When you’re saving for retirement, one of the general rules of thumb is the longer you have before you stop working, the more risk you can afford to take.

In other words, if you have more time to ride out the stock market’s ups-and-downs and potentially grow your wealth, you should probably keep more of your money invested in stocks. When you get closer to retirement, it’s safest to pare back riskier holdings, keeping more in cash.

But new data from retirement services firm Empower shows the exact opposite is happening: Cash is king for twenty-somethings, with investors in their 20s holding more of their assets in cash — almost 27% — than any age group except retirees 70 or older.

And it’s not because they don’t have spare cash to invest: The median cash balance for investors in their 20s is $40,725, according to the data.

It seems more likely that these young people are wary of taking on risk — especially considering that many of them came of age over the past five years, as the pandemic and geopolitical turmoil fueled economic uncertainty.

So what? While investing comes with risk, there is a risk to not investing enough too. This is especially true for young people, who can miss potential opportunities to grow their wealth if they keep too much of their money in cash.

“Time can either be your best friend or worst enemy,” said Brian Walsh, a Certified Financial Planner® and SoFi’s Head of Advice & Planning. “Make it your best friend by investing early so your money has more time to grow.”

Some advisors recommend keeping between 2% and 10% of your portfolio in cash. But the right allocation for you depends on many factors, including how long before you need your money, your financial goals, and your own personal risk tolerance.

Here are some things to consider when gauging the mix of cash (and cash equivalents) versus investments in your portfolio. Remember, there’s always a risk-reward tradeoff.

Decide what you actually need to have in cash. Financial advisors generally recommend having enough liquid cash to cover three to six months’ worth of living expenses, in case something unexpected happens. It may make sense to hold onto even more if your income isn’t steady or if you’re making a big purchase (like a house) soon.

Consider your risk tolerance. Ask yourself what you want to achieve with your investible assets. Are you happy collecting interest in a high-yield savings account, or are you willing and able to take a risk and invest it in the market in exchange for the possibility of higher returns?

People talk about the opportunity cost of not investing in the U.S. stock market because, despite its ups and downs — especially in recent months — the S&P 500 index has trended up over time. Returns vary widely, but historically, the average annualized return is about 10% per year, or 6% to 7% after inflation (not accounting for fees, expenses, and taxes).

Don’t forget inflation. Cash tends to lose value over time because of inflation. And although holding on to large sums can shield you from volatility, you’re giving up potential growth along with potential losses. If you don’t need the money right now, putting it to work can help you reach your goals faster (think buying a house, saving for your kid’s college tuition, or having financial security in retirement).

Weigh your time horizon. Whether it’s retirement or something else, it’s key to know how long you have before you’ll need to cash out your investments. One approach is to subtract your age from 110 to gauge how much money you should keep in stocks. For example, if you’re 25, you would keep 85% of your money in stocks because 110-25= 85.

In the end, there is no single strategy that works for everyone, or even one strategy that works for a lifetime. Make sure you reassess as you age and your goals and financial situation shifts.

Related Reading

•  How to Conquer Your Fear of Investing and Start Growing Your Portfolio (Investopedia)

•  Is Holding Too Much Cash a Mistake? Here’s Why That May Lead to Regrets, Experts Say (CNBC)

•  What Are Gen Zers’ Attitudes Toward Money? (Empower)

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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Social Security may not feel particularly relevant when your retirement is decades away. But understanding how the benefits work is an important part of retirement planning no matter what your age.

Although Social Security doesn’t negate the need for a savings strategy, your benefits will be a core component of your income during retirement — and they’ll last for as long as you live. Factoring them in now can help you maximize them later.

Here’s what you need to know and why.

Will Social Security Even Be Around?

Before we dive in, let’s address the elephant in the room. Social Security faces a funding shortage that threatens to affect beneficiaries in less than 10 years.

In a nutshell, Social Security — created in 1935 to protect older Americans from poverty — relies on a rolling pay-it-forward system where each generation’s retirees are covered by the younger generations’ payroll taxes. But as the population has aged, it’s created a mismatch between the number of workers and the number of beneficiaries. According to the latest projections, beneficiaries may not get 100% of their scheduled benefits beginning in 2033.

Keep in mind that’s only the current projection. Lawmakers have been pledging to make reforms to the system for decades, and raising the retirement age or making other adjustments could alter that trajectory. To learn more, read this primer on the funding issues.

Why It Pays to Understand Social Security Early

While the funding challenges are unsettling, don’t let it paralyze you. The more planning you do now, the better positioned you’ll be to pivot if there are changes to Social Security. Here’s why it pays to understand the system early:

•  Knowledge is power: Social Security replaces a percentage of your pre-retirement income. The monthly benefit check is the foundation of many Americans’ retirement income, though ideally not the only part. (It was never meant to cover all your expenses in retirement.)

  To that end, it’s important to know your estimated benefit amount and when you might begin drawing your benefits. (More on both of those in a moment.) How much of your basic living expenses will your benefit check cover? And how much does that mean you need to be saving in a retirement account otherwise? (For reference, the average retired worker got $2,005 in Social Security benefits in June.) A retirement calculator that includes Social Security can help. Or you can discuss the math with a financial advisor.

•  Timing is everything: You can start getting your Social Security benefits at age 62, but if you take your benefits that early, you’ll permanently reduce your monthly benefit amount — by 30%, in most cases. It’s often best to wait — if you can afford to — so your checks will be bigger. That’s where your retirement savings comes in. When determining your savings rate, ideally you’re working toward a retirement target that lets you delay taking Social Security for as long as possible.

How to Find Out Your Estimated Benefit

The Social Security Administration uses your 35 highest-earning years to project your monthly benefit amount, so it can change over the course of your working life. If your annual earnings increase as you get older, the estimate will likely go up — to a point. (There’s a limit to how much income can be taxed for Social Security, and in turn, to your monthly benefit amount. In 2025, the max anyone is getting is $5,108 a month.)

Probably the best way to check and track your estimated benefit is with an online “my Social Security” account from the SSA. If you have your driver’s license on you, it usually just takes a few minutes to create one. From there you can immediately download your latest statement, which is updated annually.

For a rougher estimate, you can use the SSA’s Quick Calculator, but this relies on your own estimate of earnings rather than the SSA’s records.

Again, the big if — besides what you may earn in the future — is how long you’ll wait to apply for benefits. Here are the important milestones:

  62: When you can start receiving reduced benefits.

  66 to 67: The official “full retirement age” when you can start receiving the standard benefit, depending on when you were born.

  70: When you’ll receive the most money available to you.

Two important notes: You need at least 10 years of work to qualify for Social Security. And even though you’ll have a set benefit amount, it will be adjusted once a year to account for cost-of- living increases (aka inflation.)

Tips for Planning Ahead

Be proactive to get the most out of your Social Security checks:

•  If you have a partner, make a plan: Coordinating with your partner can make a big difference. If one of you needs to collect your benefit early in order to cover the bills, can you choose the person with the lower benefit amount? That way the one with the higher benefit can maximize their amount by waiting.

•  Don’t be afraid to work: Even after you start receiving benefits, your earnings can increase your monthly benefit amount if you have one of your 35 highest-earning years. However, be aware that if you haven’t reached full retirement age, the SSA could temporarily withhold some or all of your earnings (depending on how much you earn) if you’ve started collecting your benefit. You will be credited that money later, but not until you reach full retirement age.

•  Know the inheritance rules: What happens if you die? Social Security isn’t like a 401(k) or IRA, where you can designate a beneficiary. Your benefit ends when you die, though there are survivor benefits for an eligible spouse or minor children. If your spouse is already receiving Social Security, however, they won’t get double the money.

In short, while you shouldn’t plan to rely solely on your monthly Social Security check, it’s likely to be a core part of your retirement income. And factoring it into your plans now can give you more control later, when timing can make a significant difference to your bottom line.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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