Jul
18
2025

How Much to Invest in ETFs Per Month

By | Growing Wealth, invest, Investing | Comments Off on How Much to Invest in ETFs Per Month

For investors who have opted to invest in exchange-traded funds, or ETFs, deciding how much to invest in ETFs each month depends on a few factors.

Many people invest a fixed amount every month based on their income (for example, 10% or 15% of their paycheck). But ultimately, choosing the right amount for you will depend on your financial situation, goals, time horizon, and risk tolerance.

Having a monthly ETF investment strategy can be useful in building a diversified portfolio, with potentially lower investment costs. Asking yourself a few questions can help you make the decision about how much to invest in ETFs every month to align with your goals.

Key Points

•   Many investors choose a set amount to invest each month, and some or all of that can be invested in ETFs.

•   Investing in ETFs every month can offer investors a low-cost way to have more diversification in their portfolios.

•   Deciding how much to invest in ETFs every month depends on your financial situation, investing goals, time frame, and risk tolerance.

•   ETFs may offer some advantages over mutual funds in that they may have lower fees and it’s possible to trade ETF shares throughout the day.

•   Investing monthly in ETFs can help investors take advantage of dollar-cost averaging, which may offer some protection against risk.

Understanding ETF Investment Basics

ETFs, or exchange-traded funds, bundle different investments together. They’re similar to mutual funds, which are also a type of pooled investment, but ETFs are traded on stock exchanges throughout the day, in the same way that stocks are.

In that sense, ETFs can be more liquid than mutual fund shares, which only trade once a day. Investors can buy and sell ETFs, whether investing online or through a traditional brokerage, making them a flexible investment choice.

Advantages of ETFs

In addition, most (but not all) ETFs are passively managed, similar to index mutual funds, which track a market index like the S&P 500. Understanding the difference between ETFs and index funds is important, because although both types of funds may track an index, ETF shares can be more liquid, transparent, and tax efficient than index mutual funds.

There are also various types of ETFs that investors can choose from. For instance, there are ETFs that bundle different stocks and bonds together, others that are concentrated on energy stocks or tech stocks or green bonds. Again, this is similar to how mutual funds work — many mutual funds focus on a specific sector or investment style (e.g., stocks with a certain market capitalization).

Risks of Investing in ETFs

That said, ETFs have risks, like all other investments. Their values fluctuate with the market, for one, and there are risks that involve all of the underlying investments in each ETF — which could include credit risks, interest rate risks, industry- or sector-specific risks, and more.

As with any type of investment, it’s probably best to do your research on ETFs and the underlying investments, and any cost implications, before deciding to invest in ETFs.

Determining Your Monthly ETF Investment Strategy

Once you understand the benefits of ETFs, as well as the risks, you can decide what your monthly ETF investment strategy will be to support your financial goals.

The Power of Dollar-Cost Averaging

Investing on a regular basis, a method also known as dollar-cost averaging, can potentially help manage volatility and potential risks, especially when you’re just learning about how to start investing.

When you invest a fixed dollar amount on a steady basis (e.g. weekly or monthly), over time you end up buying more shares when prices are lower and fewer when prices are higher. This can lower the average cost per share, and (more important) help you avoid the temptation to time the market — e.g., selling when prices drop, or buying when they rise, which can increase the risk of losses.

Deciding on a Monthly Amount

Before learning how to trade ETFs, however, you have to decide how much you want to invest in exchange-traded funds, or other investments, each month.

Many investors choose a percentage of their income as a place to start. For example, a general consideration when deciding how much to save for retirement is to set aside at least 15% of your income. Other people prefer to go with a fixed dollar amount, like $200 or $500 per month. It depends on your goals and financial situation.

When investing for retirement, that could be a long-term ETF investment strategy — which is a different approach from active investing. But saving for a down payment could require a shorter-term strategy.

There’s no rule that says you have to stick with a portfolio of ETFs only, but it’s good to know that these funds are flexible enough to be used for longer- or shorter-term goals.

Factors That Influence Your Monthly ETF Contribution

Now it’s time to examine your financial goals and time horizon, your current financial situation, and your risk tolerance — as all of these will help you decide on a potential monthly ETF investment strategy.

Financial Goals and Time Horizon

Knowing your financial goals — whether that’s saving up for a big purchase, creating a long-term plan, going back to school — will help you determine a timeline that makes sense for you. Obviously, a goal like retirement could be 20 years, 30 years, or more. Knowing the time horizon for a near-term goal with a specific amount may require doing some due diligence.

For example, saving for house means researching the price for a home you can afford, knowing the down payment amount, and deciding how much you can save each month to reach that goal.

Current Financial Situation

You may want to give some serious thought to your current financial situation, which may, perhaps more than anything, dictate how much you can afford to invest on a monthly basis. Or, put another way: How much money will you be budgeting for savings, and potentially ETF investments, every month?

If you find yourself with a surplus of cash every month, because your income exceeds your expenses, then you may be able to save more consistently a monthly basis.

But even if the amount you have to invest each month is smaller than anticipated, it’s still a good idea to get started, so your money potentially has time to grow.

Risk Tolerance and Market Conditions

Finally, you may want to think about how much risk you’re able to stomach, and how the current market conditions are informing your risk appetite. This is generally referred to as risk tolerance — how much risk an investor is willing or able to assume in their portfolio.

As the saying goes, more risk, more reward — though typically, that can mean that riskier investments might generate higher returns, but with a much higher risk of loss.

When you’re thinking in terms of how much you’re able or willing to invest in ETFs every month, risk tolerance should be a big part of that calculation. It’s also an important part of selecting specific ETF investments, because some ETFs may have underlying investments that are higher risk, e.g., high volatility stocks.

There are a range of investing strategies ETF investors can consider:

•   Buy-and-hold: Purchasing ETFs and holding on to them for many years is a classic buy-and-hold strategy that may generate returns over the long term. Although some people consider this a conservative approach, because it helps investors ride out periods of volatility, there is still the risk of loss, or holding onto an underperforming asset for too long, and missing other market opportunities.

•   Thematic investing: There are thematic ETFs on the market, allowing investors to invest in specific interests (like green investing or biotechnology), or to capitalize on certain industries. This has its own risks, but it’s a strategy that could prove interesting and maybe even fun for some investors, depending on their goals.

There can be more options, such as investing in leveraged ETFs. Again, a little research is likely to shed some light on additional trading strategies that can be utilized for ETF investors.

Benefits of Consistent Monthly ETF Investing

Some potential benefits of consistent monthly investing, in ETFs or other securities, include the aforementioned advantages of dollar-cost averaging, the potential for long-term returns, and the ability to avoid emotional or knee-jerk reactions to swings in the market.

A consistent strategy can help investors stick to their plan and keep their larger goals in mind.

The Takeaway

Investing monthly in ETFs is one way to develop an investment strategy that includes principles of diversification, dollar-cost averaging, and more. There are many things that each individual investor should consider, of course, such as whether ETFs are the right investment for them, and their long-term goals and time horizon.

As far as how much an investor should try to invest in ETFs each month, that will depend on the individual investor’s specific situation, goals, and risk profile.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is the minimum amount I should invest in ETFs each month?

There is no minimum amount an investor should invest in ETFs each month. Should an investor choose to make monthly investments in ETFs, the amount should be determined by their financial situation, goals, time horizon, and risk tolerance.

How do I choose which ETFs to invest in?

The specific ETFs investors choose to invest in are likely going to be determined by the investor’s risk tolerance and goals. ETFs differ greatly from fund to fund, and some are riskier than others — accordingly, it may be a good idea to talk things through with a financial professional.

Should I invest a lump sum or spread my ETF investments monthly?

It can be a good idea to spread your investments out over a period of time to take advantage of dollar-cost averaging. That may help smooth out the risk profile of a portfolio.

Can I automatically set up recurring monthly ETF investments?

Depending on the brokerage or platform you use to invest, it’s possible to set up automatic, recurring investments in ETFs or other securities.

How often should I rebalance my ETF portfolio?

How often you rebalance your portfolio is up to you, but generally, professionals recommend that investors consider rebalancing once or twice per year. You may want to consider rebalancing, too, if your living circumstances change.

Photo credit: iStock/matdesign24

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

S&P 500 Index: The 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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Jul
18
2025

How Is AI Impacting the World of Investing?

By | invest, Investing | Comments Off on How Is AI Impacting the World of Investing?

Artificial intelligence (AI) technology is transforming multiple industries, including the financial services sector. Fintech companies, financial advisors, and wealth management firms are some of the entities that are starting to utilize AI for investing, by capitalizing on AI’s power to streamline compliance processes, automate trades, detect fraud, anticipate market patterns, and much more.

That said, the role of AI in investing is still being defined, and there are numerous questions about what this technology can and can’t do. You may be wondering where artificial intelligence fits into your portfolio and decision-making, or if it should at all. Another concern is how transparent financial institutions should be when incorporating AI into their products and processes.

Using AI to invest may offer possibilities, but it also comes with potential risks. Here’s a closer look at how AI is impacting the world of investing.

Key Points

  • Financial companies have long used AI in investing, e.g., for automation, data analysis, and even portfolio construction.
  • The term AI encompasses a range of capabilities, including: machine learning, predictive analytics, natural language processing, and more.
  • Advanced AI technologies help with fraud detection, risk management, compliance issues, to automate trades, and more.
  • Retail investors can experience AI when they use a robo advisor platform.
  • Using AI for investing isn’t fool-proof, however, and investors need to understand the limits of artificial intelligence.

The Evolution of AI in Financial Markets

AI technology’s core concepts — including the use of algorithms and automation — have been at work behind the scenes in financial markets for decades. After some initial ups and downs in the 1980s, interest in AI saw a resurgence in the 1990s and an eventual expansion into machine learning, data mining, virtual reality, and case-based reasoning.

Deep learning, which harnesses artificial neural networks to solve problems and analyze vast stores of data, emerged in 2011, and investment firms began experimenting with AI-powered, algorithm-based trades. In 2018, BlackRock announced that it would create an AI lab, with the firm’s plans focused on incorporating machine learning into its asset management strategies.

How popular is AI among financial advisors? A 2024 report from Mercer found that 91% of investment managers were either using or planned to use AI within their investment strategy or for asset class research. Just 9% of managers surveyed said they had no plans to use AI, suggesting that artificial intelligence may be poised for widespread adoption in the not-too-distant future.

Key AI Technologies Transforming Investment Strategies

AI is an umbrella term that encompasses a number of different technologies that financial firms utilize in various ways. Here are some of the tools advisors and wealth managers are leveraging to incorporate AI in investing, and which may come into play when investing online.

Machine Learning Algorithms and Predictive Analytics

Machine learning (ML) refers to how computers “learn” from analyzing large swaths of data without being specifically programmed to do so. ML tools absorb data, analyze it, and draw conclusions from it to solve problems.

In financial services, machine learning’s uses include:

  • Fraud detection and regtech, or regulatory technology
  • Risk management
  • Market forecasting and sentiment analysis
  • Algorithmic trading
  • Portfolio management
  • Asset allocation and rebalancing

Robo investing services, or robo advisors, are a prime example of AI portfolio management at work. Many robo advisors rely on ML-driven algorithms to analyze client portfolios and make predictive investment recommendations.

It’s not just robo advisor platforms that are using machine learning to drive investment decision-making. In 2023, for example, Morgan Stanley announced that it would partner with OpenAI, a machine learning research and deployment company, to develop an analytics tool that would help the firm’s advisors better assist their clients.

Recommended: Artificial Intelligence in Banks

Natural Language Processing for Market Sentiment

Natural language processing (NLP) uses machine learning to help computers understand human language and communicate with it. NLP was the precursor to generative AI, which is equipped to create images, video, and audio content based on prompts.

Financial firms use natural language processing for sentiment analysis, which involves analyzing text to determine the sentiment or emotion being expressed — for example, around how to invest in stocks. Sentiment analysis is frequently used in marketing to gauge how consumers will react to specific messaging, but it also has implications for investing.

NLP-driven algorithms use sentiment analysis to review news articles, social media content, blog posts, and other text documents and identify whether the thoughts, emotions, and opinions expressed in them are positive, negative, or neutral. Financial advisors and wealth managers can then use the results to make trading decisions based on the mood of the market.

AI-Driven Investment Tools and Platforms

Investment tools and platforms can simplify the process of building and managing a portfolio, and you may be using them without even realizing it. Here are some examples of where you may encounter AI investing tools.

  • Stock pickers and screeners. Stock pickers identify stocks that are favorable for trading. Screening tools allow you to find stocks based on specific parameters. These tools may use AI algorithms to rate and categorize stocks to help investors with decision-making.
  • Stock trading platforms. Online stock trading platforms may leverage AI for stock analysis to identify the day’s winners (or losers) and spot overall trends in the market. They can offer automated trading, based on specific exit or entry parameters that investors set.
  • Market intelligence tools. Information is critical for making informed decisions, and AI-powered market intelligence tools free you from having to spend hours studying the markets. These tools are equipped to scan and collate data quickly and efficiently, so you can see what’s happening in the markets at a glance.

Brokerages and robo-advisors can infuse one or all of these tools into their platforms for the benefit of investors. They may partner with third-party AI platforms or develop their own proprietary AI models and tools to offer to their customers.

Algorithmic Trading and Automated Portfolio Management

Algorithmic trading, or algo trading for short, is not a new idea. Algo trading is a strategy in which trades are automated, based on a predetermined algorithm. The algorithm’s parameters can be adjusted to direct trading activity using an “if X happens, then Y should happen” approach.

In terms of the role of AI in investment management, artificial intelligence makes algo trading faster and more efficient. Machine learning and predictive analytics allow AI to look at the entire market and pick out trends that may not be as quickly or easily spotted by a human advisor. Those trends would then drive buy/sell decisions.

AI can be particularly helpful for high-frequency trading (HFT), which should be on your list of investing terms to know. High-frequency trading is when numerous trades are made within a tight window to take advantage of pricing fluctuations and market movements. The idea behind using AI for algorithmic trading is to capitalize on its faster data collection and processing speeds to turn profits that might otherwise be missed.

Recommended: Generative AI in Banking

Adapting Your Investment Strategy for the AI Era

The two main avenues for exploring artificial intelligence technologies are 1. investing in AI-focused securities and 2. using AI-based tools to help you invest. If you’re interested in testing the waters with AI, here are some of the ways you might use it to invest:

Consider AI-Based Investments

You can add AI-focused stocks, bonds, mutual funds, or exchange-traded funds (ETFs) to your portfolio. Using mutual funds or ETFs provides a low-cost way to access a range of securities that provide exposure to this growing sector — with potentially less risk than investing in AI stocks individually.

Use AI Tools to Do Research

Artificial intelligence is a huge field, and it’s growing rapidly. You may want to employ AI tools like ChatGPT or Claude to help you learn more about the aspects of AI that you want to invest in, whether that’s robotics, medical technology, personal assistants, or some other area.

Explore Robo Advisor Platforms

As noted above, robo platforms are a straightforward way to see artificial intelligence in action in an investing context. Here, the AI technology is used to translate personal inputs into portfolio recommendations, which are then managed algorithmically over time to stay within the preferred allocation.

One thing to keep in mind is that robo advisor fees vary considerably from platform to platform. Just as mutual funds charge an annual fee, so do these services. Make sure you understand the terms.

Caveats About Investing in AI

Setting specific investing goals about what you hope to accomplish with AI can help you narrow your focus to the right tools or platforms. Research how the tool or platform operates using AI, what you’ll pay to use it, and its associated risks or biases.

Keep in mind that at this stage, many AI investments are speculative. Financial experts typically recommend that you limit your portfolio’s exposure to speculative investments, as they often carry greater risk. Consider how much your portfolio you’d be comfortable losing when deciding how much to invest in AI strategies.

How AI is Changing Traditional Investment Roles

As AI investment trends continue to gain ground, it’s led financial services experts to question whether it will one day render human advisors obsolete. While financial advisors are unlikely to disappear any time soon, they face increasing pressure to adopt AI tools in their practices in order to remain competitive.

Some of the ways advisors are embracing AI include:

  • Using ChatGPT to create client-facing content and communications
  • Leveraging AI for portfolio analysis and management
  • Relying on generative AI to create portfolio visualizations
  • Analyzing market sentiment to help make investment decisions

AI is and will likely continue to reshape the way the financial services industry functions. However, AI’s capabilities aren’t a replacement for the human touch that an advisor can bring — which is an important consideration when you choose an advisor. For example, if you’re tempted to sell during periods of increased volatility, an advisor can hold your hand, literally or figuratively, and provide reassurance until your panic subsides.

Risks and Limitations of AI-Based Investment Systems

While AI can offer some advantages, investors shouldn’t overlook the risks. First and foremost is the evolving regulatory landscape.

Financial advisors and investment firms are expected to uphold compliance standards when using AI, but there is still room for regulation to be expanded to protect consumers. The Securities and Exchange Commission (SEC) has identified several areas of potential concern surrounding AI’s implementation in wealth management, including:

  • Systemic risk. As AI expands into more areas of the financial services sector, increased interconnectedness could increase risk across the entire ecosystem.
  • Lack of disclosures/transparency. Investors may be at risk when receiving AI-generated advice if their advisors fail to properly disclose the use of artificial intelligence.
  • Cybersecurity. Cybersecurity is a growing threat to investors and financial services firms. AI could be particularly vulnerable to cyberattacks, placing investors’ account information at risk.
  • Bias. AI tools are only as good as the data they’re trained on. If that data includes built-in biases, any investment advice the AI tool produces could be similarly skewed.
  • Fraud. Artificial intelligence tools may provide opportunities for fraud, if unethical advisors or financial professionals use it to manipulate data or client accounts in a way that benefits themselves.

For some investors, the risks of AI may far outweigh any perceived or actual benefits. If you’re considering AI-based investing strategies, carefully know the potential risks to your portfolio and your overall financial plan. If an AI investing tool gets it wrong and you end up with a loss, you may have very little recourse to repair the damage.

Remember that AI is not a substitute for your own judgment, or the advice of a financial advisor. An advisor can walk you through the pros and cons of using artificial intelligence to make investment decisions. They can offer advice on how to strategically implement AI into your financial plan to balance risk and reward. Consider adding a chat with an advisor to your investing checklist.

The Takeaway

Artificial intelligence investment trends continue to make headlines, and it’s natural to wonder if it’s something you should be exploring. While AI seems to be everywhere, it remains an evolving technology. At the end of the day, these tools may lead to greater efficiencies in some ways, but they cannot predict investment outcomes with 100% accuracy or guarantee returns.

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).

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

FAQ

How are investment firms using AI to gain a competitive edge?

Investment firms are using AI in different ways, from investment analysis to portfolio management. They’re also using them to develop marketing plans to attract new clients, ensure compliance with regulatory guidelines, and identify risk threats at the organizational level.

Can AI help individual investors compete with large financial institutions?

AI is opening up new horizons for investors who want to play a more hands-on role in building a portfolio. Artificial intelligence tools can help to level the playing field for individual investors to a degree, but they can’t guarantee that you’ll see the same returns as a big brokerage or wealth management firm.

What are the potential risks of relying on AI for investment decisions?

AI carries certain risks for investors, including the potential for bias to drive incorrect predictions. Remember, AI technology is still evolving. If an AI tool uses flawed data to make investment recommendations, that could drive losses in a portfolio, rather than gains. A lack of transparency, and vulnerability to cyberattacks, also increase the risk for investors who rely on AI.

How do I evaluate the effectiveness of AI-powered investment platforms?

Evaluating the effectiveness of AI-powered investment platforms begins with understanding what they’re capable of, and where those capabilities end. Overlooking the limitations of a particular platform or tool can lead to disappointing results or increased risk. Look for platforms or tools that offer a demo so you can test out the features before you commit to using it.

Will human financial advisors become obsolete with advancements in AI?

Advisors may use AI to enhance the services they offer to clients and streamline their businesses, but artificial intelligence isn’t likely to replace them completely, at least for the time being. A human advisor may be better able to address unique personal situations, and help people over time.

Photo credit: iStock/Supatman

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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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Jul
18
2025

Ultimate Guide to Retirement Planning for Millennials

By | Budgeting & Goals, invest, Preparing for Retirement | Comments Off on Ultimate Guide to Retirement Planning for Millennials

As millennials enter their 30s and 40s, retirement suddenly doesn’t seem as far off as it once did. In fact, many millennials hope to retire by age 59, according to one recent survey — six years before the traditional retirement age of 65.

The average millennial believes they’ll need $1.65 million to be comfortable in retirement, according to a 2024 study by Northwestern Mutual. But they’ve got a long way to go to reach that number: Millennials have saved just $62,600 on average, the research found. That means they’ll need to save at least $1.59 million between now and the day they retire to reach their goal.

No matter what your specific retirement goal is, ramping up millennial retirement savings now can pay off. The sooner an individual starts saving for retirement, the more time their money potentially has to grow. Read on for ways to kickstart your retirement savings — and some common mistakes to avoid — in our millennial’s guide to retirement planning.

Key Points

  • Saving early and consistently for retirement could help millennials take advantage of compounding returns and meet long-term financial goals.
  • Creating a budget helps manage expenses and allocate funds for retirement.
  • Retirement savings account options include a workplace 401(k), an IRA, or a brokerage account.
  • Understanding risk tolerance can help investors make informed investment decisions.
  • Diversifying investments is a way to spread money out across a range of assets to reduce the risk of losses.

Why Retirement Planning Matters for Millennials

Since young adulthood, millennials have faced a series of financial challenges. They graduated college with an average of $40,438 in student loan debt, according to the Education Data Initiative. They often struggled to find jobs during the Great Recession, and when they did land a position, their wages typically stagnated. Then, during their peak earning years, the Covid pandemic hit, and a large chunk of the economy slowed or shut down.

In addition, home prices have skyrocketed since 2020, putting homeownership out of reach for many millennials. Rents have also risen sharply, taking a chunk of their paychecks. Add to that increases in the cost of living across the board and rising credit card debt, and it’s no wonder millennials find themselves falling behind.

Faced with so many financial pressures, millennials may feel that saving for retirement is less of a priority because it’s far in the future. But that’s a misconception. In order to amass enough retirement savings, an individual generally needs to routinely put money away for at least 25 years, and ideally, even longer. Starting now on your millennial retirement savings plan could make all the difference.


💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA online, but you typically pay investment costs for the securities in your portfolio.

Setting Your Retirement Goals: What Does Your Future Look Like?

According to the 2024 SoFi Retirement Survey, 75% of Americans don’t know how much they’ll need to retire. Before you can understand how much to save for your post-work years, you need to figure out what you’d like your retirement to look like. Do you hope to travel? Would you like to relocate to another part of the country — or move to a different country altogether? Or are you planning to downsize and move to a smaller home in the same general area?

Envisioning the lifestyle you hope to have in retirement can help you calculate what your retirement costs might be.

How to Determine How Much You Need to Retire

There isn’t one millennial retirement savings amount that will work for everyone. How much you need to retire depends on your unique situation. However, there are several rules of thumb you may want to consider as ballpark estimates.

  • The 4% rule: The 4% rule suggests that retirees can safely withdraw 4% of their savings in the first year of retirement, and then adjust that amount for inflation in subsequent years, to help ensure their savings will last for 30 years. You can also use this rule to back out how much you’ll need to set aside for retirement. To do this, you estimate what your annual retirement costs will be and divide that number by 4%. For example, if you believe your annual retirement expenses will be $60,000, dividing that number by 0.04 would result in $1.5 million. That would be your retirement savings goal.
  • The 80% rule: This rule says retirees should aim to replace 80% of their pre-retirement income to maintain a similar standard of living. So if you’re earning $120,000, you would aim to have enough retirement income, from savings and other sources like Social Security, to generate $96,000 per year.
  • Age-based savings rule: Another guideline offers rough targets for retirement savings based on your age as follows:

By age …

 You should have saved …
30 1x your salary
40 3x your salary
50 6x your salary
60 8x your salary

Remember, each of these three rules offers only rough amounts or guidelines for the amount you’ll need to save. But they can give you a starting point for estimating your retirement savings.

Average Retirement Age for Millennials

The average retirement age in the U.S. is 62, according to a 2024 study by MassMutual. As noted earlier, many millennials hope to retire by age 59. That means the oldest millennials, who are 44 in 2025, have approximately 15 to 18 years to save for retirement.

Understanding Your Retirement Savings Options

Whether you’re just starting to save for retirement as a millennial, or you’ve already started saving but want to kick your efforts up a notch, there are a number of different types of retirement plans you can consider.

Employer-Sponsored Plans (401(k), 403(b))

You can sign up for an employer-sponsored retirement plan if your workplace offers one. This might be a 401(k) plan if your company is for-profit, or a 403(b) if your employer is a nonprofit.

With employer-sponsored plans, you decide how much you want to contribute, and your contributions are typically automatically deducted from your paycheck. This can help you save without even thinking about it. Individuals under age 50 can contribute up to $23,500 in a 401(k) in 2025.

Additionally, your employer may offer a 401(k) match, which means they match your contributions up to a certain percentage. That’s basically “free money,” so if your workplace offers 401(k) matching, it’s a good idea to participate.

You may be able to direct how you want to invest the money you contribute to your 401(k) by choosing from a number of options offered by the plan, which may include stocks, bonds, and mutual funds, and exchange-traded funds (ETFs).

For those who are self-employed, there are solo 401(k) plans to help them save for retirement. The way these plans work is similar to a traditional 401(k), but solo 401(k)s are specifically for individuals who run a business by themselves or only employ their spouse.

Nonprofits may offer their employers a 403(b) plan, which is also similar to a 401(k). As with a 401(k), your employer may or may not offer matching contributions. However, your investment options with a 403(b) may be more limited than the investment options in a 401(k).

Individual Retirement Accounts (IRAs)

Another option for saving for retirement is an individual retirement account, or IRA. Freelancers or contract workers may want to consider opening an IRA, and so might millennials who don’t have a workplace retirement plan, or who have maxed out their employer-sponsored plan and want to save even more. (Keep in mind: If you already have a 401(k), you may or may not be eligible for tax-advantaged contributions to an IRA in any given tax year, depending on your income.)

There are different types of IRAs, but two of the most common are Roth and traditional IRAs. Each has the same annual contribution limits, which is $7,000 in 2025 for those under age 50.

Both traditional IRAs and Roth IRAs are tax-advantaged accounts, but they work differently. With a traditional IRA, you make pre-tax contributions. You can deduct the contributions in the year you make them, as long as you meet certain conditions. When you withdraw your savings from a traditional IRA in retirement, you pay taxes on the withdrawals.

With a Roth IRA, your contributions are made with after-tax dollars. You can’t deduct your contributions, but your potential earnings grow tax-free in the account, and your qualified withdrawals in retirement are tax-free. Roth IRAs do have income limits ($150,000 for those who are single in 2025 and $236,000 for those who are filing jointly) to make a full contribution.

There are specific withdrawal rules for traditional and Roth IRAs. For example, withdrawals from a traditional IRA before age 59½ typically incur income taxes and a 10% penalty. Withdrawals of Roth IRA contributions can be made anytime and they are tax- and penalty- free. However, any earnings withdrawn before age 59 ½ may be subject to income taxes and a 10% penalty.

Brokerage Accounts for Retirement Savings

There is no single best way to save for retirement; sometimes an approach that includes different kinds of retirement savings accounts may be worth exploring. For example, millennials who have an IRA or a 401(k) may also want to consider opening an investment account, such as a taxable brokerage account, to invest in the market.

Once you open a brokerage account and deposit money into it, you can start investing. You might choose to buy stocks, mutual funds, ETFs, or other securities, for instance. There are no contribution limits with a brokerage account, and you have a wide range of investment options.

Just be aware that because brokerage accounts are taxable, selling investments can result in gains or losses, which generally have tax implications. Interest and dividends earned may also be taxable. You can consult with a tax professional to learn more.


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

Key Steps to Start Your Retirement Plan

One of the most important moves you can make as an investor is getting started. Here’s how to put your millennial retirement savings plan into action to help secure your financial future.

Create a Budget and Track Your Spending

Making a budget, and then sticking to it, can help you reduce expenses and free up money you can put toward retirement.

To make a monthly budget, gather all your bills (including mortgage or rent, utilities, credit card bills, student loan payments, and car payments) so that you can add up your typical monthly expenses. Next, calculate your average monthly income. Besides your regular job, include any side gigs you may have.

Once you have those figures and you can clearly see what you’re paying out and taking in, you can create a monthly budget. Look for any expenses you may be able to eliminate or reduce, such as streaming services, gym memberships, or eating out at restaurants.

Start Saving Early and Consistently

The sooner you start saving for retirement, the more time your money potentially has to grow. One reason for this is the power of compounding returns. This refers to the process where investment earnings are reinvested to generate further earnings. This creates a snowball effect, where returns are earned not only on the initial investment (principal) but also on the accumulated returns from previous periods, leading to exponential growth over time.

This is one key reason people are encouraged to invest as young adults, such as investing in your 20s. The longer money is invested, the more it may compound.

Understand Your Risk Tolerance

Investing your money inherently involves risk. That means you’ll need to determine what your risk tolerance is.

Risk tolerance is the amount of risk you are willing to assume to achieve your financial goals. Typically there are three main categories of risk tolerance: conservative, moderate, and aggressive.

To help figure out what your tolerance for risk is, consider:

  • How much money you have to invest and whether you expect your salary to increase over the coming years. If you do expect your income to go up, your risk tolerance may be higher since it might be easier to recover from any losses.
  • What your expenses are now and what they’re likely to be in retirement. If you are looking at higher expenses in retirement, your risk tolerance might be lower, and vice versa.
  • How you feel about the stock market. If volatility makes you nervous you may want to assume lower investment risk, for example.
  • When you want to retire. If you hope to retire early, you may want to be more conservative with your investment strategy.

Diversify Your Investments

When investing, it’s important not to limit your portfolio or put all your investments into one basket. If you do, it could make you vulnerable to losses. For instance, if you invest in stocks that are all in the same area or sector — energy, say — and a negative event causes those stocks to drop, the value of your entire portfolio could plummet as a result.

Diversifying your portfolio means investing in different kinds of asset classes, such as stocks, bonds, mutual funds, and money market funds, for instance. From there, you can invest in different types of assets in each asset class. So you might choose medium- and large-cap stocks and a variety of different kinds of bonds. That way, if one sector or type or investment drops in value, the other investments you have may hold steady or even go up to help balance things out.

While diversification is not a way to avoid risk, it does spread your money out across a range of assets in a way that could be beneficial.

Consider Professional Financial Planning

If you don’t feel confident about investing for retirement on your own, or you need help making a financial plan for your future, you may want to consider using a financial advisor who could help you map out your saving and investing strategy. Talk with friends or family members whose opinion you trust to get a recommendation. Then meet with the advisor to make sure you’ll feel comfortable with them. You may want to speak with a few financial advisors to determine which one is right for your needs.

Ask upfront how the advisor is compensated. Some advisors charge a flat fee or an hourly rate, and some earn commissions or combinations of fees and commissions.

Regularly Review and Adjust Your Plan

It’s generally a good idea to periodically review and, if needed, adjust your retirement savings plan. Life circumstances often change — such as changing jobs, marriage, having children, or facing health issues — which can impact your financial needs and goals.

Market conditions also fluctuate, affecting the performance of your investments. Rebalancing your portfolio as needed can help manage risk and keep your strategy aligned with your retirement timeline. Changes in tax laws or retirement account rules (like contribution limits) can also impact your plan. Staying informed and adjusting accordingly helps you avoid penalties and make the most of your benefits.

Regular reviews also allow you to monitor your overall progress and make changes if you are falling behind, such as increasing contributions or changing the mix of investments in your portfolio.

Common Retirement Planning Mistakes Millennials Should Avoid

As you work on your retirement plan, watch out for these five common blunders that could set back your savings strategy.

Delaying Saving for Retirement

Waiting too long to save for retirement is one of the biggest mistakes people make. In a 2024 survey by the Transamerica Center for Retirement Studies, 76% of retirees said they wish they had saved more on a consistent basis, and 49% said they waited too long to concern themselves with saving and investing for retirement.

Starting the savings process early is critical because, as noted above, the power of compounding returns can help you build wealth over time. Generally, the sooner millennials begin saving and investing your money for the future, the better.

Not Taking Advantage of Employer Matching

The employer match on a workplace retirement plan like a 401(k) is essentially a salary bonus. If you’re not taking advantage of it, you’re missing out.

If possible, contribute at least enough to your 401(k) to get the match. To get an idea of how employer matching could benefit you, consider this example:

Let’s say your annual salary is $60,000 and your employer offers $0.50 per dollar on the first 6% of your pay (a common formula). When you contribute $3,600 (6% of your salary), your employer kicks in $1,800, for a total of $5,400.

Withdrawing From Retirement Accounts Early

Taking early withdrawals from retirement accounts like IRAs and 401(k)s before age 59 ½ typically means incurring taxes and penalties. Not only does this cost you money, but you’re also losing out on the potential compound growth you would have had if the money had remained in your account. That could significantly set back your retirement savings.

While there are some specific situations where you can tap a retirement account early without penalties (such as financial hardship or buying your first home), it’s best not to withdraw money early from a retirement account if possible.

Being Too Conservative or Too Aggressive With Investments

As mentioned earlier, an investor’s tolerance for risk typically impacts how they approach investing. Going too far in one direction or the other, however, could end up costing you money. For example, millennials who take an approach that’s too risky — such as a portfolio heavily weighted with stocks — may end up taking big losses if the market dips.

Conversely, millennials who use a more conservative investing approach may be leaving money on the table by having too many lower-risk assets in their portfolio. Remember, the younger you are, the more time you have to recover from market downturns.

Ignoring Inflation

Many people calculate how much they’ll need in retirement based on today’s prices. But as the cost of goods and services rises due to inflation, your retirement income won’t stretch as far as you may have originally planned.

For example, if you need $50,000 to cover your expenses in the first year of retirement, a consistent inflation rate of 2.5% could mean you’d need to spend closer to $80,000 20 years later to maintain the same standard of living.

To make sure you’re setting aside a sufficient nest egg, it’s important to adjust your goals and investment strategies to keep up with inflation.

The Takeaway

Millennials face a number of financial challenges, including student loan debt, stagnating wages, and a higher cost of living. While retirement may feel like less of a priority at this stage of life, it’s important for millennials to start saving now so that their money will have a chance to grow over time. Options for retirement saving and investing for millennials include participating in an employer’s 401(k), opening an IRA, or opening a brokerage account.

The sooner millennials begin building their nest egg, the better their chances of achieving a secure retirement.

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.

FAQ

How much should I be saving for retirement as a millennial?

How much you should be saving for retirement as a millennial depends on your specific situation, but there are popular rules of thumb that can give you some guidance. For instance, the 80% rule says you should have enough savings to replace roughly 80% of your pre-retirement income in retirement. Another guideline offers rough savings targets based on your age: By age 30, you should have saved 1x your salary; by 40, you should have saved 3x your salary; by 50, 6x your salary;and by 60, 8x your salary.

What’s the difference between a 401(k) and an IRA?

A 401(k) and an IRA are both retirement savings accounts. The difference between them is that a 401(k) is an employer-sponsored retirement plan that you can participate in at work if your employer offers it, and an IRA is an individual retirement account that you open and manage on your own.

Is it too late to start saving for retirement in my 30s or 40s?

It’s never too late to start saving for retirement. It’s true that the sooner you start, the better, since your money will potentially have more time to grow through compounding returns. But time is still on your side: If you’re 35 and you start saving now, that still gives you 30 years to save up for the traditional retirement age of 65. If you’re 40, you have 25 years to reach your retirement savings goals.

What are some good investment options for millennials just starting out?

Millennials who are just starting out can participate in their workplace 401(k) plan if their employer offers one or they can open an individual retirement account (IRA) that they manage themselves to save for their retirement. With either type of retirement account, you can typically choose from such assets as mutual funds, index funds, exchange-traded funds (ETFs), and stocks.

Should I factor in Social Security for my retirement?

Yes, you should factor in Social Security when planning for retirement. To find out what your Social Security benefit in retirement is expected to be, you can create a Social Security account at www.ssa.gov/myaccount. Then, you can get an estimate of what your future retirement benefits might be by using the Social Security Administration’s online benefits calculator.

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Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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CalculatorThis retirement calculator is provided for educational purposes only and is based on mathematical principles that do not reflect actual performance of any particular investment, portfolio, or index. It does not guarantee results and should not be considered investment, tax, or legal advice. Investing involves risks, including the loss of principal, and results vary based on a number of factors including market conditions and individual circumstances. Past performance is not indicative of future results.

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Jul
18
2025

Will Millennials and Gen Z Ever Be Able to Retire?

By | invest, Investing, Money & Life, Preparing for Retirement | Comments Off on Will Millennials and Gen Z Ever Be Able to Retire?

Millennials and Gen Z have faced some financial hurdles as they’ve entered adulthood, but many are saving for retirement nonetheless — and recognize the importance of doing so. In addition, time is on the side of these younger adults, when it comes to reaching their retirement goals.

That said, retirement planning for these younger adults has been hampered by significant challenges, including employment shifts relating to the pandemic, historically high student debt, the rise of the gig economy, concerns about Social Security, and the prospect of living longer lives. Fortunately, there are a number of strategies Gen Z and Millennials can employ now to make the most of the years ahead, so they can retire with peace of mind.

Key Points

  • Taken together, Millennials and Gen Z represent nearly 150 million individuals, ranging in age from about 13 to 44.
  • The Millennial and Gen Z generations face specific challenges in order to save for retirement.
  • These younger adults came of age at a time of rising college costs and student debt, as well as changes to full-time employment.
  • Economically speaking, Millennials and Gen Z have also faced higher interest rates and historically high inflation.
  • Despite these hurdles, Gen Z and Millennials’ retirement forecast is not all bad news, as many already participate in retirement plans — and time is on their side.

Who Are Millennials and Gen Z?

Millennials, also known as Gen Y, are the largest generation since the Baby Boomers, and number about 80 million. This cohort was born between 1981 and 1996, and are now between the ages of 29 and 44.

Gen Z refers to those born from about 1997 to 2012; they are roughly between ages 13 and 28. While Gen Z is smaller — about 71 million — they are the first generation to be raised as digital and social media natives. As such they’ve exerted a notable influence on businesses and brands worldwide.

What Might Retirement Look Like for Younger Adults?

When it comes to saving for retirement at different ages, Millennials and Gen Z have faced various financial challenges as they’ve started college and entered their prime working years. Many came of age during a period of escalating student loan debt, greater job uncertainty, concerns about Social Security’s solvency, and more.

When it comes to Millennials and retirement in particular, this group has seen a steeper cost of living since 2020[1], which has prevented many from taking steps toward marriage and home ownership.

Nonetheless, a 2024 study by the Transamerica Center for Retirement studies has found that 71% of Gen Z and 84% of Millennials are saving for retirement in a company-sponsored plan or an outside account[2] such as a traditional IRA.

But over half of respondents in each group also admitted they don’t have enough income to save for a secure retirement, and the amount of debt they carry is interfering with their ability to save.

Luckily, most members of the Millennial and Gen Z generations have years to adopt new habits and strategies in order to secure the future.

5 Retirement Challenges Millennials and Gen Z Face

In order to take the reins of their retirement, younger adults would do well to understand how various economic and world events have impacted their financial lives thus far.

1. Student Loan Debt

Student debt continues to be a burden for many. Thanks to higher interest rates and the rising cost of higher education, tens of millions of Millennials and Gen Z have accrued steep student loan debts.

When looking at student loan debt by generation, Millennials represent nearly 40% of all student loan borrowers, and some 18.5 million have outstanding balances. The average amount they owed as of 2024 was $40,438.[3]

Gen Z represents the second-largest group of borrowers, at 28.2%. Of these, 13.1 million have outstanding debt. Members of Gen Z have the lowest balance on average: about $23,000 as of 2024. But with millions of this cohort still in college, their loan balances are growing faster than any other group: 6.72% compounded annually.[3]

For many younger adults, planning for a secure future will require a debt-management strategy as well.

2. The Gig Economy

In addition to contending with student loan payments, Millennials and Gen Z have been impacted by a shift from traditional employment models to a more flexible, less structured gig economy. The growth of digital platforms in the last 15 years has accelerated this change, allowing companies to hire freelance workers for shorter-term services in companies like Uber, Fiverr, Postmates, TaskRabbit, Airbnb and many others.

The expansion of the gig economy, however, has made it harder for some younger adults to earn and save in retirement plans such as an employer-sponsored 401(k). More than 54% of Millennials have less than $10,000 saved for retirement, according to a 2023 survey by GoBankingRates.[4]

That said, there are many retirement plan options for the self-employed, and gig workers can save as much or more in a SEP-IRA, for example, as in a 401(k).

3. Decline of Pensions and Rise of 401(k) Plans

The lack of retirement savings may be exacerbated by a broader trend in retirement planning in the last 25 years: the disappearance of pensions and the rise of worker-funded plans such as 401(k) and 403(b) plans.

In 2000, about 50% of private-sector workers had access to a pension plan[5], a benefit that provides retirement income for life, and sometimes health benefits as well. In 2024, however, only 19% of private-sector employees had a pension. (Government workers generally still get a pension.)

Defined-contribution plans, like 401(k) plans, have largely replaced pensions for most workers today. While these employer-sponsored plans are typically tax deferred, and offer a potential tax break when you contribute to them, they don’t offer the security of lifetime pension income.

Again, this reality will impact Gen Z and Millennials’ retirement, and it adds to the necessity of planning ahead for a steady income.

4. Social Security Funding

In addition to the above, Millennials and Gen Z have been facing growing concerns about the viability of the Social Security system, and questions about whether future retirees will get their full benefits.

The Social Security system is funded by employer and employee contributions, which are withheld from workers’ paychecks. However, there are demographic changes that are partly impacting the solvency of Social Security. People are living longer, and these additional outflows have been putting a strain on the Social Security Trust Funds (the main pool of assets).[6]

In addition, the government itself has borrowed from the Trust Funds by issuing debt securities to itself, which act as intergovernmental IOUs, in effect.

While many policymakers believe that Congress will support the changes necessary to fix the system (e.g., increasing payroll taxes or repaying the borrowed funds), these issues have yet to be resolved. And the message from the Social Security Administration to current workers is not fully reassuring: Benefits will exist, but as of 2035 they might be only 78% of what a worker would have gotten before.

Therefore, Millennials and Gen Z may be in the position of having to cover more of their retirement income with savings.

5. Longevity

The other big factor that will impact Gen Z and Millennials’ retirement is longevity. Thanks to advances in health care and technology, millions of people are already living longer, healthier lives.

In 2022, the number of Americans ages 65 and older was 58 million. By 2025, the number of people 65 and up is projected to reach 82 million by 2050, according to the Population Reference Bureau.

While no one can predict one’s actual lifespan, Millennials and Gen Z will have to factor in the need to save more, to cover potentially much longer lives. This is especially important for women, who live about five years longer than men on average. The average lifespan at birth is 74.8 years for men, 80.2 years for women, according to the Centers for Disease Control.

Another factor that Millennials and Gen Z may face in the coming years is the cost of caregiving for older loved ones. Some 37% of workers today are caring for, or have cared for a relative or friend (separate from parenting roles), according to the Transamerica study.

Taken as a whole, longevity factors are likely to have a bigger impact on these younger adults than on previous generations.

Tips to Help Build a Secure Retirement

Fortunately, Millennials and Gen Z represent the youngest adults — with many years ahead to work, save, and strategize about their retirement years. These tips will help.

Investing Strategies

When it comes to retirement planning, having a solid investment strategy can help by adding potential increases to one’s savings.

Obviously there are countless types of investments to consider. For those who are interested in active investing, learning about stock market basics is key.

Next, it’s important to think about how your asset allocation can change by age. The younger you are, the more time you have to take on risk — and potential growth — while still having enough runway to recover in the event of a downturn.

That said, DIY investing is not for everyone, and in that case younger investors have other options that are less hands-on.

  • Target-date funds. These funds are so-called because they’re designed to help investors reach their target retirement date by using a combination of professional managers and sophisticated algorithms to guide each fund’s investing strategy.

Most target funds, sometimes called lifecycle funds, have names that include a date: e.g. ABC Retirement Fund 2045.

The fund’s portfolio starts out with a more aggressive asset allocation, or mix of assets, and adjusts over the years to become more conservative. By starting out with a more aggressive, equity-based allocation and gradually becoming focused on less risky investments over time, the fund’s portfolio may be able to deliver returns while minimizing risk.

  • Robo advisors. A robo advisor doesn’t mean turning over your assets to a robot, nor is it a human advisor. Rather these accounts offer investors pre-set portfolio options, similar to target-date funds.

While robo accounts are also designed to be hands-off, the mix of assets (a.k.a. the asset allocation) doesn’t adjust over time as it does with a target-date fund. That said, robo advisors can be cheaper because these portfolios are constructed with low-cost exchange-traded funds (ETFs).

Reducing Debt

The true challenge facing many younger adults today is that so many have the need to balance debt repayment with saving. While there are no easy answers when juggling competing financial priorities, the reality is that having a clear-cut debt repayment plan can only help support retirement savings.

Fortunately, there are a number of smart get-out-debt strategies to consider.

  • Use automation. One powerful anti-debt tactic is to use automatic payments to keep your repayment plan on track (and minimize late fees).
  • Lower your rate. It helps to get your interest rate as low as possible, either by negotiating or by doing a balance transfer — or trying debt consolidation. This strategy can lower your monthly payments, may lower the amount you’ll owe ultimately, and could simplify the repayment process as well.
  • One debt at a time. There are two options here. With both, you pay off one debt while you make minimum payments on other debts. Once the first debt is gone, apply that payment to the next one, and so on.
    • The first strategy is the snowball method. You pay off smaller debts first, and work your way up to bigger balances.
    • The second is the avalanche method. This approach focuses on paying down higher-interest debt first.
  • Getting a grip on debt can build confidence and momentum, and eventually free up cash for additional savings.

Maximizing Savings

Perhaps the most important step younger adults can take toward a secure retirement is saving money in an actual retirement plan. While it’s true that putting money in a savings account may seem simpler, these offer very little growth and no tax advantages.

By contrast, saving and investing with a traditional or Roth IRA account, or a workplace account like a 401(k) plan, can help your savings increase over time. And depending on the type of account you choose, you can reap tax benefits.

  • A traditional IRA is tax deferred, meaning the money you contribute (deposit) each year can be deducted from your taxable income, potentially lowering your tax bill. You pay taxes when you withdraw the money in retirement, though.
  • A Roth IRA is an after-tax account. This means the money you contribute each year is not tax deductible. But eligible withdrawals are tax free.

The rules governing IRAs are quite specific, so be sure to learn the terms. For example, the total you can contribute (deposit) in an IRA is $7,000 for tax year 2025, or $8,000 if you’re 50 and older.

  • There are many different types of workplace accounts, including a 403(b) plan or 457(b), which are similar to 401(k)s, a SEP or SIMPLE IRA, and others. These accounts typically come in two flavors: tax deferred and after tax, like a Roth.

Unlike IRA accounts, however, the annual limits for employer accounts are much higher. With a 401(k), you can save up to $23,500 per year for tax year 2025. People 50 and older can contribute an additional $7,500 in 2025. An additional “super catch-up” limit of $11,250 applies to individuals ages 60 to 63.

If your job offers a retirement account, this is often the best way to maximize your savings.

Again, all retirement accounts are subject to government and tax regulations, so it’s important to understand the terms when choosing a retirement account.

Alternative Retirement Options

When thinking about retirement, Millennials and Gen Z also have alternatives beyond simply retiring. Thanks to advances in medicine and technology, it may be possible to work longer (and save more).

Retirement itself could be reinvented, as people develop ways to be productive and enjoy life in the decades after traditional 21st-century “retirement age.”

In addition, there is a trend toward communal or shared living, with mixed ages, that could offer alternatives to long-term care and nursing home facilities.

One thing is certain, as Millennials and Gen Z think about their retirement, they will likely bring their own innovations, as generations have in the past.

The Takeaway

While Millennials and Gen Z have faced certain challenges when it comes to building up their retirement savings, they have some advantages as well. The majority of these younger adults are already saving in retirement accounts. And while some are concerned about how much they can save — time is on their side.

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).


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

FAQ

What age should Millennials and Gen Z start saving for retirement?

Anyone with earned income can start saving for retirement at any age using an IRA account. Otherwise, the general rule of thumb is: the sooner you start saving the better, because time tends to help money to increase.

How much will Millennials need to retire?

There are various formulas for deciding how much you need to retire. One target is to aim for 10 times your income by age 67, which is the current age when you can get your full benefits from Social Security.

Will Social Security be gone for Millennials?

That’s highly unlikely. Social Security has been in place for 90 years, and it will continue to exist for future generations. That said, the formulas used to calculate benefit amounts may change, and it’s possible that people will get a lower benefit amount, given current trends.

Article Sources
  1. Federal Reserve Bank of St. Louis. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.
  2. Transamerica Institute. The Multigenerational Workforce: Life, Work, & Retirement.
  3. Education Data Initiative. Student Loan Debt by Generation.
  4. Nasdaq. Most Millennials Have Less Than $100K in Retirement Savings: Should You Be Concerned?.
  5. Economic Policy Institute. Retirement made riskier.
  6. Social Security Administration. What young workers should know about Social Security and saving.

Photo Credit: iStock/MDV Edwards

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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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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Jul
18
2025
3 Reasons Why Your Bank Account is Frozen

3 Reasons Why You Have a Frozen Bank Account

By | Budgeting & Goals, Financial Independence, money | Comments Off on 3 Reasons Why You Have a Frozen Bank Account

Bank accounts can be frozen for such reasons as your financial institution suspecting fraud or illegal activity, a court order indicating you owe a debt, or government action to recoup unpaid student loans or taxes.

Regardless of the reason, having a bank account locked can be an upsetting situation that makes managing your basic financial life difficult. Read on to take a closer look at this situation and what you can do to get your money unlocked.

Key Points

•   Bank accounts may be frozen due to suspected fraud, such as unusual large transactions or activities in unfamiliar locations.

•   Unpaid debts like taxes, student loans, or child support can lead to account freezes without a court judgment.

•   Illegal activities, including money laundering or funding terrorism, might result in a bank freezing an account.

•   The duration of an account freeze varies, depending on the resolution of the issue that caused the freeze.

•   To unfreeze an account, contacting the bank promptly and providing necessary documentation or resolving debt issues is essential.

What Is a Frozen Bank Account?

When a bank account is frozen it means the bank will no longer let you perform certain transactions. You can still access your account information and monitor your account. You will still be able to make deposits, including manual or direct deposit of your paycheck.

However, you won’t be able to make any withdrawals from the account or transfer money from the account to a different account.

Typically, any previously authorized payments or transfers will not go through either. That means that any bills you have set up on autopay likely won’t get paid.

Why A Bank Would Freeze Your Account

Banks have the authority to freeze or even close a bank account for a range of reasons. These reasons generally fall into the following three categories.

1. Suspected Fraud

A bank’s reputation relies heavily on its ability to keep money safe, so account security is typically taken very seriously.

Banks are familiar with how you tend to spend your money, so an unusually large purchase or cash withdrawal can indicate fraud and trigger an account freeze. In addition, financial institutions know where you typically spend your money. A transaction that occurs in a different city or country can be a red flag that could trigger an account freeze.

It can be a good idea to inform your bank about travel plans both nationally and internationally to help prevent any account freezes during a trip.

If your bank flags suspicious behavior you’re certain you weren’t responsible for, it could be due to identity theft.

2. Unpaid Debts

Missing a single bill payment isn’t generally something that would disrupt access to your bank account, but a longstanding overdue bill might.

Collection agencies that purchase unpaid debts can secure court judgments for those debts, giving them the power to freeze (or “attach”) the bank accounts of debtors until they paid the money they are owed.

Most creditors can not have your account frozen unless they have a judgment against you. However, not all. Government agencies that collect federal and state taxes, child support, and student loans do not need to have a court judgment to attach your account.

Recommended: Debt Buyers vs. Debt Collectors

Any of the following types of outstanding debt could be the cause of a frozen account.

•   Unpaid taxes

•   Student loans

•   Mortgages

•   Car loans

•   Personal loans

•   Civil lawsuits

•   Divorce settlements

•   Child support

3. Illegal Activity

A bank account that is used to conduct criminal activity (or is shared with someone who might be doing so) can lead to the account being frozen.

Banks also work directly with law enforcement agencies and will freeze accounts of individuals that have been convicted of a crime or are under investigation.

Some specific activities that could lead to an account freeze include:

Writing bad checks: A single bounced check isn’t cause for alarm, but knowingly writing multiple checks from a bank account that doesn’t hold the funds to support them is illegal. If a bank observes too many bad check transactions, they may be inclined to freeze the account and alert the police.

Money laundering: This is the process of generating money through illegal activity and attempting to make it appear legal via multiple financial transactions. All banks and financial institutions are required to comply with federal anti-money laundering regulations and report any suspected activity directly to the authorities.

Terrorist financing: Funding or organizing funds for terrorist groups and organizations is an illegal activity that can also result in an account freeze. Banks comply with federal laws that help prevent terrorism by freezing and reporting any accounts that exhibit suspicious activity related to terrorists.

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*Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

How Long Can A Bank Account Be Frozen?

Banks don’t typically follow any set rules regarding how long an account can be frozen. The length of time generally depends on how long it takes for the account holder to notice the freeze, contact the bank, and can resolve the issue that caused the freeze.

How Does a Frozen Bank Account Affect You?

Having a frozen bank account essentially means not having access to your money, and it can be especially difficult if it is your primary bank account.

•   Frozen funds means not being able to make purchases with a debit card or withdrawals from an ATM. It can also mean that any auto-payments linked to that account will likely not be fulfilled, and any scheduled transfers won’t be completed.

•   Because these payments can bounce, you could also incur a non-sufficient funds fee, which may be deducted from your account.

•   If you don’t have enough in the account to cover it, you could end up with a negative balance, putting you into an overdraft. In this case, you could end up having to pay additional bank fees and interest to cover the shortfall.

Recommended: How to Avoid Overdraft Fees

•   Those with frozen accounts often must resort to using credit cards and can end up accumulating debt in order to cover their expenses while they sort out the issue with their bank.

•   If the bank suspects you’ve been using the account illegally for any reason, it could close your account completely. It can also report your account activity to authorities.

Recommended: Bank Fees You Should Never Pay

How Do You Unfreeze a Bank Account?

It can be a good idea to contact your financial institution as soon as you notice a freeze on your bank account. When discussing the issue, it can help to have a clear account of your most recent locations and transactions, and be prepared to share any information and supplemental documentation that can help clear up the issue.

If you can show that there’s no reason for the freeze, the bank will likely release the suspension and grant you full access to the account again.

If your account is frozen over unpaid debts, it can be a good idea to get the creditor’s contact information from your bank and then reach out to them directly. Once you have a better idea of what’s going on with your account, you may be able to work out a payment arrangement.

The Takeaway

When a bank freezes your account, it can mean there is something wrong with your account or that someone has a judgment against you to collect on an unpaid debt. The government can also request an account freeze for any unpaid taxes or student loans.

Once the bank account is frozen, you cannot make withdrawals but can only put money in your account until the freeze is lifted. If your account is suddenly inaccessible, it can be a good idea to contact your bank immediately to find a resolution.

If you’re on the hunt for a new type of bank account, see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What would cause a bank to freeze an account?

A bank may freeze an account if they suspect illegal activity, if there’s a judgment against the account holder, or if there’s an unpaid debt to be recouped.

Can a bank freeze your account without warning?

Yes, a bank can freeze your account without notifying you first. Bank accounts are typically frozen for serious reasons, such as suspicion of fraud or judgments against the account holder, and a financial institution can step in and immediately block outgoing transactions.

How can I unfreeze my account?

Typically, to unfreeze a bank account, you will need to contact your financial institution and find out why your account was frozen. Then, you may be able to take steps to unfreeze it, such as paying off an outstanding debt.

Photo credit: iStock/happyphoton

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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

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