Financial Topics Archives | Page 288 of 791

Jan

2024

4% Rule for Withdrawals in Retirement

By Krystal Etienne | invest, Investing, Preparing for Retirement | Comments Off

After decades of saving for retirement, many new retirees often find themselves facing a new challenge: Determining how much money they can take out of their retirement account each year without running the risk of depleting their nest egg too quickly.

One popular rule of thumb is “the 4% rule.” What is the 4% rule? Learn more about the rule and how it works.

What Is the 4% Rule for Retirement Withdrawals?

The 4% rule suggests that retirees withdraw 4% from their retirement savings the year they retire, and adjust that dollar amount each year going forward for inflation. Based on historical data, the idea is that the 4% rule should allow retirees to cover their expenses for 30 years.

The rule is intended to give retirees some planning guidance about retirement withdrawals. The 4% rule may also help provide them with a sense of how much money they need for retirement.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

How to Calculate the 4% Rule

To calculate the 4% rule, add up all of your retirement investments and savings and then withdraw 4% of the total in your first year of retirement. Each year after that, you increase or decrease the amount, based on inflation.

For example, if you have $1 million in retirement savings, you would withdraw 4% of that, or $40,000, in your first year of retirement. If inflation rises 3% the next year, you would increase the amount you withdraw by 3% to $41,200.

Drawbacks of the 4% Rule

While the 4% rule is simple to understand and calculate, it’s also a rigid plan that doesn’t fit every investor’s individual situation. Here are some of the disadvantages of the 4% rule to consider.

It doesn’t allow for flexibility

The 4% rule assumes you will spend the same amount in each year of retirement. It doesn’t make allowances for lifestyle changes or retirement expenses that may be higher or lower from year to year, such as medical bills.

The 4% rule assumes that your retirement will be 30 years

In reality an individual’s retirement may be shorter or longer than 30 years, depending on what age they retire, their health, and so on. If someone’s life expectancy goes beyond 30 years post-retirement they could find themselves running out of money.

It’s based on a specific portfolio composition

The 4% rule applies to a portfolio of 50% stocks and 50% bonds. Portfolios with different investments of varying percentages would likely have different results, depending on that portfolio’s risk level.

It assumes that your retirement savings will last for 30 years

Again, depending on the assets in your portfolio, and how aggressive or conservative your investments have been, your portfolio may not last a full 30 years. Or it could last longer than 30 years. The 4% rule doesn’t adjust for this.

4% may be too conservative

Some financial professionals believe that the 4% rule is too conservative, as long as the U.S. doesn’t experience a significant economic depression. Because of that, retirees may be too frugal with their retirement funds and not necessarily live life as fully as they could.

Others say the rule doesn’t take into account any other sources of income retirees may have, such as Social Security, company pensions, or an inheritance.

How Can I Tailor the 4% Rule to Fit My Needs?

You don’t have to strictly follow the 4% rule. Instead you might choose to use it as as a starting point and then customize your savings from there based on:

• When you plan to retire: At what age do you expect to stop working and enter retirement? That information will give you an idea about how many years worth of savings you might need. For instance, if you plan to retire early, you may very well need more than 30 years’ worth of retirement savings.

• The amount you have saved for retirement: How much money you have in your retirement plans will help you determine how much you can withdraw to live on each year and how long those savings might last. Also be sure to factor in your Social Security benefits and any pensions you might have.

• The kinds of investments you have: Do you have a mix of stocks, bonds, mutual funds, and cash, for instance? The assets you have, how aggressive or conservative they are, and how they are allocated plays an important role in the balance of your portfolio. An investor might want assets that have a higher potential for growth but also a higher risk factor when they are younger, and then switch to a more conservative investment strategy as they get closer to retirement.

• How much you think you’ll spend each year in retirement: To figure out what your expenses might be each year that you’re retired, factor in such costs as your mortgage or rent, healthcare expenses, transportation (including gas and car maintenance), travel, entertainment, and food. Add everything up to see how much you may need from your retirement savings. That will give you a sense if 4% is too much or not enough, and you can adjust accordingly.

Should You Use the 4% Rule?

The 4% rule can be used as a starting point to determine how much money you might need for retirement. But consider this: You may have certain goals for retirement. You might want to travel. You may want to work part-time. Maybe you want to move into a smaller or bigger house. What matters most is that you plan for the retirement you want to experience.

Given those variations, the 4% rule may make more sense as a guideline than as a hard-and-fast rule.

The Takeaway

The 4% rule represents a percentage that retirees can withdraw from their savings annually and theoretically have their savings last a minimum of 30 years. For example, someone following this rule could withdraw $20,000 a year from a $500,000 retirement account balance.

However, the 4% rule has limitations. It’s a rigid strategy that doesn’t take factors like lifestyle changes into consideration. It assumes that your retirement will last 30 years, and it’s based on a specific portfolio allocation. A more flexible plan may be better suited to your needs.

Having flexibility in planning for withdrawals in retirement means saving as much as possible first. A starting place for many people is their workplace 401(k), but that’s not the only way you can save for retirement. For instance, those who don’t have access to a workplace retirement account might want to open an IRA or a retirement savings plan for the self-employed to invest for their future.

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 long will money last using the 4% rule?

The intention of the 4% rule is to make retirement savings last for approximately 30 years. How long your money may last will depend on your specific financial and lifestyle situation.

Does the 4% rule work for early retirement?

The 4% rule is based on a retirement age of 65. If you retire early, you may have more years to spend in retirement and your financial needs will likely be different.

Does the 4% rule preserve capital?

With the 4% rule, the idea is to withdraw 4% of your total funds and allow the remaining money in the account to keep growing. Because the withdrawals would at least partly consist of dividends and interest on savings, the amount withdrawn each year would not come totally out of the principal balance.

Is the 4% Rule Too Conservative?

Some financial professionals say the 4% rule is too conservative, and that retirees may be too frugal with their retirement funds and not live as comfortable a life as they could. Others say withdrawing 4% of retirement funds could be too much because the rule doesn’t take into account any other sources of income retirees may have.

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

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

SoFi Invest®

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

Jan

2024

401(k) Vesting: What Does Vested Balance Mean?

By Michael Flannelly | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Your vested 401(k) balance is the portion you fully own and can take with you when you leave your employer. This amount includes your employee contributions, which are always 100% vested, any investment earnings, and your employer’s contributions that have passed the required vesting period.

Here’s a deeper look at what being vested means and the effect it can have on your retirement savings.

Key Points

• 401(k) vesting refers to when ownership of an employer’s contributions to a 401(k) account shifts to the employee.

• 401(k) contributions made by employees are always 100% vested; they own them outright.

• Vesting schedules vary, but employees become 100% vested after a specified number of years.

• 401(k) vesting incentivizes employees to stay with their current employer and to contribute to their 401(k).

• Companies may use immediate, cliff, or graded vesting schedules for their 401(k) plans.

What Does Vested Balance Mean?

The vested balance is the amount of money that belongs to you and cannot be taken back by an employer when you leave your job — even if you are fired.

The contributions you personally make to your 401(k) are automatically 100% vested. Vesting of employer contributions typically occurs according to a set timeframe known as a vesting schedule. When employer contributions to a 401(k) become vested, it means that the money is now entirely yours.

Having a fully vested 401(k) means that employer contributions will remain in your account when you leave the company. It also means that you can decide to roll over your balance to a new account, start making withdrawals, or take out a loan against the account, if your plan allows it. However, keeping a vested 401(k) invested and letting it grow over time may be one of the best ways to save for retirement.

💡 Recommended: How Much Should I Contribute to My 401(k)?

How 401(k) Vesting Works

401(k) vesting refers to the process by which employees become entitled to keep the money that an employer may have contributed to their 401(k) account. Vesting schedules can vary, but most 401(k) plans have a vesting schedule that requires employees to stay with the company for a certain number of years before they are fully vested.

For example, an employer may have a vesting schedule requiring employees to stay with the company for five years before they are fully vested in their 401(k) account. If an employee were to leave the company before reaching that milestone, they could forfeit some or all of the employer-contributed money in the 401(k) account. The amount an employee gets to keep is the vested balance. Other qualified defined contribution plans, such as 401(a) or 403(b) plans, may also be subject to vesting schedules.

💡 Recommended: What Happens to Your 401(k) When You Leave a Job?

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

Importance of 401(k) Vesting

401(k) vesting is important because it determines when an employee can keep the employer’s matching contributions to their retirement account. Vesting schedules can vary, but typically after an employee has been with a company for a certain number of years, they will be 100% vested in the employer’s contributions.

401(k) Vesting Eligibility

401(k) vesting eligibility is the time an employee must work for their employer before they are eligible to receive the employer’s contribution to their 401(k) retirement account. The vesting period varies depending on the employer’s plan.

401(k) Contributions Basics

Before understanding vesting, it’s important to know how 401(k) contributions work. A 401(k) is a tax-advantaged, employer-sponsored retirement plan that allows employees to contribute a portion of their salary each pay period, usually on a pre-tax basis.

For tax year 2024, employees can contribute up to $23,000 annually in their 401(k) accounts, with an extra $7,500 in catch-up contributions allowed for those age 50 or older. For tax year 2023, employers can contribute up to $22,500, with an extra $7,500 in catch-up contributions allowed for those age 50 or older. Employees can then invest their contributions, often choosing from a menu of mutual funds, exchanged-traded funds (ETFs) or other investments offered by their employer.

The Internal Revenue Service (IRS) also allows employers to contribute to their employees’ plans. Often these contributions come in the form of an employer 401(k) match. For example, an employer might offer matching contributions of 3% or 6% if an employee chooses to contribute 6% of their salary to the 401(k).

In 2024, the total contributions that an employee and employer can make to a 401(k) is $69,000 ($76,500 including catch-up contributions). In 2023, the total contributions that an employee and employer can make to a 401(k) is $66,000 ($73,500 including catch-up contributions).

Employer contributions are a way for businesses to encourage employees to save for retirement. They’re also an important benefit that job seekers look for when searching for new jobs.

💡 Recommended: How To Make Changes to Your 401(k) Contributions

Benefits of 401(k) Vesting

There are several benefits of 401(k) vesting, including ensuring that employees are more likely to stay with a company for the long term because they know they will eventually vest and be able to keep the money they have contributed to their 401(k). Additionally, it incentivizes employees to contribute to a 401(k) because they know they will eventually be fully vested and be entitled to all the money in their account.

401(k) vesting also gives employees a sense of security, knowing they will not lose the money they have put into their retirement savings if they leave their job.

Drawbacks of 401(k) Vesting

While 401(k) vesting benefits employees, there are also some drawbacks. For one, vesting can incentivize employees to stay with their current employer, even if they want to leave their job. Employees may be staying in a job they’re unhappy with just to wait for their 401(k) to be fully vested.

Also, using a 401(k) for investing can create unwanted tax liability and fees. When you withdraw money from a 401(k) before age 59 ½, you’ll typically have to pay a 10% early withdrawal penalty and taxes. This can eat into the money you were hoping to use for retirement.

How Do I Know if I Am Fully Vested in my 401(k)?

If you’re unsure whether or when you will be fully vested, you can check their plan’s vesting schedule, usually on your online benefits portal.

Immediate Vesting

Immediate vesting is the simplest form of vesting schedule. Employees own 100% of contributions right away.

Cliff Vesting

Under a cliff vesting schedule, employer contributions are typically fully vested after a certain period of time following a job’s start date, usually three years.

Graded Vesting

Graded vesting is a bit more complicated. A percentage of contributions vest throughout a set period, and employees gain gradual ownership of their funds. Eventually, they will own 100% of the money in their account.

For example, a hypothetical six-year graded vesting schedule might look like this:

Years of Service	Percent Vested
1	0%
2	20%
3	40%
4	60%
5	80%
6	100%

Why Do Employers Use Vesting?What Happens If I Leave My Job Before I’m Fully Vested?

If you leave your job before being fully vested, you forfeit any unvested portion of their 401(k). The amount of money you’d lose depends on your vesting schedule, the amount of the contributions, and their performance. For example, if your employer uses cliff vesting after three years and you leave the company before then, you won’t receive any of the money your employer has contributed to their plan.

If, on the other hand, your employer uses a graded vesting schedule, you will receive any portion of the employer’s contributions that have vested by the time they leave. For example, if you are 20% vested each year over six years and leave the company shortly after year three, you’ll keep 40% of the employer’s contributions.

Other Common Types of Vesting

Aside from 401(k)s, employers may offer other forms of compensation that also follow vesting schedules, such as pensions and stock options. These tend to work slightly differently than vested contributions, but pensions and stock options may vest immediately or by following a cliff or graded vesting schedule.

Stock Option Vesting

Employee stock options give employees the right to buy company stock at a set price at a later date, regardless of the stock’s current value. The idea is that between the time an employee is hired and their stock options vest, the stock price will have risen. The employee can then buy and sell the stock to make a profit.

Pension Vesting

With a pension plan, vesting schedules determine when employees are eligible to receive their full benefits.

How Do I Find Out More About Vesting?

There are a few ways to learn more about vesting and your 401(k) vested balance. This information typically appears in the 401(k) summary plan description or the annual benefits statement.

Generally, a company’s plan administrator or human resources department can also explain the vesting schedule in detail and pinpoint where you are in your vesting schedule. Understanding this information can help you know the actual value of your 401(k) account.

The Takeaway

While any employee contributions to 401(k) plans are immediately fully vested, the same is not always true of employer contributions. The employee may gain access to employer contributions slowly over time or all at once after the company has employed them for several years.

Understanding vesting and your 401(k)’s vesting schedule is one more piece of information that can help you plan for your financial future. A 401(k) and other retirement accounts can be essential components of a retirement savings plan. Knowing when you are fully vested in a 401(k) can help you understand how much money might be available when you retire.

There are many ways to save for retirement, including opening a traditional or Roth IRA. To get started with those, you can open an online retirement account on the SoFi Invest® platform.

Find out more about investing with SoFi today.

FAQ

What does 401(k) vesting mean?

401(k) vesting is when an employee becomes fully entitled to the employer’s matching contributions to the employee’s 401(k) account. Vesting typically occurs over a period of time, such as five years, and is often dependent on the employee remaining employed with the company.

What is the vesting period for a 401(k)?

The vesting period is the amount of time an employee must work for an employer before they are fully vested in the employer’s 401(k) plan. This period is different for each company, but generally, the vesting period is between three and five years.

How does 401(k) vesting work?

Vesting in a 401(k) plan means an employee has the right to keep the employer matching contributions made to their 401(k) account, even if they leave the company. Vesting schedules can vary, but most 401(k) plans have a vesting schedule of three to five years.

You may also be interested in:

What Happens to Your 401(k) When You Leave Your Job?

When Can You Withdraw From Your 401(k)?

Borrowing From Your 401(k): Pros and Cons

SoFi Invest®

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

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

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.

SOIN0622047

Jan

2024

How Much Do I Need to Retire?

By Dan Miller | invest, Investing, Preparing for Retirement | Comments Off

The amount you need to retire is a highly personal calculation that weaves in both the lifestyle you envision, the amount you’ve saved, your Social Security benefit, and a number of other factors.

While there are formulas and calculators that can help you determine a basic amount that you need to save for retirement, these are just ballpark numbers. In some cases it can be useful to game out a couple of different scenarios — using different assumptions about where you might live, whether you’ll work part time or travel, and so on.

This can help you, and your spouse or partner, decide on the retirement path that suits you best. And this can help you make the best estimate of how much you need to retire.

This article is part of SoFi’s Retirement Planning Guide, our coverage of retirement readiness and all the steps you need to create a successful retirement plan.

How Much Money Do You Need to Retire?

There isn’t a single number you need to retire that will work for everyone. As mentioned, every person’s situation is unique and comes with its own complications and assumptions for what retirement might mean.

Fidelity’s research shows that if a 30-year retirement is planned and annual spending is expected to be 4% to 5% of savings, adjusting for inflation, there is about a 90% chance of not running out of money.

The exact percentage of the retirement calculator formula can depend on the age of retirement and life expectancy. That number changes if a person retires at age 60 and plans a 35-year retirement — about 4.3% could be withdrawn per year to retain that 90% likelihood of financial security.

That said, there are a few rules of thumb you can consider.

1. Retirement Savings Targets by Age

If you’re just starting out in life, you might think that with retirement decades away that you don’t have to worry about it. But the sooner you start saving for retirement, the better off you’ll be. Here are a few rough targets for how much you should have saved at certain ages:

By Age…	You should target saving this much
30	1X your salary
40	3X your salary
50	6X your salary
60	8X your salary
67	10X your salary

These should only be considered as very rough guidelines — for more detailed retirement targets, consider working with a financial advisor.

retirement savings target by age

2. The 80% Rule

One basic guideline is known as the 80% rule, which says you should aim to replace 80% of your pre-retirement income. So, if you earn $100,000, you’ll need about $80,000 per year when you retire.

This is only meant as a guideline, but it has been called into question by some experts as being too high. As the thinking goes, your expenses decline in retirement, largely because you’re no longer saving for retirement, nor are you commuting.

Others have said workers should aim to replace 100% of their pre-retirement income, owing to inflation.

3. The 4% Rule

Another popular rule of thumb is “the 4% rule“, which talks about how much money you’ll need to retire. The 4% rule says that you can take your projected annual retirement expenses and divide by 4% (0.04) to know how much money you’ll need before you can safely retire.

If you project annual expenses of $50,000, you’ll need $1,250,000 (which is $50,000 divided by 0.04). Then each year you could withdraw 4% (indexed for inflation), which would come mostly if not completely from the appreciation of the portfolio.
Source: Fidelity

Since the 4% rule was introduced in 1994, other advisors have said that it is not conservative enough and have suggested 3.33% or 3.5% might be more appropriate.

example of the 4 percent rule

💡 Quick Tip: Did you know that opening an investment account typically doesn’t come with any setup costs? Often, the only requirement to open an investment account — aside from providing personal details — is making an initial deposit.

Are You Currently Saving Enough?

First, take a good long look at how much you’re putting away for retirement. Have you reached —or come close to — the goal of saving 15% to 20% of your income? Unfortunately, many people have not.

In a 2024 SoFi Retirement Survey, just 16% of respondents say they’re putting 15% or more of their income toward retirement. The majority are contributing much less. Here’s how the numbers break down:

Retirement Contributions

• 48% contribute less than 10% of their income

• 23% contribute less than 5% of their income

• 16% contribute 15% or more of their income

Of those who are contributing 15% or more of their income to retirement savings, 50% have a household income of $100,000 or more. The older they get, the more likely survey respondents are to contribute. While 32% of those aged 25 to 34 put at least 15% of their income toward retirement savings, the number jumps to 60% for those aged 25 to 44.

Source: SoFi Retirement Survey, April 2024

Factors That Impact How Much Retirement Savings You’ll Need

factors to consider when saving for retirement

When considering how much you’ll need to retire, here are a few things that you will want to keep in mind:

Age You Plan to Retire

In simple terms, your retirement age is the age when you decide to retire. For example, you might set your target retirement date as 62 or 65 or 66 — all of which are related to Social Security benefits in some way.

Social Security has largely shaped how we view retirement age in the U.S. because that monthly payout is what enables the majority of people to leave work. Some 92% of retirees age 65 and older say they depend on Social Security. While retiring at 62 is the earliest age when you can claim Social Security, that’s not your “full retirement age” – 67 is generally considered the full retirement age.

Pre-Retirement Income

Some financial planners suggest that you base your retirement projections on your pre-retirement income. You might use 75% or 80% of your current income as a basis for estimating how much money you’ll need as retirement.

For a more detailed look, go through your budget and see how each type of expense will change in retirement. You may need more or less income than you think.

Retirement Lifestyle Goals

Another thing to think about is how your lifestyle overall might change in retirement. Consider whether you plan to move or make other big lifestyle changes that can impact both expenses and taxes. While some costs may go down (such as if you pay off the mortgage on your home), others might go up as you change your lifestyle.

As one example, if you want to explore the world or visit grandchildren, your travel budget may drastically increase from pre-retirement levels.

Social Security

Social Security benefits can provide a vital supplement to your retirement income and help you get closer to financial security. However, it’s critical to understand that the amount of your benefit will vary depending on your age.

The earliest you can start receiving Social Security Benefits is age 62, but your benefits will be reduced by as much as 30% if you take them that early — and they will not increase as you age.

If you wait until your full retirement age (FRA) you can begin receiving full benefits. Your full retirement age is based on the year you were born. For example, if you were born in 1960 or later, your full retirement age is 67. You can find a detailed chart of retirement ages at ssa.gov.

But here is the real Social Security bonus: If you can put off claiming your Social Security benefits until age 70, perhaps by working longer or working part time, the size of your benefits will increase considerably. Typically, for each additional year you wait to claim your benefits up to age 70, your benefits will grow by 8%.

Future Retirement Expenses

Creating an estimated budget can help you get a sense of what your retirement expenses might be. For example, you may know how much you’ll pay for things like housing, utilities, and food. But it’s also important to consider any future expenses that could require you to spend more each month in retirement.

Most people aren’t sure how much money they need to retire, according to SoFi’s retirement survey. Just one quarter of respondents say they know the amount they need.

• 41% have a rough estimate of how much they’ll need to retire comfortably

• 25% know how much they’ll need to retire comfortably

• 25% don’t know how much they’ll need to retire comfortably

Of those who don’t know how much they’ll need for retirement, almost half (48%) are aged 45 or older.

Source: SoFi Retirement Survey, April 2024

That’s why it’s so important to start thinking now about the expenses you might face in retirement. The sooner you start planning and saving for these costs, the more time — and ideally, the more money — you may be able to stash away.

For instance, healthcare can be a major cost in retirement, especially if you retire early. At age 65, you will qualify for Medicare, but if you retire before then, you’ll need to make sure that you have a plan for covering healthcare costs in retirement. Even after qualifying for Medicare, you may still have significant health-related costs, depending on your specific medical situation. While Medicare can pay for many health-related issues, it doesn’t pay for all of them. Long-term nursing care is a big exclusion.

Purchasing long-term care insurance or a long-term care annuity can provide you with the necessary funds to cover those expenses, should you need nursing care. But if you don’t have either of those options in place, you’ll need to consider how you’ll fit long-term care costs into your retirement budget.

Inflation

Inflation eats away at the value of each individual dollar, including savings and investments, so it’s important to keep in mind the inflation rate for retirement planning. There are several strategies you can use when investing during inflation.

It’s important to keep in mind that the cost of living in the future will be higher than it is today. For example, if rent costs $1,000 today but next year if there’s inflation, that cost could rise to $1,100. Over a decade or more, that price could double or triple.

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

Closing the Gap Between Current Savings and Your Goal

If you realize that you have a gap between your current savings and where you think you need to be when you retire, it’s important to make a plan to address the gap. If you choose to do nothing, the gap will only grow wider.

You have three main ways to close the gap — either start saving more of your money or find a way to increase the returns your investments are earning. You can also consider making different choices about the sort of retirement you want.

Retirement Savings Accounts

You have many different ways that you can invest and save for retirement. Many employers have 401(k) accounts that give tax advantages for saving for retirement. On top of that, some employers offer matching funds when you contribute to a 401(k) account.

Another option can be opening an Individual Retirement Account (IRA), which you can set up on your own. There are two main types: a traditional IRA and a Roth IRA.

While both types let you contribute up to $7,000 yearly for 2024 and $6,500 yearly for 2023, with an additional catch-up contribution of $1,000 for those over age 50, one key difference is the way the two accounts are taxed: Traditional IRAs let you deduct your contributions up front and pay taxes on distributions when you retire, whereas Roth IRA contributions are not tax deductible, but you can withdraw money tax-free in retirement.

The Takeaway

It would be nice if there was a simple way to calculate the exact amount you need to retire on. Instead, think of your retirement amount as an ongoing series of calculations that you’ll refine as you get older, and as your thinking gets clearer.

There are some things you can predict, but many that you can’t — including the state of your health (or your spouse’s), the turns the market might take, or a change in priorities. All you can do is start early and save steadily for the retirement you hope to have one day.

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).

Help grow your nest egg with a SoFi IRA.

FAQ

How much money do you need to retire with a $100,000 salary?

In order to determine how much money you need to retire with a certain amount of salary, you’ll need to make a few assumptions. For example, you can estimate that you’ll need 75% of your pre-retirement income after you retire and follow the 4% rule. That would say you’ll need $1,875,000 to be able to retire. If you change your assumptions, it will also change your numbers.

How can I catch up on retirement savings if I’m behind?

There are two main ways to catch up on retirement savings if you’re not meeting the targets for where you want to be. The first is to increase the amount of money you’re saving each month. Upping your contributions can help close your retirement savings gap. The other would be to increase the investment returns that you are earning, though that may also come with increased risk or volatility.

Should I factor in Social Security when determining how much retirement income I’ll need?

It may not be prudent to count on Social Security as a major contributor to your retirement amount. Current projections indicate that the government may not be able to fully fund Social Security payments at some point in the future. It’s difficult if not impossible to predict what the impact might be down the road, especially if it’s still decades until your retirement date.

Can you comfortably retire with $1.5 million?

Deciding whether $1.5 million is enough for you to comfortably retire depends a lot on your standard of living and annual retirement expenses. Using the 4% rule says that a nest egg of $1.5 million would give an annual amount of $60,000. Depending on the cost of living where you live and your own standard of living, that may be enough to retire comfortably.

Am I on track to retire comfortably?

To gauge if you are on track with your retirement savings, you can use a couple of general guidelines. The 80% rule says you will need 80% of your income per year when you retire. Another guideline recommends having 10 times your annual salary saved by the time you’re 67.

But you also need to factor in your personal financial situation, as well as your retirement goals to determine if you can retire comfortably. Depending on your circumstances, you may need to save more or less than the guidelines recommend.

Photo credit: iStock/Yaroslav Astakhov

SoFi Invest®

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

Jan

2024

The Ultimate Guide to Investing for Retirement at Age 60

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Retirement is a milestone that many people look forward to with great anticipation. While the freedom of having more time to spend with loved ones, pursue hobbies, or travel is certainly something to be celebrated, it is also important to plan, save, and invest so this future can be a reality.

It’s never too late to start saving and investing for these future goals, even if you’re nearing 60. And if you’ve been saving for years, it’s still smart to continue to invest for retirement when you reach 60. However, your investment strategies may need to change as you near the end of your working years. In this guide, we’ll explore key factors to consider when investing for retirement at age 60, as well as some low-risk investment options that may be suitable for those nearing retirement.

Investing for Retirement at 60

As you approach 60, retirement may be just around the corner. Maybe you’ve been saving for retirement your entire career. Or perhaps you started saving late and need to grow your nest egg quickly for your golden years. No matter the case, as retirement nears, you may wonder what to do to ensure financial stability.

Investing for retirement is critical to help you reach a comfortable financial position. But planning for retirement at age 60 may seem overwhelming. After all, there are several investment accounts you could open or continue to invest in, not to mention the various types of investments you could have in those accounts. With a little bit of research and planning, you can put yourself on the path of living comfortably in retirement.

If you’re beginning your investment journey, it’s better to start immediately rather than putting it off because you’re overwhelmed by the prospect of failing to meet your financial goals. It’s better to save and invest in different types of retirement plans now rather than put it off and have nothing down the road.

Options for Investing for Retirement at Age 60

Investing for retirement at age 60 can be a confusing and daunting process, particularly for those new to investing. But with some planning, retirees can find the best options for their needs. The following are some options to help you invest for retirement at age 60:

401(k)

A 401(k) is an employer-sponsored, tax-advantaged retirement savings plan that can be a valuable tool for someone who is 60 years old and looking to save for retirement. A 401(k) plan allows you to save for retirement on a tax-deferred basis, which means that your contributions could reduce your taxable income for the current year, and your investment earnings grow tax-free until you withdraw the funds in retirement.

If your employer offers a 401(k), it can be particularly advantageous for someone who is 60 years old as it provides several features that can help to maximize your retirement savings:

• Catch-up contributions: If you are over 50, you can make catch-up contributions to your 401(k) plan, which allows you to contribute more money to your account each year than younger participants. In 2024, the annual catch-up contribution is up to $7,500 more than the standard $23,000 contribution limit. In 2023, the annual catch-up contribution is up to $7,500 more than the standard $22,500 contribution limit.

• Employer matching contributions: Many 401(k) plans offer employer matching contributions, which can help to boost your retirement savings. Maxing out your employer match can be an effective way of increasing savings.

• Several investment options: A 401(k) plan typically offers a range of investment options, including mutual funds, exchange-traded funds (ETFs), and individual stocks and bonds. These investment options allow you to diversify your portfolio and manage risk.

• Loan options: Some 401(k) plans allow you to borrow from your account, which can be helpful in times of financial need.

IRA

An individual retirement account (IRA) is a tax-advantaged investment account that provides a way to save for retirement outside of an employer-sponsored plan, such as a 401(k). An IRA can be an option for someone who is 60 years old and looking to save for retirement. There are two main types of IRAs: traditional and Roth.

For someone who is 60 years old, an IRA can offer a number of benefits in terms of retirement savings:

• Tax benefits: A traditional IRA provides tax-deferred growth on your contributions, meaning that you can deduct your contributions from your taxable income for the current year and pay taxes on the funds when you withdraw them in retirement. A Roth IRA provides tax-free growth on your contributions, meaning you can withdraw the funds in retirement without paying any taxes on the investment earnings.

• Catch-up contributions: Like a 401(k), you are eligible to make catch-up contributions to your IRA If you are over 50. These catch-up contributions allow you to contribute more money to your account each year than younger participants. For 2024, the annual catch-up contribution is $1,000 more than the normal $7,000 contribution limit. For 2023, the annual catch-up contribution is $1,000 more than the normal $6,500 contribution limit.

Recommended: What is an IRA?

Real Estate

Investing in real estate is another option to save for retirement. Real estate investments provide a source of passive income, which may help supplement your retirement savings and hedge against inflation. There are several ways that someone who is 60 years old can invest in real estate, including:

• Rental property: Investing in rental property can provide a steady stream of rental income, which can help to supplement your retirement savings.

• Real estate investment trusts (REITs): Some REITs own and manage income-producing properties. Investing in REITs can provide exposure to a diverse portfolio of real estate assets without the responsibility of managing the properties yourself.

Annuities

Annuities may be an attractive investment vehicle for someone saving for retirement. An annuity is an investment product that provides a guaranteed income stream in exchange for a lump sum payment or a series of payments. It’s important to note that there are several types of annuities, each with unique features and benefits.

An annuity can offer many benefits for retirement savings:

• Guaranteed income: An annuity provides a guaranteed stream of income, which can help to provide financial stability in retirement.

• Protection from market downturns: Certain types of annuities can provide protection from market downturns, which can help to mitigate the impact of stock market losses on your retirement savings.

Things to Consider When Investing for Retirement at Age 60

Regardless of your financial situation, you can continue or start to invest for retirement at age 60. However, before you start investing at age 60, you should consider the following:

Retirement Goals

You want to figure out your desired lifestyle that you’ll have during retirement and how much money you will need to support it. You may want to travel the world. Or you want to live a low-key life near your family. Depending on your retirement goals, you’ll have much different needs.

Figuring out your retirement goals will help you determine how much you need to save and invest and what types of investments may be most suitable for your needs.

Time Horizon

One of the most important things to consider when investing for retirement at age 60 is your time horizon. With only a few years remaining until retirement, it’s important to consider how much time you have to invest and how long your investments need to last. This may affect the types of investments you choose, as you’ll likely want to focus on more conservative options that have a lower risk of losing your initial capital.

Risk Tolerance

Your risk tolerance may change as you get closer to retirement. At age 60, you may be less willing to take on the risk of losing your initial investment, as you’ll want to ensure that your savings last throughout your retirement. With a risk-averse outlook, you may consider lower-risk investment options such as certificates of deposit (CDs), dividend-paying stocks, or bond funds made up of US Treasuries and high-grade corporate debt.

Current Savings

Another critical factor to consider when investing for retirement at age 60 is your current savings. The amount you have already saved will play a significant role in determining how much you can invest and how much you will need to save. It’s also important to consider whether you have any other sources of retirement income, such as a pension plan or Social Security.

Social Security

Social Security is an important source of retirement income and can help supplement your other investments. When you turn 62, you can start receiving Social Security benefits. However, your benefits may be reduced if you start taking them early. Therefore, you want a holistic view of how your Social Security benefits will fit into your retirement plan.

Health Care Expenses

Healthcare expenses can significantly impact retirement savings, as they can be one of the largest expenses for individuals during their retirement years. Thus, you should factor in the potential for the need to pay for health care in your retirement savings plans.

According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old couple retiring in 2022 can expect to spend approximately $315,000 on healthcare expenses throughout their retirement. This amount can quickly eat into an individual’s retirement savings, leaving them with less money for other costs such as housing, food, and entertainment.

Taxes

Some investment options have different tax implications, and it’s important to consider how your investments will be taxed in retirement. For example, traditional IRAs and 401(k)s are tax-deferred, meaning that you won’t have to pay taxes on the money you invest until you withdraw it in retirement. On the other hand, Roth IRAs and 401(k)s are taxed upfront, so you won’t have to pay taxes on the money you withdraw in retirement.

Cost of Living

Inflation, or the rise of the cost of living, can erode the value of your investments over time, so you want to factor in how inflation may affect your savings in the future. This can include investing in assets that may appreciate in value, such as stocks, or in assets that generate income, such as bonds and rental property.

Recommended: How Does Inflation Affect Retirement?

Open an Online IRA With SoFi

People may think that by the time they turn 60, they should have enough money to retire and live comfortably. However, like anything in life, things sometimes work out differently than you planned. So if you don’t have the retirement nest egg you envisioned by the time you turned 60, it doesn’t mean you should avoid saving altogether. By assessing your current financial situation, selecting appropriate investments, and taking advantage of retirement plans, you can ensure a secure financial future even if you’re starting at 60.

If you’re ready to start investing for retirement, you can open an online retirement account with SoFi. SoFi offers Traditional, Roth, and SEP IRAs for investors looking to reach their financial goals for retirement. With a SoFi Invest® active IRA, you’ll be able to access a broad range of investment options, like buying and selling stocks, exchange-traded funds (ETFs), and fractional shares with no commission.

Help grow your nest egg with a SoFi IRA.

FAQ

Are you able to invest for retirement at 60?

It is possible to invest for retirement at age 60. However, it is also important to consider other factors, such as your current savings, retirement goals, and overall financial situation, to determine if investing for retirement at 60 is your best course of action.

Can you open a retirement account for investments at age 60?

You can open retirement accounts for investments at age 60. Several options are available, such as a traditional IRA or a Roth IRA. Additionally, these accounts allow catch-up contributions for people aged 50 or over.

How much money does the average 60-year-old invest for retirement?

The average amount a 60-year-old has saved for retirement can vary greatly depending on several factors, such as their current financial situation, savings habits, and overall financial goals. According to a report by Vanguard, the average and median retirement savings balance for individuals between the ages of 55 and 64 in 2021 was $256,244 and $89,716, respectively.

Photo credit: iStock/sureeporn

SoFi Invest®

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

Jan

2024

How Much Does a Therapist Make a Year

By Kathryn Vasel | Building Your Career, Life & Career, relay | Comments Off

The average annual pay for a mental health therapist in the U.S. is $75,895, according to employment website ZipRecruiter.

But there are many factors that can influence this number, including experience, specialty and location. If you’re interested in starting a career as a therapist, employment demand is expected to be strong so it’s likely there’s good job security.

Here’s a closer look at what a therapist does and how much money they can make in a year.

What Is a Therapist?

If you like talking with people and helping them work through issues to improve their lives, a career as a therapist might be a good fit.

Therapists generally specialize in working with specific groups of people or in certain areas. For instance, some might concentrate on working with children, older adults, or married couples, or with people who need help with issues like eating disorders or drug abuse. Therapists can work in different settings, including health practitioner offices, hospitals, schools, private practices, and home health care services.

It can be a long path to becoming a therapist. Therapists need an undergraduate degree and typically have a master’s degree in psychology or in a related field or specialty. There are also hands-on experience requirements through supervised clinical work. States have different requirements when it comes to obtaining a license, but the process usually involves filling out an application and passing an exam.

There are other skills that go beyond education that help make a good therapist. Soft skills like strong communication and organization skills, being a good listener, and having empathy and patience are also important to being successful in the profession.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*

💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

Therapist vs. Psychologist

The title “therapist” is often used broadly to include various professions. It’s sometimes used interchangeably with “psychologist,” but there are differences between the two.

The educational requirements are heftier for those interested in pursuing a career as a psychologist. Psychologists typically need a doctoral degree in psychology and to pass certain exams to be able to secure a license.

There is strong demand for psychologists. The Labor Department forecasts employment of psychologists to grow 6% from 2022-2032. Over that decade, there’s projected to be about 12,800 openings a year.

How Much Do Therapists Make Starting Out?

When you’re just starting out as an entry-level mental health therapist after all those years of education and clinical work, you can expect to earn an average of total pay of around $46,600 a year, according to data from Payscale. As you grow in your career and gain one to four years of experience, the average compensation increases to $50,677.

But keep in mind that there are a lot of considerations when it comes to determining a good entry-level salary, including location, experience, skill level, specialty, and demand.

What Is the Average Salary for a Therapist

Wondering how much a therapist makes after they’ve been working for a few years? The average annual salary for a mental health therapist in the U.S. was $75,895, according to ZipRecruiter. Here’s how that breaks down: $36.49 an hour or $6,324 a month.

For marriage and family therapists, the median annual pay was $56,570, according to data from the Labor Department. The growth rate for therapists in this field is expected to grow 15% from 2022-2032 — a lot faster than the average.

There’s a large range in how much a therapist can make, with ZipRecruiter seeing the top earners (those in the 90th percentile) making $118,000 annually.

Note that while some therapists will choose to bill by the hour, when it comes to compensation, there’s a difference between being paid salaried vs paid hourly.

Recommended: What Is Competitive Pay?

What Is the Average Therapist Salary by State?

Wondering how a therapist’s salary compares to the highest-paying jobs in your state? Here’s a breakdown of what the average annual salary of mental health therapists by state.

State	Average Salary
Alabama	$55,535
Alaska	$75,842
Arizona	$65,716
Arkansas	$59,437
California	$72,117
Colorado	$68,023
Connecticut	$74,203
Delaware	$68,126
Florida	$55,479
Georgia	$64,601
Hawaii	$77,511
Idaho	$62,082
Illinois	$70,696
Indiana	$65,737
Iowa	$75,470
Kansas	$65,997
Kentucky	$60,521
Louisiana	$65,619
Maine	$66,004
Maryland	$69,120
Massachusetts	$79,870
Michigan	$65,064
Minnesota	$78,700
Mississippi	$68,666
Missouri	$64,585
Montana	$63,047
Nebraska	$62,663
Nevada	$80,187
New Hampshire	$64,267
New Jersey	$82,592
New Mexico	$74,183
New York	$77,089
North Carolina	$59,880
North Dakota	$73,997
Ohio	$73,378
Oklahoma	$65,700
Oregon	$78,617
Pennsylvania	$64,507
Rhode Island	$74,257
South Carolina	$65,582
South Dakota	$74,053
Tennessee	$71,824
Texas	$63,977
Utah	$71,494
Vermont	$68,905
Virginia	$69,153
Washington	$77,294
West Virginia	$55,583
Wisconsin	$81,874
Wyoming	$66,016

Source: Zippia

Therapist Job Considerations for Pay and Benefits

Helping people better themselves and overcome problems can be a very fulfilling line of work. And there’s a need for more people to work in the mental health field.

For example, employment growth for substance abuse, behavioral disorder and mental health counselors is expected to increase 18% from 2022-2032, according to the Department of Labor. Because of these strong employment growth projections, being a therapist likely comes with job security.

Becoming a therapist can also bring scheduling flexibility, especially if you run your own practice. Being able to set your own hours can result in a better work-life balance. However, some therapists might have to offer after-hour sessions to work around clients’ schedules.

Working one-on-one with people and forging relationships can also be a satisfying perk, but it can also be emotionally stressful. That’s why this profession might not be the best fit if you tend to be more introverted.

Pros and Cons of Therapist Salary

The educational requirements for a therapist are higher than other professions, which could mean you graduate with a hefty debt load that can put pressure on future earnings.

However, your earnings potential increases as you gain more experience and the pay is higher than other occupations. The Labor Department reported that the median weekly earnings of full-time workers were $1,118 in the third quarter of 2023 The average weekly pay for a mental health therapist in the U.S. was $1,459 in November 2023, according to ZipRecruiter.

The pay and benefits can differ depending on where a therapist works. For instance, joining a bigger practice or hospital could bring about additional benefits like retirement savings plans and health care benefits compared to smaller or a solo practice.

The licensure requirements to become a therapist can be time consuming. Each state has its own licensing requirements that you’ll have to navigate. There can also be continuing education requirements in order to maintain your license.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

Becoming a therapist can be very rewarding on a personal, professional, and financial level. Be prepared for the path it takes to get to this career: an undergraduate degree, a master degree in a specialized area, clinical experience, the state license and exam process, and continuing education.

To help decide if this is the right career path, evaluate what’s important to you in your career and if it’s financially feasible. For some workers, a $100,000 salary is good, while others might need more or less depending on their cost-of-living.

Take the time to evaluate your budget. The education requirements could mean taking out student loans, which can put strain on your budget. Online tools like a money tracker app can help you create a spending plan that’s right for you.

FAQ

What is the highest-paying therapist job?

According to the Bureau of Labor Statistics, a therapist can earn upwards of $111,800 a year.

Do therapists make $100k a year?

While a typical mental health therapist makes around $75,895 a year, it is possible to earn $100,000 or more a year. Salaries often vary depending on experience, specialization, and location.

How much do therapists make starting out?

Early in their career, a therapist earns an average of $46,600 a year, according to Payscale. But with more experience, compensation can increase to $50,677.

Photo credit: iStock/LightFieldStudios

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

SORL1023007

What Is the 4% Rule for Retirement Withdrawals?

How to Calculate the 4% Rule

Drawbacks of the 4% Rule

It doesn’t allow for flexibility

The 4% rule assumes that your retirement will be 30 years

It’s based on a specific portfolio composition

It assumes that your retirement savings will last for 30 years

4% may be too conservative

How Can I Tailor the 4% Rule to Fit My Needs?

Should You Use the 4% Rule?

The Takeaway

FAQ

How long will money last using the 4% rule?

Does the 4% rule work for early retirement?

Does the 4% rule preserve capital?

Is the 4% Rule Too Conservative?

What Does Vested Balance Mean?

How 401(k) Vesting Works

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Importance of 401(k) Vesting

401(k) Vesting Eligibility

401(k) Contributions Basics

Benefits of 401(k) Vesting

Drawbacks of 401(k) Vesting

How Do I Know if I Am Fully Vested in my 401(k)?

Immediate Vesting

Cliff Vesting

Graded Vesting

Why Do Employers Use Vesting?What Happens If I Leave My Job Before I’m Fully Vested?

Other Common Types of Vesting

Stock Option Vesting

Pension Vesting

How Do I Find Out More About Vesting?

The Takeaway

FAQ

What does 401(k) vesting mean?

What is the vesting period for a 401(k)?

How does 401(k) vesting work?

You may also be interested in:

How Much Money Do You Need to Retire?

1. Retirement Savings Targets by Age

2. The 80% Rule

3. The 4% Rule

Are You Currently Saving Enough?

Factors That Impact How Much Retirement Savings You’ll Need

Age You Plan to Retire

Pre-Retirement Income

Retirement Lifestyle Goals

Social Security

Future Retirement Expenses

Inflation

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Closing the Gap Between Current Savings and Your Goal

Retirement Savings Accounts

The Takeaway

FAQ

How much money do you need to retire with a $100,000 salary?

How can I catch up on retirement savings if I’m behind?

Should I factor in Social Security when determining how much retirement income I’ll need?

Can you comfortably retire with $1.5 million?

Am I on track to retire comfortably?

Investing for Retirement at 60

Options for Investing for Retirement at Age 60

401(k)

IRA

Real Estate

Annuities

Things to Consider When Investing for Retirement at Age 60

Retirement Goals

Time Horizon

Risk Tolerance

Current Savings

Social Security

Health Care Expenses

Taxes

Cost of Living

Open an Online IRA With SoFi

FAQ

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

Student Loan
Refinancing

Personal
Loans

Online
Investments