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Q: Can you withdraw money from a Roth IRA without penalty?

You can withdraw yourcontributionsto a Roth IRA without penalty no matter what your age. However, you generally cannot withdraw theearningson your contributions before age 59 ½, or before the account has been open for at least five years, without incurring a penalty.

Jul

2025

IRA Withdrawal Rules: All You Need to Know

Traditional and Roth IRA Withdrawal Rules & Penalties

By Sheryl Nance-Nash | invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

Roth IRA Withdrawal Rules
Traditional IRA Withdrawal Rules
When Can You Withdraw from an IRA Without Penalties?
9 Exceptions to the 10% Early-Withdrawal Penalty on IRAs
Is Early IRA Withdrawal Worth It?
FAQ

The purpose of an Individual Retirement Account (IRA) is to save for retirement. Ideally, you sock away money consistently in an IRA and your investment grows over time.

However, IRAs have strict withdrawal rules both before and after retirement. It’s very important to understand the IRA rules for withdrawals to avoid incurring penalties.

Here’s what you need to know about IRA withdrawal rules.

Key Points

Traditional and Roth IRAs have specific withdrawal rules and penalties.
Roth IRA withdrawal rules include the five-year rule for penalty-free withdrawals of earnings, and required minimum distributions (RMDs) for inherited IRAs. You can always withdraw your Roth IRA contributions tax-free and penalty-free.
Traditional IRA withdrawals before age 59 ½ incur regular income taxes and a 10% penalty on the taxable portion.
There are exceptions to the penalty, such as using funds for unreimbursed medical expenses (exceeding 7.5% of AGI), health insurance premiums during unemployment, total and permanent disability, qualified higher education expenses, and first-time home purchases (up to $10,000 lifetime limit).
Generally speaking, early IRA withdrawals might be thought of as a last resort due to the potential impact on retirement savings and tax implications, including lost opportunity for growth.

Roth IRA Withdrawal Rules

So when can you withdraw from a Roth IRA? The IRA withdrawal rules are different for Roth IRAs vs traditional IRAs. For instance, qualified withdrawals from a Roth IRA are tax-free, since you make contributions to the account with after-tax funds.

There are some other Roth IRA withdrawal rules to keep in mind as well.^[1]

The Five-year Rule

The date you open a Roth IRA and how long the account has been open is a factor in taking your withdrawals.

According to the five-year rule, you can generally withdraw your earnings tax- and penalty-free if you’re at least 59 ½ years old and it’s been at least five years since you opened the Roth IRA. You can withdraw contributions to a Roth IRA anytime without taxes or penalties. (The annual IRA contribution limits for 2024 and 2025 are $7,000, or $8,000 for those age 50 and up.)

Even if you’re 59 ½ or older, you may face a Roth IRA early withdrawal penalty if the retirement account has been open for less than five years when you withdraw earnings from it.

These Roth IRA withdrawal rules also apply to the earnings in a Roth that was a rollover IRA. If you roll over money from a traditional IRA to a Roth and you then make a withdrawal of earnings from the Roth IRA before you’ve owned it for at least five years, you’ll owe a 10% penalty on the earnings.

For inherited Roth IRAs, the five-year rule applies to the age of the account. If your benefactor opened the account more than five years ago, you can withdraw earnings penalty-free. If you tap into the money before that, though, you’ll owe taxes on the earnings.

Required Minimum Distributions (RMDs) on Inherited Roth IRAs

In most cases, you do not have to pay required minimum distributions (RMDs) on money in a Roth IRA account.

However, according to the SECURE Act, if your loved one passed away in 2020 or later, you don’t have to take RMDs, but you do need to withdraw the entire amount in the Roth IRA within 10 years.^[2]

There are two ways to do that without penalty:

Withdraw funds by December 31 of the fifth year after the original holder died. You can do this in either partial distributions or a lump sum. If the account is not emptied by that date, you could owe a 50% penalty on whatever is left.
Take withdrawals each year, based on your life expectancy.

Tax Implications of Roth IRA Withdrawals

Contributions to a Roth IRA can be withdrawn any time without taxes or penalties. However, let’s say an individual did active investing through their account, which generated earnings. Any earnings withdrawn from a Roth before age 59 ½ are subject to a 10% penalty and income taxes.

Recommended: Retirement Planning Guide

Traditional IRA Withdrawal Rules

If you take funds out of a traditional IRA before you turn 59 ½, you’ll owe regular income taxes on the contributions and the earnings, per IRA tax deduction rules, plus a 10% penalty. Brian Walsh, CFP® at SoFi specifies, “When you make contributions to a traditional retirement account, that money is going to grow without paying any taxes. But when you take that money out — say 30 or 40 years from now — you’re going to pay taxes on all of the money you take out.”

RMDs on a Traditional IRA

The rules for withdrawing from an IRA mean that required minimum distributions kick in the year you turn 73 (as long as you turned 72 after December 31, 2022). After that, you have to take distributions each year, based on your life expectancy. If you don’t take the RMD, you’ll owe a 25% penalty on the amount that you did not withdraw. The penalty may be lowered to 10% if you correct the mistake and take the RMD within two years.^[3]

Early Withdrawal Penalties for Traditional IRAs

In general, an early withdrawal from a traditional IRA before the account holder is at least age 59 ½ is subject to a 10% penalty and ordinary income taxes.^[4] However, there are some exceptions to this rule.

Recommended: What Is a SEP IRA?

When Can You Withdraw from an IRA Without Penalties?

As noted, you can make withdrawals from an IRA once you reach age 59 ½ without penalties.

In addition, there are other situations in which you may be able to make withdrawals without having to pay a penalty. These include having medical expenses that aren’t covered by health insurance (as long as you meet certain qualifications), having a permanent disability that means you can no longer work, and paying for qualified education expenses for a child, spouse, or yourself.

Read more about these and other penalty-free exceptions below.

9 Exceptions to the 10% Early-Withdrawal Penalty on IRAs

Whether you’re withdrawing from a Roth within the first five years or you want to take money out of an IRA before you turn 59 ½, there are some exceptions to the 10% penalty on IRA withdrawals.

1. Medical Expenses

You can avoid the early withdrawal penalty if you use the funds to pay for unreimbursed medical expenses that total more than 7.5% of your adjusted gross income (AGI).

2. Health Insurance

If you’re unemployed for at least 12 weeks, IRA withdrawal rules allow you to use funds from an IRA penalty-free to pay health insurance premiums for yourself, your spouse, or your dependents.

3. Disability

If you’re totally and permanently disabled, you can withdraw IRA funds without penalty. In this case, your plan administrator may require you to provide proof of the disability before signing off on a penalty-free withdrawal.

4. Higher Education

IRA withdrawal rules allow you to use IRA funds to pay for qualified education expenses, such as tuition and books for yourself, your spouse, or your child without penalty.

5. Inherited IRAs

IRA withdrawal rules for inherited IRAs state that you don’t have to pay the 10% penalty on withdrawals from an IRA, unless you’re the sole beneficiary of a spouse’s account and roll it into your own, non-inherited IRA. In that case, the IRS treats the IRA as if it were yours from the start, meaning that early withdrawal penalties apply.

6. IRS Levy

If you owe taxes to the IRS, and the IRS levies your account for the money, you will typically not be assessed the 10% penalty.

7. Active Duty

If you’re a qualified reservist, you can take distributions without owing the 10% penalty. This goes for a military reservist or National Guard member called to active duty for at least 180 days.^[5]

8. Buying a House

While you can’t take out IRA loans, you can use up to $10,000 from your traditional IRA toward the purchase of your first home — and if you’re purchasing with a spouse, that’s up to $10,000 for each of you. The IRS defines first-time homebuyers as someone who hasn’t owned a principal residence in the last two years. You can also withdraw money to help with a first home purchase for a child or your spouse’s child, grandchild, or parent.

In order to qualify for the penalty-free withdrawals, you’ll need to use the money within 120 days of the distribution.

9. Substantially Equal Periodic Payments

Another way to avoid penalties under IRA withdrawal rules is by starting a series of distributions from your IRA spread equally over your life expectancy. To make this work, you must take at least one distribution each year and you can’t alter the distribution schedule until five years have passed or you’ve reached age 59 ½, whichever is later.

The amount of the distributions must use an IRS-approved calculation that involves your life expectancy, your account balance, and interest rates.

Understanding How Exceptions Are Applied

If you believe that any of the exceptions to early IRA withdrawal penalties apply to your situation, you may need to file IRS form 5329 to claim them.^[6] However, it’s wise to consult a tax professional about your specific circumstances.

💡 Quick Tip: For investors who want a diversified portfolio without having to manage it themselves, automated investing could be a solution (although robo advisors typically have more limited options and higher costs). The algorithmic design helps minimize human errors, to keep your investments allocated correctly.

Is Early IRA Withdrawal Worth It?

While there may be cases where it makes sense to take an early withdrawal, many financial professionals agree that it should be a last resort. These are disadvantages and advantages to consider.

Pros of IRA Early Withdrawal

If you have a major expense and there are no other options, taking an early withdrawal from an IRA could help you cover the cost.
An early withdrawal may help you avoid taking out a loan you would then have to repay with interest.

Cons of IRA Early Withdrawal

By taking money out of an IRA account early, you’re robbing your own nest egg not only of the current value of the money but also the chance for future years of compound growth.
Money taken out of a retirement account now can have a big impact on your financial security in the future when you retire.
You may owe taxes and penalties, depending on the specific situation.

Alternatives to Early IRA Withdrawal

Rather than taking an early IRA withdrawal and incurring taxes and possible penalties, as well as impacting your long-term financial goals, you may want to explore other options first, such as:

Using emergency savings: Building an emergency fund that you can draw from is one way to cover unplanned expenses, whether it’s car repairs or a medical bill, or to tide you over if you lose your job. Financial professionals often recommend having at least three to six months’ worth of expenses in your emergency fund.

To create your fund, start contributing to it weekly or bi-weekly, or set up automatic transfers for a certain amount to go from your checking account into the fund every time your paycheck is direct-deposited.
Taking out a loan: You could consider asking a family member or friend for a loan, or even taking out a personal loan, if you can get a good interest rate and/or favorable loan terms. While you’ll need to repay a loan, you won’t be taking funds from your retirement savings. Instead, they can remain in your IRA where they can potentially continue to earn compound returns.

Opening an IRA With SoFi

IRAs are tax-advantaged accounts you can use to save for retirement. However, it is possible to take money out of an IRA if you need it before retirement age. Just remember, even if you’re able to do so without paying a penalty, the withdrawals could leave you with less money for retirement later.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help build your nest egg with a SoFi IRA.

FAQ

Can you withdraw money from a Roth IRA without penalty?

You can withdraw your contributions to a Roth IRA without penalty no matter what your age. However, you generally cannot withdraw the earnings on your contributions before age 59 ½, or before the account has been open for at least five years, without incurring a penalty.

What are the rules for withdrawing from a Roth IRA?

You can withdraw your own contributions to a Roth IRA at any time penalty-free. But to avoid taxes and penalties on your earnings, withdrawals from a Roth IRA must be taken after age 59 ½ and once the account has been open for at least five years.

However, there are a number of exceptions in which you typically don’t have to pay a penalty for an early withdrawal, including some medical expenses that aren’t covered by health insurance, being permanently disabled and unable to work, or if you’re on qualified active military duty.

What are the 5 year rules for Roth IRA withdrawal?

Under the 5-year rule, if you make a withdrawal from a Roth IRA that’s been open for less than five years, you’ll owe a 10% penalty on the account’s earnings. If your Roth IRA was inherited, the 5-year rule applies to the age of the account. So if you inherited the Roth IRA from a parent, for instance, and they opened the account more than five years ago, you can withdraw the funds penalty-free. If the account has been opened for less than five years, however, you’ll owe taxes on the gains.

How do inherited IRA withdrawal rules differ?

According to inherited IRA withdrawal rules, you don’t have to pay the 10% penalty on withdrawals from an IRA unless you’re the sole beneficiary of a spouse’s account and roll it into your own, non-inherited IRA. In that case, the IRS treats the IRA as if it were yours from the start, meaning that early withdrawal penalties apply.

In addition, for inherited IRAs, the five-year rule applies to the age of the account. If the person you inherited the IRA from opened the account more than five years ago, you can withdraw earnings penalty-free.

Are there penalties for missing RMDs?

Yes, there are penalties for missing RMDs. You are required to start taking RMDs when you turn 73, and then each year after that. If you miss or don’t take RMDs, you’ll typically owe a 25% penalty on the amount that you failed to withdraw. The penalty could be lowered to 10% if you correct the mistake and take the RMD within two years.

Article Sources

IRS. IRA FAQs – Distributions (withdrawals).
IRS. Retirement topics – Beneficiary.
IRS. Retirement plan and IRA required minimum distributions FAQs.
IRS. What if I withdraw money from my IRA?.
U.S. Army. The HEART Act.
H&R Block. When Should You Use Form 5329?.

Photo credit: iStock/Fly View Productions

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q125-060

Jul

2025

What Is the Spot Market & How Does It Work?

By Brian Nibley | Growing Wealth, invest, Investing, Terminology | Comments Off

A spot market is a market where buyers meet sellers and make an immediate exchange. In other words, delivery takes place at the same time payment is made. That can include stock exchanges, currency markets, or commodity markets.

But often when discussing spot markets, we’re talking about commodities. Commodity markets are somewhat different from the markets for stocks, bonds, mutual funds, and ETFs, all of which trade exclusively through brokerages. Because they represent a physical good, commodities have an additional market — the spot market. This market represents a place where the actual commodity gets bought and sold right away.

Key Points

Spot markets involve instant trades and immediate delivery.
Spot prices reflect real-time supply and demand.
Spot markets are less susceptible to manipulation.
OTC and centralized exchanges facilitate spot trades.
Futures markets are speculative, while spot markets are organic.

Spot Markets Definition

If you’re trying to define the spot markets, it may be helpful to think of it as a public financial market, and one on which assets or commodities are bought and sold. They’re also bought and sold for immediate, or quick, delivery. That is, the asset being traded changes hands on the spot.

Prices quoted on spot markets are called the spot price, accordingly.

One example of a spot market is a coin shop where an individual investor goes to buy a gold or silver coin. The prices would be determined by supply and demand. The goods would be delivered upon receipt of payment.

Understanding Spot Markets

Spot markets aren’t all that difficult to understand from a theoretical standpoint. There can be a spot market for just about anything, though they’re often discussed in relation to commodities (perhaps coffee, corn, or construction materials), and specific things like precious metals.

But again, an important part of spot market transactions is that trades take place on the spot — immediately.

Which Types of Assets Can Be Found on Spot Markets?

As noted, all sorts of assets can be found on spot markets. That ranges from food items or other consumables, construction materials, precious metals, and more. If you were, for instance, interested in investing in agriculture from the sense you wanted to trade contracts for oranges or bananas, you could likely do so on the spot market.

Some financial instruments may also be traded on spot markets, such as Treasuries or bonds.

How Spot Market Trades Are Made

In a broad sense, spot market trades occur like trades in any other market. Buyers and sellers come together, a price is determined by supply and demand, and trades are executed — usually digitally, like most things these days. In fact, a spot market may and often does operate like the stock market.

As noted, stock markets are also, in fact, spot markets, with financial securities trading hands instantly (in most cases).

What Does the Spot Price Mean?

As mentioned, the spot price simply refers to the price at which a commodity can be bought or sold in real time, or “on the spot.” This is the price an individual investor will pay for something if they want it right now without having to wait until some future date.

Because of this dynamic, spot markets are thought to reflect genuine supply and demand to a high degree.

The interplay of real supply and demand leads to constantly fluctuating spot prices. When supply tightens or demand rises, prices tend to go up, and when supply increases or demand falls, prices tend to go down.

The Significance of a Spot Market

The spot market of any asset holds special significance in terms of price discovery. It’s thought to be a more honest assessment of economic reality.

The reason is that spot markets tend to be more reliant on real buyers and sellers, and therefore should more accurately reflect current supply and demand than futures markets (which are based on speculation and can be manipulated, as recent legal cases have shown. More on this later.)

Types of Spot Markets

There’s only one type of spot market — the type where delivery of an asset takes place right away. There are two ways this can happen, however. The delivery can take place through a centralized exchange, or the trade can happen over the counter.

Over-the-counter

Over-the counter, or OTC trades, are negotiated between two parties, like the example of buying coins at a coin shop.

Market Exchanges

There are different spot markets for different commodities, and some of them work slightly differently than others.

The spot market for oil, for example, also has buyers and sellers, but a barrel of oil can’t be bought at a local shop. The same goes for some industrial metals like steel and aluminum, which are bought and sold in much higher quantities than silver and gold.

Agricultural commodities like soy, wheat, and corn also have spot markets as well as futures markets.

Spot Market vs Futures Market

One instance that makes clear the difference between a spot market and a futures market is the price of precious metals.

Gold, silver, platinum, and palladium all have their own spot markets and futures markets. When investors check the price of gold on a mainstream financial news network, they are likely going to see the COMEX futures price.

COMEX is short for the Commodity Exchange Inc., a division of the New York Mercantile Exchange. As the largest metals futures market in the world, COMEX handles most related futures contracts.

These contracts are speculatory in nature — traders are making bets on what the price of a commodity will be at some point. Contracts can be bought and sold for specific prices on specific dates.

Most of the contracts are never delivered upon, meaning they don’t involve delivery of the actual underlying commodity, such as gold or silver. Instead, what gets exchanged is a contract or agreement allowing for the potential delivery of a certain amount of metal for a certain price on a certain date.

For the most part, futures trading only has two purposes: hedging bets and speculating for profits. Sophisticated traders sometimes use futures to hedge their bets, meaning they purchase futures that will wind up minimizing their losses in another bet if it doesn’t go their way. And investors of all experience levels can use futures to try to profit from future price action of an asset. Predicting the exact price of something in the future can be difficult and carries high risk.

The spot market works in a different manner entirely. There are no contracts to buy or sell and no future prices to consider. The market is simply determined by what one party is willing to purchase something for.

Spot Market vs Futures Market
Spot Market	Futures Market
No contracts to buy or sell	Contracts are bought and sold outlining future prices
Trades occur instantly	Trades may never actually occur at all
Non-speculative	Speculative by nature

Another important concept to understand is contango and backwardation, which are ways to characterize the state of futures markets based on the relationship between spot and future prices. Some background knowledge on those concepts can help guide your investing strategy.

Note, too, that some investors may be confused by the concepts of margin trading and futures contracts. Margin and futures are two different concepts, and don’t necessarily overlap.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Example of a Spot Market

Consider the spot and futures markets for precious metals.

Precious-metal prices that investors see on financial news networks will most often be the current futures price as determined by COMEX. This market price is easy to quote. It’s the sum of all futures trading happening on one central exchange or just a few central exchanges.

The spot market is more difficult to pin down. In this case, the spot market could be generally referred to as the average price that a person would be willing to pay for a single ounce of gold or silver, not including any premiums charged by sellers.

Sometimes there is a difference between prices in the futures market and spot market. The difference is referred to as the “spread.” Under ordinary circumstances, the difference will be modest. During times of uncertainty, though, the spread can become extreme.

Futures Market Manipulation

As for trying to define what spot price means, it’s important to include one final note on futures markets. This will illustrate a key difference between the two markets.

Recent high-profile cases brought by government enforcement agencies like the Securities and Exchange Commission and Commodities and Futures Trading Commission highlight the susceptibility of futures markets to manipulation.

Some large financial institutions have been convicted of engaging in practices that artificially influence the price of futures contracts. Again, we can turn to the precious-metals markets for an example.

During the third quarter of 2020, JP Morgan was fined $920 million for “spoofing” trades and market manipulation in the precious metals and U.S. Treasury futures markets. Spoofing involves creating large numbers of buy or sell orders with no intention of fulfilling the orders.^[1]

Because order book information is publicly available, traders can see these orders, and may act on the perception that big buying or selling pressure is coming down the pike. If many sell orders are on the books, traders may sell, hoping to get ahead of the trade before prices fall. If many buy orders are on the books, traders may buy, thinking the price is going to rise soon.

Cases like this show that futures markets can be heavily influenced by market participants with the means to do so.

Spot markets, on the other hand, are much more organic and more difficult to manipulate.

3 Tips for Spot Market Investing

For those interested in trying their hand in the spot market, here are a few things to keep in mind.

1. Know What’s Going On

Often, prices in the spot market can change or be volatile in relation to the news or other current events. For that reason, it’s important that investors know what’s happening in the world, and use that to assess what’s happening with prices for a given asset or commodity.

2. Keep Your Emotions in Check

Emotional investing or trading is a good way to get yourself into financial trouble, be it in the spot market, or any other type of trading or investing. You’d likely do well to keep your emotions in check when trading or investing on the spot market, as a result.

3. Understand the Market

It’s also a good idea to do some homework and make a solid attempt at trying to understand the market you’re trading in. There may be jargon to learn, terms to understand, price discovery mechanisms that could otherwise be foreign to even a seasoned investor — do your best to do your due diligence.

The Takeaway

Spot markets are where commodities are traded, instantly. There are numerous types of spot markets, and there are numerous types of commodities that might be traded on them. Investors would be wise to know the basics of how they work, and come armed with a bit of background knowledge about the given commodity they’re trading, in order to reach their goals.

Spot market trading can be a part of an overall trading strategy, but again, investors should know the ropes a bit before getting in over their heads. It may be a good idea to speak with a financial professional before investing.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What is spot market vs a futures market?

Trades on a spot market occur instantly, on the spot. Trades in the futures market involve contracts for commodities with prices outlined for some time in the future — if they occur at all.

What does spot market mean?

The term spot market refers to a financial market where assets or commodities are bought and sold by traders. The trades occur on the spot, or instantly, for immediate delivery.

What is the difference between spot market and forward market?

Forward markets involve trading of futures contracts, or transactions that take place at some point in the future, whereas spot market trades occur instantly, often for cash.

Article Sources

Commodity Trading Futures Commission. CFTC Orders JPMorgan to Pay Record $920 Million for Spoofing and Manipulation.

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Before investing, carefully consider the investment objectives, risks, charges, and expenses detailed in a Fund’s prospectus. This document contains important information and must be read carefully prior to investing; you can find the current prospectus by clicking the link on the Fund’s respective page.
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SOIN-Q225-116

Jul

2025

19 Top Side Hustles to Fund Your Early Retirement

By Dan Miller | Budgeting & Goals, invest, Life & Career, Preparing for Retirement | Comments Off

Table of Contents

Why Are Side Hustles Your Secret Weapon for Early Retirement?
The F.I.R.E Movement
19 Easy Side Hustles to Fund Early Retirement
Factors to Consider When Choosing the Right Side Hustle or Career
How to Integrate Side Hustles Into Your Early Retirement Plan
FAQ

If you’ve always dreamed about quitting the rat race and retiring early, you may want to take on a side hustle to help bring in extra money. While a side hustle is usually a part-time job, some side hustles have the potential to turn into a career or business that can provide a significant source of income.

Read on to learn more about early retirement side hustles, including some easy side hustle ideas that could help you secure your financial future.

Key Points

To retire early, taking on a side hustle can provide extra income to boost long-term financial security and retirement savings.
Leveraging existing skills and passions to find a side hustle enhances chances of success and enjoyment.
Many side hustles offer flexibility, require no special equipment, and are easy to start. Examples include online tutoring and pet sitting.
For individuals with design and web-based skills, graphic design and web development for small businesses may be lucrative side hustles.
Virtual assistant roles are one of the more recent side hustle opportunities. Virtual assistants support business owners by performing tasks such as customer service, and are in high demand.

Why Are Side Hustles Your Secret Weapon for Early Retirement?

The average retirement age in the U.S. is currently 62, according to a 2024 study from MassMutual.^[1] If you are hoping to retire early — in your 50s, say — a side hustle can serve as a tool to help generate extra income.

An early retirement side hustle, which is sometimes referred to as an early retirement job, doesn’t have to involve a lot of time and effort. Even a small side hustle that you do on weekends can give you some extra money you can use to build your retirement accounts. A profitable side hustle may even give you enough funds to set up an additional retirement account — for instance, you could open an IRA — which can add even more money to your retirement savings overall.

The F.I.R.E Movement

The concept of early retirement is so appealing that it has launched movements. For example, the F.I.R.E. movement has attracted a community of people who are looking to retire early. F.I.R.E. stands for “Financial Independence, Retire Early,” and many of its followers hope to retire in their 40s or even their 30s.

The basic idea of the movement is to save a significant amount of your income as a young adult so that you can become financially independent and achieve retirement early. To reach this goal, proponents of F.I.R.E. put 50% to 75% of their income into retirement savings. That can be challenging because after that money is directed to their retirement accounts and their bills are paid, there typically isn’t much left over for fun stuff, like going out to dinner or to the movies.

Individuals planning for early retirement, like those in the F.I.R.E. movement, may find a side hustle especially appealing. It could help them generate extra income for their retirement savings accounts.

19 Easy Side Hustles to Fund Early Retirement

Whether you’re a follower of F.I.R.E. or not, and no matter what your preferred age for early retirement, having a successful side hustle can help you get there faster. Here are some easy jobs for early retirement to consider.

1. Freelance Writing

One of the benefits of having a side hustle is the flexibility to be able to work on your own schedule. If you have a knack for writing, becoming a freelance writer might be a good side hustle for you. With most freelance writing gigs, you can work whenever you like as long as assignments are done by a certain date.

Look for brands or clients who specialize in industries or fields where you already have skills or experience. For instance, if you love to knit, check out opportunities to contribute articles to knitting websites or blogs. Be sure to have examples of your work to share with potential employers so they can see what you are capable of.

2. Online Tutoring

If you’re in college and already thinking about early retirement, good for you! It’s never too soon to start planning and saving for the future. You can even find a side hustle that plays to your current strength — teaching others what you’ve learned in school.

One of the best side hustles for college students is online tutoring. You could tutor other college students or even high school or middle school students. Tutoring can typically be done on evenings or weekends, so you can fit it around your classes.

3. Graphic Design

If you have graphic design skills, another potential side hustle is doing graphic design work for small businesses and individuals. Think about specific services you might be able to offer, such as marketing layout, logo creation, and adding design elements to blogs, videos, or online articles.

Create a portfolio of your design work or set up a website to showcase your work. Then, look for freelance side hustle opportunities on platforms like Upwork or Fiverr.

4. Web Development

In this digital age, web development is another side hustle that can be done remotely, from wherever you are. Many small businesses and individuals need simple websites created and/or maintained for them, and many people don’t know how to do it themselves.

If you work in web development and have the skills and knowledge to create online platforms, you could be just what these clients are looking for. You can show them samples of your work, such as other websites you’ve designed.

5. Virtual Assistant Services

Becoming a Virtual Assistant (VA) is a newer side hustle that has recently increased in popularity. In fact the demand for virtual assistants increased by 35% in 2024, according to market research.^[2]

A VA can help a small business by performing tasks like data entry, scheduling, bookkeeping, and customer support so that business owners can focus on their core business. According to one estimate, entrepreneurs gain up to 15 hours a week by using a virtual assistant to perform such tasks.

Some of the industries using virtual assistants are health care, real estate, and e-commerce businesses. You could start your search for a VA side hustle by concentrating on these fields and/or looking for opportunities on Upwork and FlexJobs.

6. Creating and Selling Online Courses

Another side hustle option you might consider if you’re an expert on a particular subject is creating and selling online courses. For example, maybe you’re a talented amateur pastry chef, a photographer, or you’re skilled at DIY home improvement projects. You could create courses showing other people how to achieve some of the things you’ve mastered, whether it’s decorating a cake, taking wedding photos, or remodeling a bathroom.

In fact, you may be able to combine two side hustles in one. If you’re good with plants and flowers, for instance, you might get a side hustle planting gardens for people on weekends, and then create videos to share your tips and tricks with an online audience. That way you’ve got even more money to save for early retirement, perhaps in an investment account.

7. Starting a Blog

A blog can be a way to share your passion or knowledge on a certain subject with others. While many blogs are passion projects where it might be difficult to make a lot of money, it all depends on your subject, how diligent you are with your blog, and how you choose to monetize it.

For example, you could host display ads on your blog (you can talk directly to companies to see if they’d like to advertise with you or use an online advertising platform), write sponsored content, or include affiliate links to products you mention so that you can earn commission whenever a reader clicks on the link and buys the product.

8. Starting a Podcast

If you want to share your knowledge on a topic, and you love to talk and interact with other people, starting a podcast may be a fitting side hustle for you. Podcasts are hugely popular: In the U.S., approximately 158 million people listen to podcasts every month.^[3]

Almost anyone can start a podcast. All you need to do is decide on a topic (pick a subject you love to talk about), identify what makes your podcast unique, and determine who your audience is. Next, figure out the format (interview, roundtable, or whatever), and then get ready to start recording. You may be able to produce the podcast using only your computer and some headphones. Finally, decide how you’ll distribute your podcast — via Spotify, YouTube, Apple Podcasts, and so on.

The amount you can earn by podcasting varies widely. In general, podcasters may earn $25 to $50 per 1,000 downloads.^[4]

9. Offering Coaching Services

If you’re an expert in business or in a specific area like fitness or human resources, you may want to explore the idea of launching an online coaching service. You can take the skills you’ve learned and teach them to others during online coaching sessions. You’ll need to determine who your clients might be and develop a coaching program. Then, you can figure out how much to charge for your services.

For instance, if you’ve worked in HR, you might offer your services as a career coach helping people land new jobs or move up the ladder in their current job. Try to pick a topic that will engage an audience and offer them valuable content that they’re willing to pay for.

10. Offering Consulting Services

Like a coaching service, starting a side gig in consulting is a side hustle that can be a good fit for someone with expertise in a given field. For example, maybe you’ve worked as a project manager in construction. You could offer your consulting services to people who are renovating their home and looking for guidance and someone to oversee the job.

Or maybe you’ve worked in the admissions office at a college. You might be able to provide consulting services to people applying to school to earn their degree. Think about what your skills are and what valuable services you can offer to others.

11. Driving for Ride-Sharing or Food Delivery Services

Ride-sharing and food delivery services like Uber, Lyft, Grubhub and DoorDash have become ubiquitous, and these companies are always looking for new drivers. Essentially, all you need is an eligible car, a valid driver’s license, at least a year’s worth of driving experience, and auto insurance.

In 2025, the average hourly pay for a rideshare driver is slightly more than $21, according to ZipRecruiter. Exactly what you can earn depends on where you live and what you earn in tips.^[5]

Just be sure to take into account the expenses involved, including gas, and wear and tear on your vehicle.

12. Affiliate or Influencer Marketing

Affiliate and influencer marketing is another popular side hustle today. The job involves promoting products or services on social media or a website and earning a commission or fee for driving sales or audience engagement.

If you have a large social media following or online audience, this may be an avenue to explore. Talk to brands you know and like and see if you might be able to work with them to help promote their products or offerings.

13. Pet Sitting or Dog Walking

Love pets? You could earn extra money by starting a side hustle as a pet sitter or dog walker. Basically, you need to be responsible and good with animals for a job like this. You’ll do such tasks as walk pets, clean up after them, feed them, give them medication if necessary, and possibly stay overnight with them if their owners are out of town.

To find clients, reach out to friends and neighbors who have pets, or join platforms like Wag or Rover to find freelance dog walking and pet sitting opportunities in your area.

14. Renting Out a Spare Room (e.g., Airbnb)

Whether you join Airbnb or rent out a spare room on your own, offering rental space to others can be a lucrative side hustle, especially when it comes to passive income ideas. This is a gig that allows you to earn money for early retirement without requiring a lot of work on your part.

Once you get set up and start renting out your space, your main responsibilities will be vetting prospective renters and maintaining the room or space.

15. Selling Crafts or Handmade Goods Online (e.g., Etsy)

Another platform that you can use to start a good side hustle is Etsy or another similar platform. You can sell almost anything on Etsy, from homemade crafts to jewelry to wedding invitations. The platform does charge fees including processing and transaction fees, but using it can be a good way to reach an audience interested in buying what you’re selling. Over 96 million people are active buyers on Etsy.^[6]

16. Testing Websites and Apps

Websites and apps need people to test them to make sure they work properly and provide a good experience. For individuals looking to earn extra income for early retirement, this could be an interesting and flexible side hustle.

The job typically involves evaluating the functionality, usability, and design of digital products before they’re launched. Many companies pay users to perform specific tasks and provide feedback, and report bugs or user-experience issues. This side hustle often requires only basic tech skills.^[7]

17. Participating in Online Surveys

There are a number of websites and platforms such as Swagbucks, Opinion Outpost, and MySurvey, that will pay you to fill out online surveys. The surveys can be on just about any topic, and they may be tailored to you based on your interest and demographics. While most surveys don’t pay very much — sometimes just a few dollars per survey and some surveys only offer points that you can eventually redeem for cash — they do offer flexibility since you can do them anytime.^[8]

18. Offering Neighborhood Tours

A unique side hustle if you live in an area that tourists like to visit is to become a neighborhood tour guide. For example, if you live in a historic area, a place with a unique heritage, or a locale with interesting geographic landmarks, you may be able to offer your services by giving neighborhood tours to those who are interested.

Be sure to bring your expertise into the equation as well. If you are a foodie or an architecture enthusiast, you could share your passion with others by introducing them to remarkable spots in your area and giving them insider information about each one. Whatever your interest or specialty is, you’ll need to develop a tour itinerary and market it to potential customers.

19. Lawn Mowing or Landscaping Services

Mowing lawns and landscaping yards is one of the original side hustles — it’s one that many of us did as kids. And it can be a lucrative side hustle for adults to earn some easy extra money for early retirement. The average price of mowing a half-acre yard is $50 to $75.^[9]

All you need to get started is a lawnmower, a trimmer, and a blower. You can find clients by talking to neighbors, reaching out to friends and family, and going door to door in different neighborhoods near you.

Factors to Consider When Choosing the Right Side Hustle or Career

While there are many potential side hustles to choose from, choosing the right one for you depends largely upon your skills and interests. While it may be possible to succeed in any particular side hustle with enough hard work and determination, picking a side hustle where you already have some experience may set you up for a higher likelihood of success. And the more you like the work you’re doing, the greater the chance you’ll stick with it.

In addition, weigh the potential money you could make with the side hustle against the effort and possible expenses required. If you’ll be putting in hours for a side hustle that doesn’t net you all that much, it probably isn’t worth it. And if you have to buy a lot of extra equipment upfront for a gig that may or may not be successful, you may want to think twice.

How to Integrate Side Hustles Into Your Early Retirement Plan

When you are working at achieving financial freedom, a side hustle can play an important role in helping you reach your goal. Having a job on the side can provide extra money so that you can put more dollars into your retirement accounts or open a new account so that you can reach your retirement goal faster, and potentially with more money.

Plus, if a side hustle becomes very successful, it may be able to help supplement or even replace your income if you quit your “real” job. It might even be something you want to keep doing after you’ve finished saving for retirement because you enjoy it so much.

The Takeaway

When you’re hoping to retire early, a side hustle can help you earn extra money to make that dream a reality. Having the income from a side hustle, along with your salary from your regular full-time job can help you amass more savings so you can retire at a younger age.

With the money you earn from a side hustle, you can contribute more to your retirement accounts or open a new account to help save. The more you can save and invest now, the better your chances of achieving financial security for retirement.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Do I need to find a high-paying side hustle to quit my main career early?

Deciding when you can quit your main career depends on a number of different factors, including your age, your family situation, your financial obligations, and how much you have saved for retirement. If your personal and financial circumstances are right, a side hustle that pays well may help give you enough of a financial cushion to retire early.

How much extra money can a side hustle realistically contribute to my retirement savings?

The amount that a side hustle can contribute to your retirement savings can vary drastically, depending on what the side hustle is and how much time and effort you put into it. But consider this: Money that you earn from a side hustle now and put into a retirement savings account can potentially grow over time, thanks to the power of compounding returns. The sooner you start saving for retirement, the better.

What are some flexible jobs that I can continue even after I retire?

Flexible jobs you can start now and continue in retirement include pet sitting, freelance writing and graphic design, and online coaching and consulting. Each of these jobs offers flexible hours and convenience so that you can work when it suits you best.

What is the best side hustle?

What’s the best side hustle for you depends on your skills, interests, and life situation. The best side hustles are ones you enjoy and that make good use of the skills you have. The best side hustles also pay you enough to make them worth your while and offer flexibility so you can do them when you choose.

What is the easiest side hustle to get into?

Some side hustles are particularly easy to get into. Examples include pet sitting and dog walking, working as a virtual assistant, and renting out a room. With each of these side hustles, you can find money-making opportunities through online platforms so that you don’t have to go out and drum up business yourself. Plus they don’t require special equipment.

Article Sources

MassMutual. 2024 MassMutual Retirement Happiness Study.
There Is Talent. Virtual Assistant Statistics 2025: Insights and Trends.
Podcast Statistics. Podcast Statistics 2025.
Castmagic. How Much Money Can Podcasters Make? 20 Proven Methods to Make Money.
ZipRecruiter. Rideshare Driver Salary.
Business of Apps. Etsy Revenue and Usage Statistics (2025).
Tester Work. Homepage.
Indeed. 20 Companies That Will Pay You To Take Surveys Online.
Jobber. How Much to Charge For Lawn Mowing: Pricing Charts and Formula.

Photo credit: iStock/mixetto

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-077

Jul

2025

What Is Payment for Order Flow?

By Inyoung Hwang | invest, Investing | Comments Off

When an investor places an order with their brokerage to buy or sell an asset, there’s a certain set of steps that take place behind the scenes to fulfill it. That’s referred to as an order flow, and that involves some payments between market makers and brokerages in order to keep orders moving through the pipeline. With that in mind, payment for order flow (PFOF) involves market makers paying brokers for their clients’ order flow.

It can be beneficial for investors to know about the order flow process and payments involved, as it is a variable in how much they ultimately end up paying for trading, if anything. And it’s also been a somewhat controversial practice, despite the fact that it’s become commonplace in today’s market.^[1]

Key Points

Payment for order flow (PFOF) involves brokerages routing customer orders to market makers for a fee, enabling commission-free trading.
PFOF allows brokerages to offer commission-free trading, enhanced liquidity, and potential price improvements to retail investors.
Market makers provide liquidity in the options market, executing trades and offering price improvements to retail investors, and PFOF involves brokers routing their trades to specific market makers.
PFOF has faced controversy, with critics citing a conflict of interest for brokerages, which may prioritize revenue over the best prices for customers.
Regulatory scrutiny has been applied to PFOF, with the DOJ investigating potential market maker profiteering at the expense of retail investors; brokers today must adhere to specific regulatory requirements.^[2]

What Is Payment for Order Flow (PFOF)?

Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee that’s less than a penny. Market makers, who are required to deliver the “best execution,” carry out the retail orders, profiting off small differences between what shares were bought and sold for. Retail brokerages, in turn, use the rebates they collect to offer customers lower trading fees.

What Are Market Makers?

Market makers — also known as electronic trading firms — are regulated firms that buy and sell shares all day, collecting profits from bid-ask spreads. The market maker can execute trades from their own inventory or in the market. Offering quotes and bidding on both sides of the market helps keep it liquid.

Market makers that execute retail orders are also called wholesalers. The money that market makers collect from PFOF is usually fractions of a cent on each share, but these are reliable profits that can turn into hundreds of millions in revenue a year. In recent years, a number of firms have exited or sold their wholesaling businesses, leaving just a handful of electronic trading firms that handle PFOF.

In addition to profits from stock spreads, the orders from brokerage firms give market makers valuable market data on retail trading flows. When it comes to using institutional or retail investors, market makers also prefer trading with the latter because larger market players like hedge funds can trade many shares at once. This can cause big shifts in prices, hitting market makers with losses.

How Does Payment for Order Flow Work?

Here’s a step-by-step guide to how payment for order flow generally works:

A retail investor puts in a buy or sell order through their brokerage account.
The brokerage firm routes the order to a market maker.
The broker collects a small fee or rebate – the “payment” for sending the “order flow” or PFOF.
The market maker is required to find the “best execution,” which could mean the best price, swiftest trade, or the trade most likely to get the order done.

The rebates allow companies offering brokerage accounts to subsidize low-cost or zero-commission trading for customers. It also frees them to outsource the task of executing millions of customer orders.

Usually the amount in rebates a brokerage receives is tied to the size of the trades. Smaller orders are less likely to have an impact on market prices, motivating market makers to pay more for them. The type of stocks traded can also affect how much they get paid for in rebates, since volatile stocks have wider spreads and market makers profit more from them.

Why Is PFOF Controversial?

While widespread and legal, payment for order flow is controversial. Critics argue it poses a conflict of interest by incentivizing brokerages to boost their revenue rather than ensure good prices for customers. The requirement of best execution by the Securities and Exchange Commission (SEC) doesn’t necessarily mean “best price” since price, speed, and liquidity are among several factors considered when it comes to execution quality.^[3]

Defenders of PFOF say that retail investors benefit from the practice through enhanced liquidity, the ability to get trades done. They also point to data that shows customers enjoy better prices than they would have on public stock exchanges. But perhaps the biggest gain for retail investors is the commission-free trading that is now a mainstay in today’s equity markets.

PFOF in the Options Market

Payment for order flow is more prevalent in options trading because of the many different types of contracts. Options give purchasers the right, but not the obligation, to buy or sell an underlying asset. Every stock option has a strike price, the price at which the investor can exercise the contract, and an expiration date, which is the day on which the contract expires.

Market makers play a key role in providing liquidity for the thousands of contracts with varying strike prices and expiration dates.

The options market also tends to be more lucrative for the brokerage firm and market maker. That’s because options contracts trading is more illiquid, potentially resulting in larger spreads for the market maker.

Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Criticism of Payment for Order Flow

Payment for order flow was pioneered in the 1980s by Bernie Madoff, who later pleaded guilty to running one of the largest Ponzi schemes in U.S. history.

Critics argue retail investors can get a poor deal from PFOF. Since market makers and brokerages are only required to provide “best execution” and not necessarily the “best possible price,” firms can make trades that are profitable for themselves but not necessarily in the best interest of individual investors.

As such, regulators have proposed reforms to PFOF, and in 2024, the SEC did adopt some amendments that updated required disclosures.^[4]

Defenders of Payment For Order Flow

Proponents of payment for order flow argue that both sides — the retail investors and the market makers — win from the arrangement. Here are the ways retail customers can benefit from PFOF, according to its defenders:

No Commissions: In recent years, the price of trading has collapsed and is now zero at some of the biggest online brokerage firms. While competition has been a big part of that shift, PFOF has helped bring about low trading transactions for mom-and-pop investors. For context, online trading commissions were $40 or so per trade in the 1990s.
Liquidity: Particularly in the options market, where there can be thousands of contracts with different strike prices and expiration dates, market makers help provide trading liquidity, ensuring that retail customer orders get executed in a timely manner.
Price Improvement: Brokerages can provide “price improvement,” when customers get a better price than they would on a public stock exchange.
Transparency: SEC Rules 605^[5] and 606^[6] require brokers to disclose statistics on execution quality for customer orders and general overview of routing practices. Customers are also allowed to request information on which venues their orders were sent to. Starting in 2020, brokers also had to give figures on net payments received each month from market makers.

The Takeaway

Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee. Payment for order flow has been controversial, but it’s become a key part of financial markets when it comes to stock and options trading today.

Industry observers have said that for retail investors weighing the trade-off between low trading costs versus good prices, it may come down to the size of their trades. For smaller trades, the benefits of saving money on commissions may surpass any gains from price improvement. For investors trading hundreds or thousands of shares at a time, getting better prices may be a bigger priority.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What is payment for order flow (PFOF)?

Payment for order flow, or PFOF, refers to the practice of retail brokers routing their customers’ orders to specific market makers in exchange for a fee.

Why is PFOF controversial?

The crux of the criticism surrounding PFOF involves brokers putting their own financial interests ahead of their clients. Specifically, brokers may be more concerned with generating PFOF-related fees than ensuring their clients receive the best order flow treatment possible.

What are common defenses of PFOF?

Defenders of PFOF say that retail investors benefit from the practice through enhanced liquidity, the ability to get trades done, and low-cost or commission-free trading.

Article Sources

Congress.gov. Payment for Order Flow: The SEC Proposes Reforms.
Congress.gov. Payment for Order Flow (PFOF) and Broker-Dealer Regulation.
FINRA. 5310. Best Execution and Interpositioning.
SEC. SEC Adopts Amendments to Enhance Disclosure of Order Execution Information.
SEC. Disclosure of Order Execution Information.
SEC. 17 CFR Parts 240 and 242.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-035

Jul

2025

A man reviews market updates on his smartphone while working on a laptop.

How Long Will My Retirement Savings Last?

By MP Dunleavey | Budgeting & Goals, Financial Independence, invest | Comments Off

Determining how long your retirement savings will last can be a complicated, highly personal calculation. It’s based on how much you’ve saved, how you’ve chosen to invest your money, your Social Security benefit, whether you have other income streams — and more.

And even when you have all the information at your fingertips, it can be hard to make an accurate calculation, because life is fraught with unexpected events that can impact how much money we need and how long we’re going to live.

Taking those caveats into account, though, it’s still important to make an educated estimate of how much money you’re likely to accumulate by the time you retire, as well as how much you’re likely to spend.

Key Points

How long retirement savings might last depends on savings, investments, Social Security, and other income sources.
The 4 Percent Rule to calculate how much may be needed for retirement suggests a 4% or 4.5% initial withdrawal rate, adjusted for inflation annually.
The Multiply by 25 Rule estimates retirement savings by multiplying desired annual income in retirement by 25.
The Replacement Ratio helps estimate post-retirement income needs based on pre-retirement income.
Strategies to extend retirement savings include reducing fixed expenses, maximizing Social Security benefits, maintaining health, and continuing to work full-time or part-time for a few additional years to earn extra income.

What Factors Affect My Retirement Savings?

Here are some of the many variables that can come into play when deciding how long your retirement savings might last.

Retirement Plan Type

Whether it’s a defined-benefit plan like a pension, or a defined contribution plan like an employer-sponsored 401(k), 403(b), or 457, the kind of account you contribute to will likely have an impact on how much and what method you use to save for retirement.

Pension Plan

With a pension plan, retirement income is usually based on an employee’s tenure with the company, how much was earned, and their age at the time of retirement. Pensions can be a reliable retirement savings option when available because they reward employees with a steady income, typically once per month.

One potential downside, however, is that pension plans can be terminated if a company is acquired, goes out of business, or decides to update or suspend its employee benefits offerings. Indeed, pension plans are far less common compared with defined-contribution plans like 401(k)s and 403(b)s and the like.^[1]

401(k) Plan

With a 401(k) plan, participants can contribute either a percentage of or a predetermined amount from each paycheck. The money is deposited pre-tax, and the account holder generally owes taxes when they withdraw the money in retirement.

In some cases, the funds employees contribute are matched by their employer up to a certain amount (e.g. the employer might contribute 50 cents for every dollar up to 6%).

Unlike a pension plan, the amount of retirement funds the participant saves in a 401(k) is based on how much they personally contributed, whether they received an employer match, the rate of return on their investments, and how long they’ve had the plan.

IRA or Roth IRA

An Individual Retirement Account, or IRA, is a retirement savings account that’s not sponsored by an employer. Individuals with earned income can open an IRA. There are different types of IRAs, including traditional and Roth IRAs, which each have their own tax treatments.

For both traditional and Roth IRAs, you can contribute a certain amount a year; the amount frequently changes annually. For 2025, individuals can contribute up to $7,000, or $8,000 if they’re age 50 or older.

There are no income limits for a traditional IRA, so account holders can contribute up to the limit. Contributions are made with pre-tax dollars, and a certain amount can be deducted from your income taxes, depending on your income, tax-filing status, and whether you (or your spouse, if applicable) are covered by a workplace retirement plan. You pay taxes on your withdrawals from a traditional IRA in retirement.

On the other hand, a Roth IRA has limits on contributions based on filing status and income level. Contributions are made with after-tax dollars and withdrawals from the account are tax-free in retirement.

Recommended: How to Open Your First IRA

Less Common Plans

Other types of retirement plans like Employee Stock Ownership Plans (ESOP) and Profit Sharing Plans are less common and have their own unique benefits, drawbacks, and details. For example, with an ESOP you get shares of company stock purchased for you, with no investment on your behalf, and these plans are designed so that you receive fair market share for the stock when you leave the company. However, because an ESOP only holds shares of company stocks, there is no diversification. You’ll also owe income tax on the distributions.

Social Security

Social Security is a federally run program used to pay people ages 62 and older a continuing income. Social Security benefits are structured so that the longer you wait to claim your benefit check, the higher the amount will be. If you wait until your full retirement age — 67 for anyone born in 1960 or later, and between ages 66 and 67 for those born from 1943 to 1959 — to start collecting benefits, you’ll receive the full benefit amount. However, if you start collecting benefits at age 62, for instance, you’ll only receive about 70% of your full benefit.^[2]

Expected Rate of Return on Investments

If a person puts money into a defined-contribution plan or makes investments in stocks, bonds, real estate, or other assets, there are a number of return outcomes that could affect their retirement savings.

An investment’s performance is about more than just appreciation over time. Learning how to calculate the expected rate of return on the investment can help you get a clearer picture of what the payoff will look like when it’s time to retire.

Unexpected Expenses

One never really knows what retired life might bring. Lots of unexpected expenses could arise.

An extensive home repair or renovation or maybe even a costly relocation to another state or country might make an unforeseen dent in retirement funds.

A major medical incident or the factoring in of long-term care can be another unexpected expense, as are caregiver costs if you or a family member need help.

Some seniors are surprised to learn that health care can get costly in retirement and Medicare may not always be free. Many of the services they might need could require out-of-pocket payments that eat into savings.

As much as individuals might not want to imagine such scenarios, there could be the chance of a divorce during retirement, which could cause a redraft of the savings plan.

Creating a budget to estimate expenses is a great way to get ahead of any surprising financial setbacks that could sneak up down the line.

Inflation

Inflation can take a hefty toll on retirement savings. Even average rates of inflation might have a significant impact on how much retirement funds will actually be worth when they’re withdrawn. For example, $1,500 in January 2021 had the same buying power as $1,810.12 in October 2024.^[3]

Understanding how inflation can affect your retirement savings might ensure you have enough funds padded out to support you for the long haul.

Market Volatility and Investment Losses

Regardless of financial situation or age, checking in on retirement accounts and the climate on Wall Street could help clarify how market swings might affect your retirement savings.

Retirees with defined contribution plans might suffer financial losses if they withdraw invested funds during a volatile market. Not panicking and having enough emergency funds to cover 3 to 6 months of living expenses can help you weather the storm.

Talking to an investment advisor about rebalancing an investment account portfolio to reduce risk is another option for getting ahead of this unexpected savings speedbump.

Ways to Calculate How Much You Might Need to Retire

Are you on track for retirement? That’s something that can be calculated in many ways, which vary in efficacy depending on who you ask.

Here are a few formulas and calculations you can use to consider how much to save for retirement:

The 4 Percent Rule

The 4 Percent Rule, first used by financial planner William Bengen in 1994, assesses how different withdrawal rates can affect a person’s portfolio to ensure they won’t outlive the funds. According to the rule, “assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe [for retirement].” Bengen has since adjusted the rule to 4.5% for the first year’s withdrawal.

The jury is out on whether 4% is a safe withdrawal rate in retirement, but some financial professionals have noted that the rule is rigid and some flexibility may be called for, though it is ultimately up to each investor and their specific situation.^[4]

The Multiply by 25 Rule

This one can get a little controversial, but the Multiply by 25 rule, which expanded upon Bengen’s 4% Rule with the 1998 Trinity Study, involves taking a “hoped for” annual retirement income and multiplying it by 25 to determine how much money would be needed to retire.

For example, if you’d like to bring in $75,000 annually without working, multiply that number by 25, and you’ll find you need $1,875,000 to retire. That figure might seem scary, but it doesn’t factor in alternate sources of income like Social Security, investments, etc.

However, it’s based on a 30-year retirement period. For those hoping to retire before the age of 65, this could mean insufficient funds in the later years of life.

The Replacement Ratio

The Replacement Ratio helps estimate what percentage of someone’s pre-retirement income they’ll need to keep up with their current lifestyle during retirement.

The typical target in many studies shows 70-85% as the suggested range, but variables like income level, marital status, homeownership, health, and other demographic differences all affect a person’s desired replacement ratio, as do the types of retirement accounts they hold.

Also, the Replacement Ratio is based on how much a person was making pre-retirement, so while an 85% ratio might make sense for a household bringing in $100,000 to $150,000 per year, a household with higher earnings — say $250,000 — might not actually need $212,000 each year during retirement. A way to supplement this calculation could be to estimate how much of your current spending will stay the same during retirement.

Social Security Benefits Calculator

By entering the date of birth and highest annual work income, the Consumer Financial Protection Bureau’s Social Security Calculator can determine how much money you might receive in estimated Social Security benefits during retirement.

Other Factors To Calculate

Expected Rate of Returns

Determining the rate of return on investments in retirement can help clarify how long your savings could last. An investment’s expected rate of returns can be calculated by taking the potential return outcomes, multiplying them by the likelihood that they’ll occur, and totaling the results.

Here’s an example: If an investment has a 50% chance of gaining 30% and a 50% chance of losing 20%, the expected rate of returns would be 50% ⨉ 30% + 50% ⨉ 20%, which is an estimated 25% return on the investment.

Home Improvement Costs

If a renovation is looking like it will be necessary down the line, you might calculate how much that home repair project could cost and factor it into your retirement planning.

Inflation

You might also consider using an inflation calculator to uncover what your buying power might really be worth when you retire. To do the calculation, you could assume an annual inflation rate of around 2% to 3%, which is what most central banks consider to be modest and balanced.

Making Retirement Savings Last Longer

If you’re still wondering how long your savings will last or seeking potential ways to make it last longer, a few of these strategies could help:

Lower Fixed Expenses

Unexpected expenses are likely to creep up regardless of how much you save, but by lowering fixed expenses like mortgage and rent payments (by downsizing to a less expensive house or rental) as well as food, insurance, and transportation costs, you might be able to slow the spending of your savings over time. Setting a budget is a solid way to see this in black and white.

Maximize Social Security

While opting into Social Security benefits immediately upon eligibility at 62 might sound appealing, it could significantly reduce the benefit over time, as noted above. With smaller cost of living adjustments later in life, a lengthy retirement (people are living longer than ever before) could mean less money when you need it the most.

Stay Healthy

Unexpected medical expenses might still occur, but by safeguarding health and well-being earlier in life, you may be able to avoid costly chronic conditions like high blood pressure, diabetes, or heart disease.

Keep Earning

Whether it’s staying in the full-time workforce for a couple more years or starting a ride-share side hustle during retirement, continuing to bring in money can help you stretch your savings out a little longer.

The Takeaway

Everyone wants a secure retirement. An important step in your retirement plan is calculating how long your savings will likely last. While there is no way to know for sure, this is such an important step in long-term planning that many different methods and strategies have evolved to help people feel more in control.

There are investment strategies, tax strategies, and income strategies that can help you create a forecast of how you’re doing now, and how your retirement savings may play out in the future. Because there are so many risks and variables — from the markets to an individual’s own health — just having a basic calculation will prove useful.

Help grow your nest egg with a SoFi IRA.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of Individual Retirement Accounts (IRAs).

Article Sources

U.S. Bureau of Labor Statistics 15 percent of private industry workers had access to a defined benefit retirement plan.
Social Security Administration Understanding the Benefits.
U.S. Bureau of Labor Statistics CPI Inflation Calculator.
CNBC Why new retirees may need to rethink the 4% rule.

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