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What Is Considered a Good Return on Investment?

A “good” return on investment is subjective, but in a very general sense, a good return on investment could be considered to be about 7% per year, based on the average historic return of the S&P 500 index, and adjusting for inflation. But of course what one investor considers a good return might not be ideal for someone else.

And while getting a “good” return on your investments is important, it’s equally important to know that the average return of the U.S. stock market is just that: an average of the market’s performance, typically going back to the 1920s. On a year-by-year basis, investors can expect returns that might be higher or lower — and they also have to face the potential for outright losses. In addition, the S&P 500 is a barometer of the equity markets, and it only reflects the performance of the 500 biggest companies in the U.S. Most investors will hold other types of securities in addition to equities, which can affect their overall portfolio return.

Key Points

•   A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation.

•   The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.

•   Different investments, such as CDs, bonds, stocks, and real estate, offer varying rates of return and levels of risk.

•   It’s important to consider factors like diversification and time when investing long-term.

•   Investing in stocks carries higher potential returns but also higher risk, while investments like CDs offer lower returns but are considered lower-risk.

What Is the Historical Average Stock Market Return?

Dating back to the late 1920s, the S&P 500 index has returned, on average, around 10% per year. Adjusted for inflation that’s roughly 7% per year.

Here’s how much a 7% return on investment can earn an individual after 10 years: If an individual starts out by putting in $1,000 into an investment with a 7% average annual return, compounded annually, they would see their money grow to $1,967 after a decade, assuming little or no volatility (which is unlikely in real life). It’s important for investors to have realistic expectations about what type of return they’ll see.

For financial planning purposes however, investors interested in buying stocks should keep in mind that that doesn’t mean the stock market will consistently earn them 7% each year. In fact, S&P 500 share prices have swung violently throughout the years. For instance, the benchmark tumbled 38% in 2008, then completely reversed course the following March to end 2009 up 23%.

Factors such as economic growth, corporate performance, interest rates, and share valuations can affect stock returns. Thus, it can be difficult to say X% or Y% is a good return, as the investing climate varies from year to year.

A better approach is to think about your hoped-for portfolio return in light of a certain goal (e.g. retirement), and focus on the investment strategy that might help you achieve that return.

Line graph: 10 Year Model of S&P 500

Why Your Money Might Lose Value If You Don’t Invest it

It’s helpful to consider what happens to the value of your money if you simply hang on to cash.

Keeping cash can feel like a lower-risk alternative to investing, so it may seem like a good idea to deposit your money into a traditional savings account. But cash slowly loses value over time due to inflation; that is, the cost of goods and services increases with time, meaning that cash has less purchasing power. Inflation can also impact your investments.

Interest rates are important, too. Putting money in a savings account that earns interest at a rate that is lower than the inflation rate guarantees that money will lose value over time. This is why, despite the risks, investing money is often considered a better alternative to simply saving it: The inflation risk is typically lower.

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What Is a Good Rate of Return for Various Investments?

As noted above, determining a good rate of return will also depend on the specific investments you hold, and your asset allocation. You can always calculate the expected rate of return for various securities. Here are different types of securities to consider.

Bonds

Purchasing a bond is basically the same as loaning your money to the bond-issuer, like a government or business. Similar to a CD, a bond is a way of locking up a certain amount of money for a fixed period of time.

Here’s how it works: A bond is purchased for a fixed period of time (the duration), investors receive interest payments over that time, and when the bond matures, the investor receives their initial investment back.

Generally, investors earn higher interest payments when bond issuers are riskier. An example may be a company that’s struggling to stay in business. But interest payments may be lower when the borrower is trustworthy, like the U.S. government, which has never defaulted on its Treasuries.

Stocks

Stocks can be purchased in a number of ways. But the important thing to know is that a stock’s potential return will depend on the specific stock, when it’s purchased, and the risk associated with it. Again, the general idea with stocks is that the riskier the stock, the higher the potential return.

This doesn’t necessarily mean you can put money into the market today and assume you’ll earn a large return on it in the next year. But based on historical precedent, your investment may bear fruit over the long-term. Because the market on average has gone up over time, bringing stock values up with it, but stock investors have to know how to handle a downturn.

As mentioned, the stock market averages a return of roughly 7% per year, adjusted for inflation.

Real Estate

Returns on real estate investing vary widely. It mostly depends on the type of real estate — if you’re purchasing a single house versus a real estate investment trust (REIT), for instance — and where the real estate is located.

As with other investments, it all comes down to risk. The riskier the investment, the higher the chance of greater returns and greater losses. Investors often debate the merit of investing in real estate versus investing in the market.

Likely Return on Investment Assets

For investors who have a high risk tolerance (they’re willing to take big risks to potentially earn high returns), some investments are better than others. So for those who are looking for higher returns, adding riskier investments to a portfolio may be worth considering.

Remember the Principles of Good Investing

Investors focused on seeing huge returns over the short-term may set themselves up for disappointment. Instead, remembering basic tenets of responsible investing can best prepare an investor for long-term success.

First up: diversification. It can be a good idea to invest in a wide variety of assets — stocks, bonds, real estate, etc., and a wide variety of investments within those subgroups. That’s because each type of asset tends to react differently to world events and market forces. Due to that, a diverse portfolio can be a less risky portfolio. Time is another important factor when investing. Investing early for more distant goals, such as retirement, may result in larger returns in the long-term.

The Takeaway

While every investor wants a “good return” on their investments, there isn’t one way to achieve a good return – and different investments have different rates of return, and different risk levels. Investing in other types of assets tends to deliver lower returns, while stocks (which are more volatile) may deliver higher returns but at much greater risk.

Your own investing strategy and asset allocation will have an influence on the potential returns of your portfolio over time.

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

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

S&P 500 IndexThe S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
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401(k) Catch-Up Contributions: What Are They & How Do They Work?

401(k) Catch-Up Contributions: What Are They & How Do They Work?

Retirement savers age 50 and older get to put extra tax-advantaged money into their 401(k) accounts beyond the standard annual contribution limits. Those additional savings are known as “catch-up contributions.”

If you have a 401(k) at work, taking advantage of catch-up contributions is key to making the most of your plan, especially as retirement approaches. Here’s a closer look at how 401(k) catch-up limits work.

Key Points

•   Individuals aged 50 and older can contribute additional funds to their 401(k) accounts through catch-up contributions.

•   The annual catch-up contribution limit for individuals 50 and up is $7,500 for both 2024 and 2025, allowing eligible participants to save a total of $30,500 in 2024 and $31,000 in 2025. In 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500), for a total of $34,750.

•   Catch-up contributions can be made to various retirement accounts, including 401(k) plans, 403(b) plans, and IRAs, providing flexibility in retirement savings.

•   Utilizing catch-up contributions effectively can help older savers offset previous under-saving and better prepare for retirement expenses.

What Is 401(k) Catch-Up?

A 401(k) is a type of defined contribution plan. This means the amount you can withdraw in retirement depends on how much you contribute during your working years, along with any employer matching contributions you may receive, as well as how those funds grow over time.

There are limits on how much employees can contribute to their 401(k) plan each year as well as limits on the total amount that employers can contribute. The regular employee contribution limit is $23,000 for 2024 and $23,500 for 2025. This is the maximum amount you can defer from your paychecks into your plan — unless you’re eligible to make catch-up contributions.

Under Internal Revenue Code Section 414(v), a catch-up contribution is defined as a contribution in excess of the annual elective salary deferral limit. For 2024 and 2025, the 401(k) catch-up contribution limit is $7,500. In 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500) to their 401(k) plan.

That means if you’re eligible to make these contributions, you would need to put a total of $30,500 in your 401(k) in 2024 to max out the account and $31,000 in 2025 ($34,750 for those aged 60 to 63). That doesn’t include anything your employer matches.

Congress authorized catch-up contributions for retirement plans as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The legislation aimed to help older savers “catch up” and avoid falling short of their retirement goals, so they can better cover typical retirement expenses and enjoy their golden years.

Originally created as a temporary measure, catch-up contributions became a permanent feature of 401(k) and other retirement plans following the passage of the Pension Protection Act in 2006.

Who Is Eligible for 401(k) Catch-Up?

To make catch-up contributions to a 401(k), you must be age 50 or older and enrolled in a plan that allows catch-up contributions, such as a 401(k).

The clock starts ticking the year you turn 50. So even if you don’t turn 50 until December 31, you could still make 401(k) catch-up contributions for that year, assuming your plan follows a standard calendar year.

Making Catch-Up Contributions

If you know that you’re eligible to make 401(k) catch-up contributions, the next step is coordinating those contributions. This is something with which your plan administrator, benefits coordinator, or human resources director can help.

Assuming you’ve maxed out your 401(k) regular contribution limit, you’d have to decide how much more you want to add for catch-up contributions and adjust your elective salary deferrals accordingly. Remember, the regular deadline for making 401(k) contributions each year is December 31.

It’s possible to make catch-up contributions whether you have a traditional 401(k) or a Roth 401(k), as long as your plan allows them. The main difference between these types of plans is tax treatment.

•   You fund a traditional 401(k) with pre-tax dollars, including anything you save through catch-up contributions. That means you’ll pay ordinary income tax on earnings when you withdraw money in retirement.

•   With a Roth 401(k), regular contributions and catch-up contributions use after-tax dollars. This allows you to withdraw earnings tax-free in retirement, which is a valuable benefit if you anticipate being in a higher tax bracket when you retire.

You can also make catch-up contributions to a solo 401(k), a type of 401(k) used by sole proprietorships or business owners who only employ their spouse. This type of plan observes the same annual contribution limits and catch-up contribution limits as employer-sponsored 401(k) plans. You can choose whether your solo 401(k) follows traditional 401(k) rules or Roth 401(k) rules for tax purposes.

401(k) Catch-Up Contribution Limits

Those aged 50 and older can make catch-up contributions not only to their 401(k) accounts, but also to other types of retirement accounts, including 403(b) plans, 457 plans, SIMPLE IRAs, and traditional or Roth IRAs.

The IRS determines how much to allow for elective salary deferrals, catch-up contributions, and aggregate employer and employee contributions to retirement accounts, periodically adjusting those amounts for inflation. Here’s how the IRS retirement plan contribution limits for 2025 add up:

Retirement Plan Contribution Limits in 2025

Annual Contribution Catch Up Contribution Total Contribution for 50 and older
Traditional, Roth and solo 401(k) plans; 403(b) and 457 plans $23,500

$7,500 (ages 50-59, 64+)

$11,250 (ages 60-63)

$31,000 (ages 50-59, 64+)

$34,750 (ages 60-63)

Defined Contribution Maximum, including employer contributions $70,000

$7,500 (ages 50-59, 64+)

$11,250 (ages 60-63)

$77,500 (ages 50-59, 64+)

$81,250 (ages 60-63)

SIMPLE IRA $16,500

$3,500 (ages 50-59, 64+)

$5,250 (ages 60-63)

$20,000 (ages 50-59, 64+)

$21,750 (ages 60-63)

Traditional and Roth IRA $7,000 $1,000 $8,000

These amounts only include what you contribute to your plan or, in the case of the defined contribution maximum, what your employer contributes as a match. Any earnings realized from your plan investments don’t count toward your annual or catch-up contribution limits.

Also keep in mind that employer contributions may be subject to your company’s vesting schedule, meaning you don’t own them until you’ve reached certain employment milestones.

Tax Benefits of Making Catch-Up Contributions

Catch-up contributions to 401(k) retirement savings allow you to save more money in a tax-advantaged way. The additional money you can set aside to “catch up” on your 401(k) progress enables you to save on taxes now, as you won’t pay taxes on the amount you contribute until you withdraw it in retirement. These savings can add up if you’re currently in a high tax bracket, offsetting some of the work of saving extra.

The amount you contribute will also grow tax-deferred, and making catch-up contributions can result in a sizable difference in the size of your 401(k) by the time you retire. Let’s say you start maxing out your 401(k) plus catch-up contributions as soon as you turn 50, continuing that until you retire at age 65. That would be 15 years of thousands of extra dollars saved annually.

Those extra savings, thanks to catch-up contributions, could easily cross into six figures of added retirement savings and help compensate for any earlier lags in saving, such as if you were far off from hitting the suggested 401(k) amount by 30.

Roth 401(k) Catch-Up Contributions

The maximum amount you can contribute to a Roth 401(k) is the same as it is for a traditional 401(k): $23,000 and, if you’re 50 or older, $7,500 in catch-up contributions, as of 2024. For 2025, it is $23,500 and, if you’re 50 or older, $7,500 in catch-up contributions ($11,250 in catch-up contributions if you’re 60 to 63). This means that if you’re age 50 and up, you are able to contribute a total of $30,500 to your Roth 401(k) in 2024 and $31,000 in 2025 (or $34,750 in 2025 if you’re 60 to 63).

If your employer offers both traditional and Roth 401(k) plans, you may be able to contribute to both, and some may even match Roth 401(k) contributions. Taking advantage of both types of accounts can allow you to diversify your retirement savings, giving you some money that you can withdraw tax-free and another account that’s grown tax-deferred.

However, if you have both types of 401(k) plans, keep in mind while managing your 401(k) that the contribution limit applies across both accounts. In other words, you can’t the maximum amount to each 401(k) — rather, they’d share that limit.

The Takeaway

Putting money into a 401(k) account through payroll deductions is one of the easiest and most effective ways to save money for your retirement. To determine how much you need to put into that account, it helps to know how much you need to save for retirement. If you start early, you may not need to make catch-up contributions. But if you’re 50 or older, taking advantage of 401(k) catch-up contributions is a great way to turbocharge your tax-advantaged retirement savings.

Of course, you can also add to your retirement savings with an IRA. While a 401(k) has its advantages, including automatic savings and a potential employer match, it’s not the only way to grow retirement wealth. If you’re interested in a traditional, Roth, or SEP IRA, you can easily open an IRA account on the SoFi Invest® brokerage platform. If you’re age 50 or older, those accounts will also provide an opportunity for catch-up contributions.

Help grow your nest egg with a SoFi IRA.

FAQ

How does the 401(k) catch-up work?

401(k) catch-up contributions allow you to increase the amount you are allowed to contribute to your 401(k) plan on an annual basis. Available to those aged 50 and older who are enrolled in an eligible plan, these catch-contributions are intended to help older savers meet their retirement goals.

What is the 401(k) catch-up amount in 2025?

For 2025, the 401(k) catch-up contribution limit is $7,500 if you’re aged 50 to 59 or 64-plus. For those aged 60 to 63 in 2025, the 401(k) catch-up contribution limit is $11,250 (instead of $7,500).


Photo credit: iStock/1001Love

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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

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HSA for Retirement: Rules, Benefits, and Getting Started

A health savings account, or HSA, not only provides a tax-free way to pay for medical expenses now, those tax savings can extend to retirement as well.

An HSA provides triple tax benefits to the account holder. You set aside money pre-tax (similar to a 401(k) or IRA), it grows tax free, and withdrawals for qualified medical expenses are also tax free.

HSAs can be a boon in retirement because you always have access to the account, even if you change jobs, and you never have to “use it or lose it,” so your savings can grow over time. Thus, you can use HSA funds to pay for qualified medical expenses at any time, tax free, now or when you retire.

The other good news is that after age 65 you can use the funds for non-qualified expenses, too; you just have to pay income tax on the funds you withdraw.

What Is an HSA?

A health savings account is a type of tax-advantaged savings account for individuals with a high-deductible health care plan (HDHP). For 2025, this means it has an annual deductible of at least $1,650 for self-only coverage and $3,300 for family coverage. In addition, its out-of-pocket maximum (including annual deductible) can’t exceed $8,300 for individuals and $16,600 for families.

Anyone who fits the criteria is eligible to open an HSA and save pre-tax dollars: up to $4,300 a year for individuals and up to $8,550 for families for the 2025 tax year. If you’re 55 or older at the end of the tax year, you can contribute an additional $1,000 — similar to the catch-up contributions allowed with an IRA.

An employer can also make a matching contribution into your HSA, though it’s important to note that total employer and employee contributions can’t exceed the annual limits. So if you’re single, and your employer contributes $1,500 to your HSA each year, you can’t contribute more than $2,800 for 2025.

Rules and Restrictions on HSA Contributions

You have until the tax-filing deadline to make your annual HSA contribution.

•   For tax year 2024, you have until April 15, 2025.

•   For tax year 2025, you have until April 15, 2026.

It’s important to know the amount you can contribute to your account, both so you can take advantage of your HSA and to make sure you’re not penalized for excess contributions. If the amount you deposit for the year in your HSA is over the defined limit, including any employer contributions and catch-up contributions, you’ll owe ordinary income tax on that amount, plus a 6% penalty.

Another caveat: Once you enroll in or become eligible for Medicare Part A benefits, you can no longer contribute money to an HSA.

What Are HSA Withdrawals?

You can withdraw funds from your HSA to pay for qualified medical and dental health care expenses, including copays for office visits, diagnostic tests, supplies and equipment, over-the-counter medications, and menstrual care products. Health insurance premiums are not included as qualified expenses, however.

One significant benefit of HSA accounts is that, unlike flexible spending accounts (FSAs), the money in an HSA doesn’t have to be used by the end of the year. Any money in that account remains yours to access, year after year. Even if you change jobs, the account comes with you.

Before age 65, there is a 20% penalty for withdrawing funds from an HSA for non-medical expenses, on top of ordinary income tax. After age 65, HSA holders can also make non-medical withdrawals on their account, though ordinary income tax applies.

How Do Health Savings Accounts Work?

HSAs are designed to help consumers play for medical expenses when they have a high-deductible health plan (HDHP). That’s because typically an HDHP only covers preventive care before the deductible, so most types of medical care would have to be paid out of pocket as they’re applied to the deductible amount.

Having a tax-advantaged plan like an HSA gives people a bit of a break on medical expenses because they can save the money pre-tax (meaning any money you save in an HSA lowers your taxable income), and it grows tax-free, and you withdraw the money tax-free as well, as long as you’re paying for qualified expenses.

As noted above, you can withdraw your HSA funds at any time. But if you’re under age 65 and paying for non-qualified expenses, you’ll owe taxes and a 20% penalty on the amount you withdraw.

After age 65, you simply owe taxes on non-qualified withdrawals, similar to withdrawal rules for a 401(k) or traditional IRA.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Can an HSA Be Used for Retirement?

HSAs are not specifically designed to be a retirement planning vehicle, but you can use HSA funds in retirement, since the money accumulates in your account until you withdraw it tax-free for qualified medical expenses.

There’s no “use it or lose it” clause with an HSA account, so any unused funds simply roll over to the following year. This offers some potential for growth over time.

That said, the investment options in an HSA account, unlike other designated retirement accounts, tend to be limited. And the contribution caps are lower with an HSA.

You could also use your HSA funds to pay for other retirement expenses after age 65 — you’ll just have to pay income tax on those withdrawals.

Recommended: How to Set Up a Health Savings Account

3 Reasons to Use an HSA for Retirement

Though they aren’t specifically designed to be used in retirement planning, it’s possible to use an HSA for retirement as a supplement to other income or assets. Because you can leave the money you contribute in your account until you need it for qualified medical expenses, the funds could be used for long-term care, for example.

Or, if you remain healthy, you could tap your HSA in retirement to pay for everyday living expenses.

There are several advantages to including an HSA alongside a 401(k), Individual Retirement Account (IRA), and other retirement savings vehicles. An HSA can yield a triple tax benefit since contributions are tax-deductible, they grow tax-deferred, and assuming you withdraw those funds for qualified medical expenses, distributions are tax-free.

If you’re focused on minimizing your tax liability as much as possible prior to and during retirement, an HSA can help with that.

Using an HSA for retirement could make sense if you’ve maxed out contributions to other retirement plans and you’re also investing money in a taxable brokerage account. An HSA can help create a well-rounded, diversified financial plan for building wealth over the long term. Here’s a closer look at the top three reasons to consider using HSA for retirement.

1. It Can Lower Your Taxable Income

You may not be able to make contributions to an HSA in retirement, but you can score a tax break by doing so during your working years. The money an individual contributes to an HSA is deposited pre-tax, thus lowering their taxable income.

Furthermore, any employer contributions to an HSA are also excluded from a person’s gross income. Meaning: You aren’t taxed on your employer’s contributions.

The money you’ve deposited in an HSA earns interest and contributions are withdrawn tax-free, provided the funds are used for qualified medical expenses. In comparison, with a Roth IRA or 401(k), account holders are taxed either when they contribute (to a Roth IRA) or when they take a distribution (from a tax-deferred account like a traditional IRA or 401(k)).

Using HSA for retirement could help you manage your tax liability.

2. You Can Save Extra Money for Health Care in Retirement

Unlike flexible spending accounts that allow individuals to save pre-tax money for health care costs but require them to use it the same calendar year, there is no “use it or lose it” rule with an HSA. If you don’t use the money in your HSA, the funds will be available the following year. There is no time limit on spending the money.

Because the money is allowed to accumulate, using an HSA for retirement can be a good way to stockpile money to pay for health care, nursing care, and long-term care costs (all of which are qualified expenses) if needed.

While Americans can enroll in Medicare starting at age 65, some health care needs and services aren’t covered under Medicare. Having an HSA to tap into during retirement can be a good way to pay for those unexpected out-of-pocket medical expenses.

3. You Can Boost Your Retirement Savings

Beyond paying for medical expenses, HSAs can be used to save for retirement. Unlike a Roth IRA, there are no income limits on saving money in an HSA.

Some plans even allow you to invest your HSA savings, much like you would invest the funds in a 401(k).

The investments available in any given HSA account depend on the HSA provider. And the rate of return you might see from those investments, similar to the return on a 401(k), depends on many factors.

Investing can further augment your retirement savings because any interest, dividends, or capital gains you earn from an HSA are nontaxable. Plus, in retirement, there are no required minimum distributions (RMDs) from an HSA account — you can withdraw money when you want or need to.

Some specialists warn that saving for retirement with an HSA really only works if you’re currently young and healthy, rarely have to pay health care costs, or can easily pay for them out of your own pocket. This would allow the funds to build up over time.

If that’s the case, come retirement (or after age 65) you’ll be able to use HSA savings to pay for both medical and non-medical expenses. While funds withdrawn to cover medical fees won’t be taxed, you can expect to pay ordinary income tax on non-medical withdrawals, as noted earlier.

HSA Contribution Limits

If you are planning to contribute to an HSA — whether for immediate and short-term medical expenses, or to help supplement retirement savings — it’s important to take note of HSA contribution limits. If your employer makes a contribution to your account on your behalf, your total contributions for the year can’t exceed the annual contribution limit.

2024 Tax Year HSA Contribution Limits: Remember that you can contribute to your HSA for tax year 2024 until April 15, 2025.

•   $4,150 for individual coverage

•   $8,300 for family coverage

•   Individuals over age 55 can contribute an additional $1,000 over the annual limit

As with opening an IRA, you have until the tax filing deadline to make a contribution for the current tax year. So if you wanted to contribute money to an HSA for tax year 2024, you’d have until April 15, 2025 to do so.

2025 Tax Year HSA Contribution Limits: Remember that you can contribute to your HSA for tax year 2025 until April 15, 2026.

•   $4,300 for individual coverage

•   $8,550 for family coverage

•   Individuals over age 55 can contribute an additional $1,000 over the annual limit

How to Invest Your HSA for Retirement

An HSA is more than just a savings account. It’s also an opportunity to invest your contributions in the market to grow them over time. Similar to a 401(k) or IRA, it’s important to invest your HSA assets in a way that reflects your goals and risk tolerance.

That said, one of the downsides of investing your HSA funds is that these accounts may not have the wide range of investment options that are typically available in other types of retirement plans. Investment fees are another factor to keep in mind.

It’s also helpful to consider the other ways you’re investing money to make sure you’re keeping your portfolio diversified. Diversification is important for managing risk. From an investment perspective, an HSA is just one part of the puzzle and they all need to fit together so you can make your overall financial plan work.

HSA for Retirement vs Other Retirement Accounts

Although you can use an HSA as part of your retirement plan, it’s not officially a retirement vehicle. Here are some of the differences between HSAs and other common types of retirement accounts. Note: All amounts reflect rules/ limits for the 2024 tax year.

HSA

Traditional IRA

401(k)

2025 annual contribution limit $4,300 (individual)
$8,550 (family)
$7,000 $23,500
Catch up contribution + $1,000 for those 55 and older + $1,000 for those 50 and older (total: $8,000) + $7,500 for those over 50 (total: $31,000)
Contributions & tax Pre-tax Pre-tax Pre-tax
Withdrawals Can withdraw funds at any age, tax free, for qualified medical expenses. After age 59 ½ withdrawals are taxed as income. After age 59 ½ withdrawals are taxed as income.
Penalties/taxes Withdrawals before age 65 for non-qualified expenses incur a 20% penalty and taxes.

Withdrawals after age 65 for non-qualified expenses are only taxed as income.

Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty.

Some exceptions apply.

Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty.

Some exceptions apply.

RMDs No Yes Yes

As you can see, an HSA is fairly similar to other common types of retirement accounts, like traditional IRAs and 401(k)s, with some key differences. For example, you can generally contribute more to an IRA and to a 401(k) than you can to an HSA, as an individual.

While contributions are made pre-tax in all three cases, an HSA offers the benefit of tax-free withdrawals, at any time, for qualified medical expenses.

Note that Roth IRAs also have a tax-free withdrawal structure for contributions, but not earnings, unless the account holder has had the Roth for at least 5 years and is over 59 ½. The rules governing Roth accounts, including Roth IRAs and Roth 401(k)s can be complicated, so be sure you understand the details.

In addition, HSA rules allow the account holder to maintain the account even if they leave their job. There is no need to do a rollover IRA, as there is when you leave a company and have to move your 401(k).

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

What Happens to an HSA When You Retire?

An HSA doesn’t go away when you retire; instead, the money remains available to you until you need to use it. As long as withdrawals pay for qualified medical expenses, you’ll pay no taxes or penalties on the withdrawals. And your invested contributions can continue to grow as long as they remain in the account.

One advantage of using an HSA for retirement versus an IRA or 401(k) is that there are no required minimum distributions. In other words, you won’t be penalized for leaving money in your HSA.

How Much Should I Have in an HSA at Retirement?

The answer to this question ultimately depends on how much you expect to spend on health care in retirement, how much you contribute each year, and how many years you have to contribute money to your plan.

Say, for example, that you’re 35 years old and making contributions to an HSA for retirement for the first time. You plan to make the full $4,300 contribution allowed for individual coverage for the next 30 years.

Assuming a 5% rate of return and $50 per month in HSA medical expenses, you’d have just over $242,195 saved in your HSA at age 65. Using an HSA calculator to play around with the numbers can give you a better idea of how much you could have in your HSA for retirement if you’re saving consistently.

When Can I Use My HSA Funds?

Technically your HSA funds are available to you at any time. So if you have to pick up a prescription or make an unscheduled visit to the doctor, you could tap into your HSA to pay for any out-of-pocket costs not covered by insurance.

If you’re interested in using an HSA in retirement, though, it’s better to leave the money alone if you can, so that it has more opportunity to grow over time.

The Takeaway

A health savings account can be a valuable tool to help pay for qualified out-of-pocket medical costs, tax-free right now. But an HSA can also be used to accumulate savings (and interest) tax-free, to be used on medical and non-medical expenses in retirement.

While an HSA can be useful for retirement, especially given the rising cost of long-term care and other medical needs, note that the annual contribution limit for individuals is much lower than other retirement accounts. Also, the investment options in an HSA may be limited compared with other retirement plans.

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

Easily manage your retirement savings with a SoFi IRA.

🛈 While SoFi does not offer Health Savings Accounts (HSAs) at this time, SoFi Invest offers a range of Individual Retirement Accounts (IRAs) to help members prepare for retirement..

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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.

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

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What Is the Age for Early Retirement for Social Security?

Early retirement age for Social Security is 62. While you can receive benefits then, you will not collect as much as if you wait until full retirement age, which is either 66 or 67, depending on the year you were born. If you delay claiming your benefits until age 70, you can receive still more.

Throughout your working career, you pay employment taxes that help fund Social Security, which provides income when you retire. In 2024, approximately 65 million people received Social Security benefits, totaling more than $1.5 trillion. Whether you choose to retire at 62 or later is a very personal decision with several contributing factors.

Here, learn more about Social Security benefits, early retirement age, and the advantages and disadvantages of filing for your benefits early and late.

Key Points

•   Social Security benefits provide income for retirees, with the amount depending on their earnings and the age at which benefits are claimed.

•   The full retirement age (FRA) for Social Security benefits varies from 66 to 67, based on the year of birth.

•   Benefits can be claimed as early as age 62, but the monthly amount is reduced compared to claiming at FRA.

•   Delaying benefits past FRA can increase the monthly amount through delayed retirement credits, up to a certain point.

•   It’s important to consider short and long-term financial needs before deciding when to claim Social Security benefits.

What Are Social Security Benefits?

Social Security is a social insurance program created in 1935 to pay workers an income once they take retirement at age 65 or older. When people talk about Social Security benefits, they’re referring to a monthly payment that replaces a portion of a worker’s pre-retirement income.

The amount you receive depends on how much you earned and paid in Social Security taxes during the 35 highest-earning years of your career. Generally speaking, the higher your income, the bigger your monthly check will be — up to a point. Also important is the age at which you claim benefits. Typically, the later you receive benefits, the higher your monthly check will be.

Note that retirees aren’t the only ones who are eligible for Social Security benefits. People with qualifying disabilities, surviving spouses of workers who have died, and dependent beneficiaries may also qualify for benefits.

Recommended: When Will Social Security Run Out?

At What Age Can You Collect Social Security?

When the Social Security program began, the full retirement age (FRA) was 65, and that’s still what many in the U.S. think of as the average retirement age. However, as life expectancy in the U.S. has increased, the Social Security Administration (SSA) has adjusted the FRA accordingly.

The chart below illustrates FRA by year of birth.

If You Were Born In Your Full Retirement Age Is
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67

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What Is the Early Retirement Age for Social Security?

You can choose to claim retirement benefits as early as age 62. However, SSA will reduce your benefit by about 0.5% for every month you receive benefits before your FRA. For example, if your full retirement age is 67 and you file for Social Security benefits when you’re 62, you’d receive around 70% of your benefit.

On the other hand, if you wait to claim benefits after your FRA, you’ll accrue delayed retirement credits. This increases your benefit by a certain percentage for every month you delay after your FRA. For example, if your full retirement age is 67 and you delay receiving benefits until age 70, you’ll get 124% of your monthly benefits. Note that the benefit increase stops when you turn 70.

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

Can You Claim Social Security While You’re Still Working?

When you claim your Social Security benefits, the SSA considers you retired. However, you can continue working after retirement and receiving benefits at the same time, though they may be limited.

If you’re younger than FRA for the entire year, the SSA will deduct $1 from your payment for every $2 you earn above an annual limit. In 2025, that limit is $23,400. In the year you reach full retirement age, the SSA will begin deducting $1 for every $3 you make above a different earnings limit — $62,160 in 2025.

No matter their work history, your spouse has the option to claim Social Security benefits based on your work record. That benefit can be up to 50% of your primary insurance amount, which is the benefit you’d receive at FRA. Your spouse can begin receiving spousal benefits at age 62, but they will receive a reduced benefit.

Pros and Cons of Claiming Social Security Early

The main advantage of filing for Social Security early is that you’ll have access to retirement funds sooner. This can be a boon to individuals who need extra money to get by each month. To help you maximize every last dollar, consider using a spending app to create budgets, track spending, and monitor bills.

The main disadvantage of filing early is that you may permanently reduce your monthly benefit amount. This could be a factor to keep in mind as you determine whether you’re on track for retirement.

So how do you decide when to file for your benefits? Consider your “break-even point.” This is the age at which receiving a delayed higher benefit outweighs claiming benefits earlier.

Here’s an example of how that works. Let’s say your FRA is 67 and your annual benefit is $24,000. If you claim your benefit at age 62, your benefit drops to $16,800 a year. If you delay until age 70, your benefit would be $29,760 a year.

By adding up each year’s worth of benefits and comparing them across different potential retirement ages, you find your break-even point. So in that last example, claiming your benefit at FRA breaks even with early filing at age 78. If you expect to live until this age or longer, you may consider filing for Social Security at full retirement age. Delaying until age 70 breaks even with claiming at FRA at age 82. So if you expect to live until 82 or longer, you may consider delaying your benefits.

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Recommended: How Can I Retire Early?

The Takeaway

Early retirement starts at age 62; that is the earliest age you can receive Social Security income. Your monthly payment amount is determined by how much you’ve earned during your working career and the age at which you claim Social Security benefits. You’re eligible to receive your full benefits when you reach full retirement age (FRA). If you file before then, the monthly payment will be reduced. If you file later, your monthly payment can increase, up to a point. Consider your short- and long-term financial needs carefully before deciding when to claim Social Security so you can budget appropriately.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Can I take Social Security at age 55?

You cannot claim Social Security benefits at age 55. The earliest you can file for benefits is age 62.

What happens to my Social Security if I retire at 55?

If you retire at 55, you will have to wait seven years, until age 62, before you are eligible to claim early Social Security benefits. Retiring early may also affect the size of your benefit if you are leaving work in your top-earning years.

What is the average Social Security benefit at age 62?

The average monthly Social Security retirement benefit in December 2024 was about $1,834.43 for those filing at full retirement age. Filing early at age 62 would reduce that benefit by 30% to $1,284.10.


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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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

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