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Why Your Student Loan Balance Never Seems to Decrease

Does it seem like your student loan balance never gets any smaller? This may ring true if you’re one of the 60% of borrowers who stopped making payments on their federal student loans during the Covid-19-related payment pause. (The moratorium also set the interest rate at 0%.)

But even when you start making monthly payments again, or if you graduated during the pandemic and are new to making payments, it still may seem like your loan balance isn’t budging much. Where do your payments go if not to the principal? The short answer: interest.

Understanding how and when student loans accrue interest can help you make smart choices about paying off your balance faster.

Key Points

•   Student loan balances may seem stagnant due to the significant portion of payments going towards interest rather than the principal.

•   Initially, a larger share of a student loan payment is allocated to interest, with a smaller amount reducing the principal.

•   Over time, the portion of the payment reducing the principal increases as the interest portion decreases.

•   Income-based repayment plans might result in payments that only cover part of the monthly interest, potentially causing the loan balance to grow.

•   The suspension of federal student loan payments during the pandemic halted the accrual of interest, effectively freezing loan balances.

What Makes Up a Student Loan Balance?

Your student loan balance is made up of two parts: the amount you borrowed plus any origination fees (the principal) and what the lender charges you to borrow it (interest).

Once you receive your loan, interest begins to accrue. If it’s a Direct Subsidized loan, the federal government typically pays the interest while you’re in school and for the first six months after you graduate. After that, the borrower is responsible for paying the interest.

If the loan is a Direct Unsubsidized loan or a private student loan, the borrower is solely responsible for accrued interest.

How Do Payments Affect My Student Loan Principal?

Most people pay a fixed monthly payment to their lender. That payment includes the principal and the interest. At the beginning of a loan term, a larger portion of your payment goes toward paying interest, and a smaller portion goes to the principal. But the ratio of interest to principal gradually changes so that by the end of the loan term, your payment is mostly going toward the principal.

How Does an Income-Based Repayment Plan Affect My Student Loan Balance?

Things are a little different if you’re making payments under an income-based repayment plan. Your payments are tied to your income and shouldn’t exceed a certain percentage of your salary. The interest, however, doesn’t change based on your income.

This means there may be situations where your monthly payment doesn’t fully cover the interest charges for that month, much less contribute to your principal. In fact, your student loan balance may actually grow over time, despite the payments you make.

How Has the Payment Pause Impacted My Student Loan Balance?

When the government suspended payments on federal student loans, they also hit the pause button on interest accrual. Essentially, the debt has been frozen in time since March 2020. When the moratorium ends, interest will likely start accruing again.

Note that the payment pause didn’t include private student loans. For a refresher on the balance and interest rates on private loans, contact your loan servicer. Be sure the company has your most up-to-date contact information on file, so you don’t miss out on important information about your loans.

Your student loan servicer may have changed since the last time you made a payment. To find out which company is handling your federal student loans, log on to the Federal Student Aid website; the information will be listed in your dashboard. You can also call the Federal Student Aid Information Center at 800-433-3243.

To find out which company is handling your private student loans, contact the lender listed on your monthly statement and find out if they still handle your loan. More often than not, they will. If your loan servicer has changed, the lender can give you the new company’s contact information.

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How to Pay Down Your Loan More Quickly

When it comes to repaying student loans, the key is to find an approach you’ll stick with. One way to tackle the debt is by making extra payments toward the principal. Even a little bit can help bring down the loan balance.

Another approach is to refinance to a lower interest rate. Or you could refinance to a shorter loan term. Or you could do both. Your payments may be higher, particularly if you switch to a shorter loan term, but you will be finished paying off the debt sooner. (Please note that if you refinance a federal student loan, you will lose access to federal protections and programs such as the Covid-related payment pause, the Public Service Loan Forgiveness program, and income-driven repayment plans.)

The Takeaway

The way loan payment schedules are set up is likely why your regular payments don’t seem to be making much of a dent to your balance or loan principal. Initially, more of your payment goes toward paying interest and less toward the principal. But gradually that changes so that by the end of the loan term, most of your payment is going toward the principal.

If you want to pay off your loan faster or generally pay less interest over the life of your loan, one strategy is to refinance student loans to a lower interest rate and/or a shorter loan term. If you decide refinancing makes sense for you, it might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.

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


SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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Average Student Loan Debt: Who Owes the Most?

For millions of students, pursuing a college degree means taking on some amount of debt. That’s because college costs have risen much faster than wages, and the average cost of a four-year degree has far outpaced the rate of inflation in the past 15 or so years.

Today, a typical student borrows around $30,000 to pursue a bachelor’s degree. That amount can be even higher for students pursuing a degree needed for higher-paying jobs, such as those in medicine or law.

Here are the professions whose graduates, on average, owe the most. This list is not exhaustive, and rankings can change based on different data sets.

Average Student Loan Debt by Profession

While it’s true that jobs for people with higher degrees can pay in the six figures, student loan debt can make a significant cut into earnings. Considering student loan debt, along with salary, can give a more complete picture of what kind of financial future many graduates face.

1. Oral Surgeon

Even with a relatively high salary, oral surgeons typically graduate with a large student loan burden. The debt has a significant effect on their professional and personal decisions for decades to come, according to the American Association of Oral and Maxillofacial Surgeons.

The organization has lobbied for student loan reform, including halting interest accrual on student loans during an internship or residency, making sure fair income-based repayment structures are in place, and allowing qualified participants in the Public Service Loan Forgiveness Program (PSLF) to have remaining loan balances forgiven earlier than the standard 10 years.

Average student loan debt: $500,000+

Median salary: $311,460

2. Orthodontist

Like other dental school graduates, orthodontists may face substantial student loan debt. After dental school, orthodontists train for orthodonture during a residency that can last several years.

The American Association of Orthodontists has supported legislation aimed at student loan reform: “Reducing interest rates and fees and allowing refinancing for today’s graduates are critical steps to helping them repay these loans sooner and more efficiently so they can begin to invest in their futures and careers,” Dr. Nahid Maleki, a former association president, has said.

Average student loan debt: $560,000

Median salary: $267,280

3. Endodontist

Less than 3% of all dentists are endodontists, according to the American Association of Endodontists. Endodontists specialize in diagnosing and treating complex causes of tooth pain. The field requires two to three years of education and training beyond dentistry. This means that endodontists may shoulder a greater debt burden than their dental school counterparts.

“The high cost of a dental or medical education is a crippling problem and threatens the future of our specialty,” Dr. Keith V. Krell, then president of the American Association of Endodontists, said. The organization has supported legislation to “funnel more money into dental schools so that unreasonable tuition costs can be offset.”

Average student loan debt: $533,000

Median salary: $242,866

4. Dentist

Many dental students bite off a lot of debt. While the dental industry can be thought of as relatively recession-proof (your aching tooth doesn’t care about market fluctuations), dental spending may become flat during and after lean times while the supply of dentists rises.

Navigating insurance as a dental practice can also be tricky for practice owners, and the field can be competitive and crowded for new dentists.

Average student loan debt: $304,824

Median dentist salary: $167,160

Recommended: Budgeting as a New Dentist

5. Radiologist

While radiologists can be high earners in the medical field, they also may hold a staggering amount of debt that accumulates during medical school and residency. The American College of Radiologists has supported legislation to halt interest accrual during residency.

Currently, residents can request deferment or forbearance on loans, depending on their circumstances, but even if granted, interest accrues. This can add thousands or tens of thousands of dollars to the balance of a radiologist’s student loan debt.

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Average student loan debt: $241,600

Median salary: $455,000

6. Obstetrician-Gynecologist

For many medical students, residency is when student loan debt balloons. Unlike their high-earning counterparts who may immediately begin earning six-figure salaries after grad school, med students earn an average of $64,200 during residency.

During this time, interest may accrue on loans. Increasing patient loads, malpractice vulnerabilities, and more have led to burnout in this profession. According to the American College of Obstetricians and Gynecologists, a shortage in the speciality may be on the horizon.

Average student loan debt: $241,600

Median salary: $296,210

7. Anesthesiologist

Residency requirements can cause interest accrual to add to the debt load of these medical professionals. The American Society of Anesthesiologists supports legislation that would allow borrowers to qualify for interest-free deferment on loans while in residency.

The legislation has been introduced to Congress but has not gained traction. The work of an anesthesiologist can be grueling: Some reports have shown that anesthesiologists have a higher risk of burnout than other physicians.

Average student loan debt: $241,600

Median salary: $417,000

8. Physician

Also called a doctor, primary care physician, or family practitioner, a physician is an essential element of primary care for all ages, and a point of contact who works with other doctors to diagnose and treat patients. Not a medical specialty, this umbrella term can also refer to pediatricians and internal medicine doctors.

While the career path may not be as lucrative as some specialized medical careers, it offers intangible benefits, such as control over your hours worked and the ability to get to know your patients, according to the American Academy of Family Physicians (AAFP).

But the salary compared with student loan debt can make the debt burdensome. The AAFP has advocated for federal loans and scholarship programs that target primary and family care as well as interest deferment during residency.

Average student loan debt: $205,037

Median salary: $235,930

Recommended: Budgeting as a New Doctor

9. Osteopath

Members of one of the fastest-growing segments of health care, according to the American Osteopathic Association, osteopaths take a whole-person approach to medicine. Osteopaths may practice all medical specialties, but attend an osteopathic medical school where they receive specialized training in the musculoskeletal system.

The osteopathic association found that 86% of osteopathic medicine graduates have student loan debt. Like their medical school counterparts, osteopath students can be susceptible to burnout.

Average student loan debt: $247,218

Median salary: $231,500

10. Pharmacist

Pharmacists require undergraduate and graduate school degrees, and the career path can be varied upon graduation. Some pharmacists enter research and development, while others choose to work with patients in hospitals, clinics, or commercial settings.

This can allow for career flexibility for pharmacists, as they can balance family and personal obligations with a career. But student loan debt can become a burden for pharmacists that can affect their financial decisions for decades. As with other professions, the challenge becomes balancing debt with future financial goals such as saving adequately for retirement.

Average student loan debt: $170,444

Median salary: $125,690

11. Physician Assistant

Educated at the master’s degree level, a physician assistant can diagnose, treat, and prescribe medication to patients and can often be a patient’s main health contact. A physician assistant does not have to go through the years of medical school and residency training of doctors but still must have hours of clinical experience.

The career is in demand, with three-quarters of graduates receiving multiple job offers after graduation, according to the American Association of Physician Assistants. But the student debt burden can be intense.

Average student loan debt: $112,500

Median salary $121,530

12. Lawyer

“Lawyer” has come to mean “high earner,” but the truth is much more nuanced. Lawyers have a large income discrepancy based on the type of law they pursue and the state they practice in. Some 71% of law school graduates have some form of student loan debt, and the average debt has risen in the past several decades.

For example, in 2000, law school graduates came out of the gate with an average of $59,000 (nearly $88,000, adjusted for inflation) in student loans, while today, new graduates have an average of $180,000 in cumulative debt. The American Bar Association has lobbied the government to provide student loan debt relief for lawyers.

Average student loan debt: $180,000

Median salary: $127,990

13. Physical Therapist

Physical therapists must earn a doctor of physical therapy degree, a three-year course after a bachelor’s degree. After graduation, physical therapists may do a residency or fellowship, or may begin practicing right away. Salaries can depend on the type of work a physical therapist pursues. Student debt can affect those decisions.

According to the American Physical Therapy Association, 70% of respondents to a survey said debt caused anxiety. The association has been advocating for physical therapists on Capitol Hill, lobbying for more scholarship opportunities for therapists from underrepresented backgrounds and inclusion of physical therapists in the National Health Service Corps Loan Repayment Program, a loan repayment program for health professionals.

Average student loan debt: $116,183

Median salary: $95,620

14. MBA Holder

Many people think a master of business administration degree (MBA) translates into a high-salary career, and while it’s true that graduates of top programs often receive high pay offers, top programs are expensive, and there’s no guarantee that a job will result. So is an MBA worth it? That depends on your career goals.

Some employers will offer full or partial tuition reimbursements to employees who pursue an MBA. Requirements vary by employer, but some expect employees to continue working during school. Though rigorous, this means that MBA students may not necessarily lose out on a salary while getting their graduate degree.

Average student loan debt: $80,892

Average salary: $115,000

15. Occupational Therapist

Occupational therapists (OTs) need to obtain a master’s degree and satisfy licensing requirements, as well as supervised fieldwork. Like physical therapists, the salary progression for OTs depends on the type of work they pursue, and the type of work they pursue also affects the type of potential loan forgiveness that may work for their circumstances.

The American Occupational Therapy Association recognizes that many students graduate with student loan debt that can be tough to pay back on a median OT salary. The association actively lobbied for occupational therapists during the COVID-19 pandemic to make sure their interests were covered under the CARES Act.

Average student loan debt: Varies

Median salary: $89,470

16. Registered Nurse

Nursing salaries — and the student loan debt that nurses carry — depend on education level. Nurses who have a Master of Science in nursing have the most student loan debt, while those who have a bachelor’s degree or associate degree have lower debt, but may have lower salaries as well. Scholarship opportunities for nurses can limit the necessity of student loans, and some nurses may qualify for forgiveness opportunities, including the Public Service Loan Forgiveness Program and the Nurse Corps Repayment Program, a federal program for nurses who work in high-need areas.

Recommended: Budgeting as a New Nurse

Average student loan debt (with master’s degree): $47,321

Median RN salary: $77,600

The Takeaway

The price of college has soared, and a typical student borrows around $30,000 to pursue a four-year degree. That amount can be substantially higher for students who choose more lucrative degrees, such as those in medicine and law. Orthodontists, for example, owe an average of $560,000 in school loan debt, while lawyers owe around $180,000 in school loan debt.

There are options to help borrowers manage their debt, such as the Public Service Loan Forgiveness program, student loan consolidation or student loan refinancing. Refinancing student loans could help you snag a lower interest rate and/or extend or shorten the loan term. (Note: You may pay more interest over the life of the loan if you refinance with an extended term. Also note that when you refinance, you will no longer have access to federal protections and benefits, such as certain loan forgiveness programs, the current payment pause, flexible payment plans, and more.)

Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

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

FAQ

How much student loan debt is there in the U.S.?

Currently, there is more than $1.76 trillion in outstanding student loan debt, and more than 43.5 million Americans have federal student loan debt.

Which major has the largest amount of student debt, and which major has the least amount of student debt?

Doctor of Osteopathic Medicine is the major with the largest median debt, at $287,820, according to the Education Data Initiative. An associate’s degree in Biological and Physical Sciences is the major with the smallest median debt, at $7,590.

Which age group holds the most student debt?

Student debt is most prevalent among borrowers under 40 years of age, according to the New York Federal Reserve. That said, only 57 percent of balances are owed by those under 40. Borrowers with larger balances are more likely to be older, perhaps because they borrowed for graduate school.


SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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How Much Does it Cost to Raise a Child to 18?

How Much Does it Cost to Raise a Child to 18?

Have you ever wondered how much it costs to raise a child from birth to 18?

Are you sitting down?

Based on consumer surveys and other data, most estimates these days put the price of parenting just one child at $300,000 or more.

Your costs may vary significantly, of course, depending on where you live, your income, your marital status, and other factors. But it’s probably safe to say that raising a child to college age — and beyond — can deal a real wallop to the budget.

Read on for a breakdown of some of the costs prospective parents can expect.

How Much is the Cost of Raising a Child?

It’s hard to find an “official” calculation for the cost of raising a child.

For many years, parents and prospective parents could get an idea of the costs they faced from the Expenditures on Children by Families report published annually by the U.S. Department of Agriculture. But the USDA stopped updating the report in 2017, so the most recent information is for a child born in 2015.

Back then, the USDA estimated the cost of raising the younger of two children in a middle-income home with married parents would be approximately $233,610 in 2015 dollars.

Today, that number is a bit higher. A 2022 analysis conducted by the Brookings Institution found that parents can expect to spend at least $310,000 raising a child who was born in 2015. That’s for food, shelter, and other necessities, but not college, which for most students starts at age 18 or older.

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What Are Some Average Costs for Raising a Child to 18?

In 2015, the USDA divided the major infant-through-high-school expenses into the following categories:

•   Housing 29% of income

•   Food 18% of income

•   Child care and education 16% of income

•   Transportation 15% of income

•   Health care 9% of income

•   Miscellaneous 7% of income

•   Clothing 6% of income

But remember, those are the USDA’s numbers for one child in an average household with two kids, and those percentages have likely shifted in the past few years. You might end up with a similar allocation, or, based on your own circumstances and priorities, one that’s far different.

Recommended: Should I Sell My House Now or Wait?

Factors That Can Influence the Cost of Raising a Child in 2023

How much you pay to raise your family may be largely influenced by where you decide to live. In 2022, a mortgage payment was 31% of the typical American household’s income, based on data gathered by Black Knight. But that percentage may look different if you reside in a city or town where housing costs are much cheaper or far more expensive than average.

Child-care costs may vary widely as well, depending on the age of your child and the type of care you choose. Unless you can get Nana and Grandpa involved, be prepared for a hefty bill: 51% of parents who responded to Care.com’s 2022 Cost of Care Survey said they spent more than 20% of their household income on child care every year.

And those costs may not go down when a child reaches school age if he or she attends private school. According to the Education Data Initiative, the average annual tuition among the nation’s 22,440 private K-12 schools was $12,350 in 2021.

Your miscellaneous costs may also be different if your child is involved in sports or other activities that require expensive equipment, camps, or lessons.

Add to that potential healthcare costs, which could depend on the type of insurance you have and your child’s individual needs.

How to Budget for Baby

Considering all the costs involved, it may make sense to start transitioning your budget long before a baby actually arrives. Here are some things to consider if you decide to adjust your household budget categories to fit your growing family:

Stick to Your Savings Goals

You’ve probably heard it a thousand times: A baby will change your life — and your priorities. Still, your own financial security can help determine your child’s future, so it can help to stick with your savings goals, like building an emergency fund (you may need that money more than ever once you have a child), putting money away for a mortgage down payment, and investing for retirement. Then, if you still have room in your budget, you might consider including a 529 education savings account or some other type of investment plan for your child.

Pay Down Debt

The last thing you’ll want to worry about when you have a new baby is old debt. Paying interest on credit cards and other debt can eat away at any extra money you’re hoping to save for or spend on your child. A debt reduction plan like the popular snowball and avalanche strategies can help you focus on methodically dumping your debt and getting it done ASAP.

Recommended: What is The Difference Between Transunion and Equifax?

Be Ready for First-Born Expenses

Just having a baby can be expensive. In 2022, the Peterson-KFF Health System Tracker estimated that the health costs associated with pregnancy, childbirth, and postpartum care for women enrolled in large group insurance plans came to almost $19,000 on average, and average out-of-pocket payments were almost $3,000. Then there’s the crib, car seat, clothes, formula, diapers, and other things you’ll need when you bring your baby home.

If you can adjust your budget to get ready for those upfront and monthly costs, you may have a better shot at keeping up with expected and unexpected bills later on.

Preparing for Changing Costs

Your budget is bound to evolve as your child gets older. The money you spend on diapers and formula in the first years will go toward buying new shoes, clothes, toys, team uniforms, and other expenses later on. (Maybe buying a car? Putting multiple kids through college? Paying for a wedding? Who knows?)

The good news is, these days, you can use a spending app to track exactly where your money is going and decide where you want it to go. So if your kiddo comes home from school one day and wants to switch from playing soccer to playing the piano, you can quickly rework your budget categories and see where you stand.

Can You Afford to Be a Parent?

Of course your beautiful baby will be worth every penny of the $300,000 (give or take) you’ll be spending over the next 18 years. Still, you may want to keep your financial readiness in mind as you think about when to have a baby.

Besides the basic costs, raising a child also can affect your finances if you decide to do in vitro fertilization (IVF), take an unpaid maternity leave, buy a more “reliable” car or a bigger home, or go part-time at work so you can be home after school.

Any planning you can do in advance and as you go to minimize the financial blow can benefit you and your child. (Not to mention the example it will set down the road, when you’re teaching your child about money management.)

Potential Opportunities to Save

Figuring out how to save money while raising kids isn’t easy. But there are some spending categories over which you can have some control, including:

Purchase Goods Secondhand

Kids grow out of everything so quickly. Borrowing some items from friends and family, or buying things secondhand, could be a big money-saver. If your sister wants to lend you her perfectly good (and safe) crib or car seat, let her! And don’t underestimate the quality and cuteness of the clothes you can find for little ones at yard sales, consignment shops, or online. There also may be bargains to be had when shopping for secondhand sports equipment and musical instruments.

Get Help with Child Care

There may be several ways you can save on child-care costs, including forming a co-op with other parents and taking turns watching each other’s children, or asking nearby family members to help out on a full- or part-time basis.

Embrace Meal Planning

When your kids get older, it may be tempting to stop for fast food on busy nights, especially if you don’t have any idea what you’re going to serve for dinner. By planning ahead, you may be able to reduce your grocery costs, the number of trips to the grocery store, and unplanned visits to the closest hamburger joint.

Cut Household Expenses

While you’re adjusting your budget for baby, think about little things you can do to cut down on spending and expenses. Could you adjust your thermostat to save a few bucks every winter and summer? Will you have time to watch all those cable channels and streaming services with a child in the house? Or can you clean the pool yourself, cut the grass, or wash your own car?

Find Free and Cheap Family Activities

Every activity you plan for your child doesn’t have to come with a big price tag. Going around the block with your kid in a stroller, wagon, or on the back of a bike can be the best kind of free fun. Want to see a movie? Check out the price of a matinee or other discounted screenings. Or buy a bottle of bubbles or a small swimming pool for a good time in the backyard.

The Takeaway

At $310,000, the estimated cost of raising a child from birth to 18 may be daunting. But if you plan in advance for those first major costs — and adjust your budget for changing priorities as your child grows — it may be easier to manage your finances during this exciting, expensive time in your life.

Using a money tracker app can be a good place to start. SoFi lets you know right where you stand, including what you spend and how to reach your financial goals.

Get the information and tools you need to make the most of your money.

FAQ

How much does it cost to raise a child in 2023?

Parents could expect to spend around $310,000 or more raising a child who was born in 2015, according to a 2022 analysis conducted by the Brookings Institution. Note that the cost of raising a child can vary significantly depending on where you live, your household income, your child’s health, and other factors — including if you’ll be paying for college, a wedding, or other big-ticket items.

How much do you spend on a child before they turn 18?

The cost of raising a child can vary from one household to the next, based on many factors. But it’s been estimated that the bill for an average U.S. family raising a child to 18 (without college) could be $310,000 or more.

How much money should you save for a baby?

The more you can put away before you have a baby, the better prepared you can be. Some things to focus on might include setting up or adding to your emergency fund, continuing to make contributions to your retirement plan, and, if you hope to move to a bigger home, coming up with the necessary down payment.


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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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

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What Is the Best Age to Retire for Longevity and Health?

What Is the Best Age to Retire for Longevity and Health?

Most people would like to retire when they are still healthy and active but financially secure enough to continue an energetic lifestyle. The younger the better, for most of us. However, the best age to retire for longevity is different for everyone. It depends on many factors, such as your finances, your health, and what you want to do in retirement. Some workers may want to continue in their careers for as long as they can.

Here’s a look at how age affects your retirement — and things to consider when planning your retirement timeline.

How Your Age at Retirement Affects Retirement Savings Income

So you’re looking ahead to retirement and expect to have a significant nest egg. If you retire at 65, your retirement could last 25 years or more. But what if you retire earlier — say, at 55? Your savings will have to last that much longer, but you’ll also have less time to save up. Unless you plan ahead, even a decent sized nest egg might not stretch 35 years.

The age at which you decide to retire also affects your Social Security benefit. If you retire at 62, the earliest possible Social Security retirement age, your benefit will be significantly lower than if you wait: 30% lower than if you claim benefits at your full retirement age of 67.

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The Average Retirement Age in America

The original rules for Social Security benefits assumed 65 as the common age for retirement. In 2022, the full retirement age was raised to 66 for those born between 1943 and 1959, and 67 for anyone born in 1960 or later.

The actual average age for retirement for men is 64.6, and for women 62.3. Sixty-two is the earliest someone can receive Social Security, but the longer you wait, the greater your benefit will be (more on that below).

Recommended: Is $1 Million Enough to Retire at 55?

Factors Involved in the Ideal Retirement Age

The best time to stop working depends on your retirement savings, health benefits, and Social Security — factors that vary with age.

Savings

The best way to save for retirement is with a diversified portfolio that can average out your risk over time. Your strategy will depend on your risk tolerance, how long you have to save, and how much of your income you can afford to put away. A budgeting and spending app can help you monitor your income and expenses each month so that you know how much you should set aside.

The goal is to have enough saved up so you can stop working at your desired retirement age and have enough of a nest egg to fund the lifestyle you desire.

One rule of thumb recommends saving around 10 times your pre-retirement salary and living on 80 percent of your pre-retirement income. So if you earn $150,000 before you retire, you will need $120,000 a year to cover typical retirement expenses once you leave the workforce.

Most people have a pension plan or IRA as part of their portfolio. Here’s how age affects these savings vehicles.

Pension Plans and IRAs

Most pension plans impose an IRS penalty for withdrawing retirement funds “early,” which means before age 59 ½. You can delay your retirement as long as you like, but you must start required minimum distributions (RMDs) from retirement plans at a certain age as mandated by law, whether or not you’re retired.

In 2023, the starting age for RMDs was raised to 73 years. The exception is Roth IRAs: In 2024, holders of designated Roth 401(k) accounts will no longer be required to take RMDs during their lifetime.

Social Security

Social Security is another vital source of income for retirees. You can start to claim benefits at age 62, but at a reduced amount. People who retire at age 66 or 67 will receive full Social Security benefits. If you delay until age 70, you’ll receive even more.

A lot rides on your definition of retirement, too. You can semi-retire at age 65 (or earlier), work part-time, and collect Social Security benefits. However, if you earn more than the yearly earnings limit, your benefits will be reduced. If you are under full retirement age, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit. That limit was $21,240 in 2023.

Medicare

Individuals are eligible for Medicare, a government-sponsored health plan, at age 65. If you retire earlier, you will have to factor in the cost of out-of-pocket health insurance, which is expensive. The average national cost of health insurance is $456 per month, whereas the Medicare Part B premium is around $165 per month.

Health Benefits

The best age to retire for health is debatable. Going to work provides us with social connections, and mental and physical stimulation, all of which keep us healthy. Many people feel they lose their purpose and identity when they retire and even fall into depression. A recent paper published in the Journal of Economic Behavior & Organization found that early retirement may even accelerate cognitive decline in late adulthood.

What Is the Best Age to Retire?

Considering these factors, the ideal age to retire is different for everyone. It depends on your health, your finances, whether your home state taxes retirement income, and what you want to do in your retirement. Also, as people age, the decision of when to retire can change with their circumstances.

For now, choose a retirement date and start saving. The earlier you start, the more options and bigger nest egg you will have when the time comes.

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What If You Don’t Have Enough Money by the Ideal Retirement Age?

Some guidelines recommend having 10 times your annual salary saved by age 67, the age at which people born after 1960 can retire with full Social Security benefits. But what if you fall behind these savings benchmarks?

If your savings fall short, you’ll have to play catch up. Make sure you are maximizing your 401(k) contributions and your employer match. Contribute to an IRA or a Roth IRA, too. And if you receive any windfalls, such as tax refunds or bonuses, put those funds toward your retirement.

Another strategy is to free up more cash for retirement savings by examining your budget and reducing expenses. Can you eat out less? Downsize your home, or sell other assets?

You could also continue working for a few additional years to increase your Social Security benefits. You may work part-time, accept a less demanding position with less pay, or do some consulting work.

The Takeaway

Just about everyone wants to retire when they are still healthy so they can enjoy their later years. When deciding what age to retire, consider what it will take to maintain the lifestyle that you want. Possible income streams include withdrawals from a health savings plan and retirement accounts, Social Security benefits, and revenue from investment assets, such as rental property. Working part-time might be an option until you are ready to fully retire.

The decision of when to retire can change with your circumstances. The best plan is to set goals as soon as you can and start saving for retirement early. That way, you will have more options and a bigger nest egg when the time comes.

Take control of your finances with SoFi’s money tracker app, available with SoFi. Connect all of your accounts on one mobile dashboard to get a bird’s-eye view of your balances on the go. Set monthly spending targets, and review your top spending categories. You can even talk one-on-one with a financial planner to set ambitious goals for your money and your life.

SoFi makes it easy to know where you stand, what you spend, and how to hit your financial goals — all in one app.

FAQ

What is the best age to retire for your health?

Some people thrive in retirement, and some people find themselves at a loss. Work provides social interaction and mental and physical stimulation, so retiring early may not be healthier if the result is a more sedentary and lonely lifestyle.

What is the best age to retire for Social Security benefits?

Retiring at age 70 would give you maximum Social Security benefits. According to the Social Security Administration, if you retire in 2023 at full retirement age, your maximum monthly benefit is about $3,627. However, if you retire early at age 62, your maximum benefit is just $2,572. And if you put off retirement until age 70, your maximum benefit rises to $4,555.

What is the most popular age to take Social Security?

According to U.S. News & World Report, full retirement age has become the most popular age to claim payments. For many people, that is age 66. Those with a full retirement age of 67 will get a 6.7% pay cut if they sign up for payments at age 66.


Photo credit: iStock/Vladimir Vladimirov

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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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