make $75,000, you should have $750,000 saved.

Are You on Track?

You may still be wondering, “Am I on track for retirement?” The rules of thumb above can help you benchmark whether you are on track. However, it’s also important to factor in your personal financial situation, as well as your retirement goals, to get a handle on your individual needs. Depending on your personal circumstances, you may need to save more or less.

Give yourself an honest assessment of your financial present by doing an inventory of your current expenses, income, taxes, and savings. Which expenses do you expect to carry over into retirement? Which won’t?

For example, perhaps you have a mortgage that you’ll pay off before you retire, so you won’t need to include that in your retirement income needs. Do you have enough income to meet your savings goals? How much have you already saved in your retirement, brokerage, and savings accounts? You can subtract the amount you’ve already saved from your total goal.

Recommended: How to Save for Retirement at 30

Understanding the Role of Social Security

Social Security benefits can provide a vital supplement to your retirement income and help you get closer to financial security. However, it’s critical to understand that the amount of your benefit will vary depending on your age.

The earliest you can start receiving Social Security Benefits is age 62, but your benefits will be reduced by as much as 30% if you take them that early — and they will not increase as you age.

If you wait until your full retirement age (FRA) you can begin receiving full benefits. Your full retirement age is based on the year you were born. For example, if you were born in 1960 or later, your full retirement age is 67. You can find a detailed chart of retirement ages at ssa.gov.

But here is the real Social Security bonus: If you can put off claiming your Social Security benefits until age 70, perhaps by working longer or working part time, the size of your benefits will increase considerably. Typically, for each additional year you wait to claim your benefits up to age 70, your benefits will grow by 8%.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Choosing From the Different Types of Retirement Plans

There are a number of tax-advantaged retirement accounts that can help you meet your retirement savings goals:

401(k) Plans

A 401(k) plan is an employer-sponsored retirement plan. Contributions are made with pre-tax dollars, which lowers your taxable income for an immediate tax break. In 2023, individuals can contribute up to $22,500 each year, with an additional $7,500 for those age 50 and up. Funds are typically taken directly from your paycheck to make savings automatic. Employers will often offer matching contributions, and employees should typically save enough to meet the matching requirements. After all, it’s essentially free money and can boost your retirement savings.

Investments inside 401(k) accounts grow tax-deferred, and withdrawals in retirement are taxed at your normal income tax rate.

Account holders who leave their job or are laid off at age 55 or older can make withdrawals from their 401(k) without paying an early withdrawal penalty. Otherwise individuals must wait until age 59½. Your 401(k) plan is subject to required minimum distributions (RMDs) once you turn 73.

Traditional and Roth IRAs

In addition to saving in a 401(k), you can also consider a traditional or Roth IRA. To help decide which one works for you, consider the differences between the two:

• Traditional IRA. With a traditional IRA, contributions are made with pre-tax funds and grow tax-deferred inside the account. Withdrawals for a traditional IRA are taxed at ordinary income tax rates. Withdrawals can be made at age 59½ without penalty. Early withdrawals, though, are subject to both income tax and a 10% penalty. Traditional IRAs are also subject to RMDs.

• Roth IRA. Roth IRAs, on the other hand, are funded with after-tax contributions, so there is no immediate tax break. However, money inside the account grows tax-free, and withdrawals are also tax-free in retirement. Because you’ve already paid taxes on the principal (the amount of your contributions), those funds can be withdrawn penalty-free at any time — but if you withdraw earnings as well, you could incur a penalty.

While the idea of tax-free retirement income is pretty appealing, Roth accounts come with several rules and restrictions, most notably income limits. Before opening a Roth, be sure you understand the terms. Contribution limits for both traditional and Roth IRAs are $6,500, or $7,500 in 2023 for those age 50 and up.

The Takeaway

Asking yourself, “Am I on track for retirement?”, is such a common question — yet it doesn’t have a one-size-fits-all answer. Determining the amount you’ll need to cover your expenses in retirement requires weighing various personal and financial factors, including how much you’ve saved, and estimating how much you’re likely to need in the years to come.

Fortunately, there are some basic rules of thumb that can help you reach a potential target amount. While these figures aren’t set in stone, they can provide a reasonable ballpark to help you start planning, saving, and investing for your post-work future.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What are the signs that you are ready to retire?

Signs that you’re ready to retire include having enough money for the retirement lifestyle you want, having diversified portfolio to help manage investment risk, you’ve paid off or significantly reduced your debt, you have a plan to collect Social Security in a way that will help you maximize your benefits, and you feel comfortable that you can afford healthcare costs or any emergencies that come up.

Am I on track to retire comfortably?

To gauge if you are on track with your retirement savings, you can use a couple of general guidelines. The 80% rule says you will need 80% of your income per year when you retire. Another guideline recommends having 10 times your annual salary saved by the time you’re 67.

But you also need to factor in your personal financial situation, as well as your retirement goals to determine if you can retire comfortably. Depending on your circumstances, you may need to save more or less than the guidelines recommend.

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Nov

2023

Understanding the 403(b) Retirement Plan: A Comprehensive Guide

By Pam O’Brien | invest, Investing, Preparing for Retirement | Comments Off

If you work for a tax-exempt organization or a public school, you typically have access to a 403(b) plan rather than a 401(k). What is a 403(b)? It’s a workplace retirement plan that can help you start saving for your post-work future.

In this guide, find out how 403(b) plans work, who is eligible for them, and the rules for contributing.

Demystifying the 403(b) Plan

A retirement plan for employees of tax-exempt organizations and public schools, a 403(b) is also known as a tax-sheltered annuity or TSA plan. Employees can contribute to the plan directly from their paycheck, and their employer may contribute as well. A 403(b) can help you save for retirement.

What Exactly is A 403(b) Retirement Plan?

What is a 403(b)? The 403(b) retirement plan is a type of qualified retirement plan designed to help employees save for retirement. Certain schools, religious organizations, hospitals and other organizations often offer this plan to employees. (In layman’s terms, it’s the 401(k) of the nonprofit world.)

Like 401(k)s, 403(b) plans allow for regular contributions toward an employee’s retirement goal. Contributions are tax-deductible in the year they’re made. Also, you won’t pay taxes on any earnings in the account until you make withdrawals.

However, unlike 401(k)s, 403(b)s sometimes invest contributions in an annuity contract provided through an insurance company rather than allocate it into a stocks-and-bonds portfolio.

Distinguishing Between Different 403(b) Options

There are two main types of 403(b) plans: traditional and Roth. With a traditional 403(b), employees contribute pre-tax money to their 403(b) account. This reduces their taxable income, giving them an immediate tax advantage. They will pay taxes on the money when they withdraw it.

With a Roth 403(b), employees contribute after-tax dollars to the plan. They will not owe taxes on the money when they withdraw it.

Not every 403(b) plan offers a Roth version.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

The 403(b) Plan in Action: Participation and Contributions

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, for the plan to be legitimate, paperwork is required.

An employee may get a whole packet of information about the 403(b) plan as part of the onboarding process. This package can include salary reduction agreement terms (this refers to employee contributions from the plan that come from the employee’s paychecks), 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.

Who Gets to Participate?

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

Employers may automatically enroll employees in a 403(b), though employees can opt out if they so choose. Of course, participating in an employer-sponsored retirement plan is one good way to start saving for retirement.

Universal Availability Rule: Who Doesn’t Qualify for 403(b) Participation?

Employers must offer 403(b) coverage to all qualifying employees if they offer it to one — this rule is known as “universal availability.” However, plans may exclude certain employees, 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 participate in a retirement plan, like a 401(k) or 457(b), of the employer

• Employees who are non-resident aliens

• Employees who are students performing certain types of services

The same laws that allow these coverage limits also require employers to give employees notice of specific significant plan changes, like whether or not they have the right to make elective deferrals.

Types of Contributions: Understanding Your Options

You can contribute to your 403(b) through automatic paycheck deductions. This process is similar to that of a 401(k) — the employee agrees to have a certain amount of their salary redirected to the retirement plan during each pay period.

However, other types of 403(b)contributions are also eligible, including:

• Nonelective contributions from your employer, such as matching or discretionary contributions

• After-tax contributions 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 this case, the employer needs to keep separate accounting records for Roth contributions, gains, and losses.

The Cap on Contributions: Limits and Regulations

In 2023, workers can put up to $22,500 into a 403(b) plan. Workers who’ve been with their employer for 15 years may be able to contribute an additional $3,000 if they meet certain requirements. Those age 50 or older can contribute an additional $7,500 to a 403(b).

Combined contributions from the employee and the employer may not exceed the lesser of 100% of the employee’s most recent yearly compensation or $66,000 in 2023.

Investing Within Your 403(b) Plan

A 403(b) may offer an employee a more limited number of investment options compared to other retirement savings plans.

Exploring Investment Choices for Your 403(b)

One way 403(b) plans diverge from other retirement plans, like 401(k)s and even IRAs, is how the organization invests funds. Whereas other retirement plans allow account holders to invest in stocks, bonds, and exchange-traded funds (ETFs), 403(b)s commonly invest in annuity contracts sold by insurance companies.

Part of the reason these plans are known as “tax-sheltered annuities” is that they were once restricted to annuity investments alone — a limit removed in 1974. While many 403(b) plans still offer annuities, they have also largely embraced the portfolio model that 401(k) plans typically offer. 403(b) plans now typically also offer custodial accounts invested in mutual funds.

Comparing 403(b) with Other Retirement Plans

How does a 403(b) stack up against other retirement plans, such as 401(k)s, IRAs, and pension plans? Here’s how they compare.

403(b) vs. 401(k): Similarities and Differences

These two plans share many similarities. However, one notable difference between 403(b) plans and 401(k) plans is there is no profit sharing in 403(b)s — workplaces that are 403(b)-eligible aren’t working toward a profit.

Another way 403(b) plans diverge from 401(k)s is how the organization invests funds. Whereas other retirement plans allow account holders to invest in stocks, bonds, and exchange-traded funds, 403(b)s commonly invest in annuity contracts sold by insurance companies or in custodial accounts invested in mutual funds.

403(b) vs. IRA vs. Pension Plans: What’s Right for You?

An IRA offers more investment choices than a 403(b). With a 403(b), your investment options are narrower.

403(b) plans may also have higher fees than other retirement plans. In addition, certain 403(b) plans aren’t required to adhere to standards set by the Employee Retirement Income Security Act (ERISA), which protects employees who contribute to a retirement account.

However, 403(b)s have much higher contribution limits than IRAs. IRA contributions are $6,500 for 2023 for individuals under age 50, compared to $22,500 in contributions for a 403(b).

As for pension plans, public school teachers are typically eligible for defined benefit pension plans that their employer contributes to that gives them a lump sum or a set monthly payment at retirement. These teachers should also be able to contribute to a 403(b), if it’s offered, to help them save even more for retirement.

Advantages and Challenges of a 403(b) Plan

There are both pros and cons to participating in a 403(b) plan. Here are some potential benefits and disadvantages to consider.

Tax Benefits and Employer Matching: The Upsides

As mentioned, a 403(b) offers tax advantages, whether you have a traditional or Roth 403(b) plan. Contribution limits are also higher than they are for an IRA.

Employers may match employees’ contributions to a 403(b). Check with your HR department to find out if your employer matches, and if so, how much.

Potential Drawbacks: Fees and Investment Choices

Some 403(b)s charge higher fees than other types of plans. They also have a narrower range of investment options, as mentioned earlier.

Making Changes to Your 403(b) Plan

If a situation arises that requires you to make changes to your 403(b), such as contributing less from your paychecks to the plan, it is possible to do so.

When Life Changes: Adjusting Your 403(b) Contributions

You can adjust your contributions to a 403(b). Check with your employer to find out if they have any rules or guidelines for when and how often you can make changes to your contributions, and then get the paperwork you’ll need to fill out to do so.

Plan Termination: Understanding the Process and Implications

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.”

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

Loans, Distributions, and Withdrawals from 403(b) Plans

Here’s information about taking money out of your 403(b), whether it’s a loan or a withdrawal.

Borrowing from Your 403(b): What You Need to Know

There are rules that limit how and when an account holder can access funds in a 403(b) account. Generally, employees can’t take distributions, without penalties, from their 403(b) plan until they reach age 59 ½.

However, some 403(b) plans do allow loans and hardship distributions. Loan rules vary by the plan. Hardship distributions require the employee to demonstrate immediate and heavy financial need to avoid the typical early withdrawal penalty. Check with your employer to find out the particulars of your plan.

Taking Distributions: The When and How

Like other retirement plans, 403(b)s have limits on how and when participants can take distributions. Generally, account holders cannot touch the funds until they reach age 59 1/2 without paying taxes and a penalty of 10%. Furthermore, required minimum distributions, or RMDs, apply to 403(b) plans and kick in at age 73.

If you leave your job, you can keep your 403(b) where it is, or roll it over to another retirement account, such as an IRA or a retirement plan with your new employer.

Maximizing Your 403(b) Plan

If you have a 403(b), the amount you contribute to the plan could potentially help you grow your savings. Here’s how.

Strategic Contribution Planning: How to Maximize Growth

If your employer offers a match on contributions to your 403(b), you should aim to contribute at least enough to get the full match. Not doing so is like leaving free money on the table.

Beyond that, many financial advisors suggest aiming to contribute at least 10% of your income for retirement. You may be able to save less if you have access to guaranteed retirement income such as a pension, as many teachers do, but consider all your options carefully before deciding.

If 10% seems like an unreachable goal, contribute what you can, and then consider increasing the amount that you save each time you get a raise. That way, the higher contribution will not put as much of a dent in your take-home pay.

Doing some calculations to figure out how much you need to save and when you can retire can help you determine the best amount of save.

The Takeaway

If you work for a nonprofit employer, contributing to a 403(b) is a tax-efficient way to start saving for retirement. The earlier you can start saving for retirement, the more time your money can have to grow.

If your employer does not offer a 403(b), or if you’re interested in additional ways to save or invest for retirement, you may want to consider opening another tax-advantaged retirement savings account such as an IRA to help you reach your financial goals.

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

Easily manage your retirement savings with a SoFi IRA.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

SOIN1023151