Target date funds are becoming increasingly common when it comes to saving for retirement. A target date fund is a mutual fund with a passive mix of investments curated based on when you’re likely to retire.
They are also sometimes referred to as “set it and forget it” funds, and are relatively popular investment options because they are fairly easy to understand and offer a decent return on investment. You simply put your money in a fund with the target date you plan to retire—and you don’t have to think about it on the daily.
For example, a 2050 fund means you are hoping to use those retirement funds in 2050. The idea is that by picking a fund aimed at a specific date, the mix of investments can change as you near that date.
This means you might have riskier investments with the potential for greater return earlier in the fund’s life, when retirement is decades away. Your investments gradually become less risky as retirement nears.
However, it should be noted—as with all investments—target date funds are not without inherent risk. You can lose or gain money if the stocks, bonds, or mutual funds you’re invested in go up or down. The return on investment is never guaranteed.
Additionally, even if two funds have the same target date (or similar names), it doesn’t mean they’re the same. The underlying strategy, risk, and asset allocation varies among the best target date funds.
How Target Date Funds Work
Typically, target date funds are mutual funds with a passively managed mix of assets. A mutual fund is a portfolio of stocks, bonds, and securities. You buy into the fund, as do other investors, essentially pooling your money and allowing you to buy a mix of assets you might otherwise not be able to purchase as an individual. Passively managed means you’re not actively trading stocks and securities.
How a specific target date fund shifts its asset mix over time is called its “glide path.” You’ll probably want to research the glide path before committing to a fund. You’ll also want to consider how much risk you want to take. Even though target date funds generally become more conservative over time, the specific risk and asset allocation varies from fund to fund.
How to Pick the Best Target Date Fund for You
The best target date funds are the ones that match your needs, offer the right level of risk for your desired return, and have low management fees. The average target date fund asset-weighted expense ratio for 2017 was 66 basis points—which means 0.66%. And the typical investor pays 0.47% in fees because so many target date funds come from low-cost providers.
That same report found that Vanguard Group, Fidelity, and T. Rowe Price make up nearly 70% of target date fund assets. In addition to considering fees, here are some other issues to weigh when picking the best target date funds for you.
Pick the Right Target Date
You can choose the year you’re hoping to retire, but it’s not a requirement. If you want to be slightly more conservative, you could consider a target date that’s sooner than you plan to retire.
However, you should make these choices consciously (and plan accordingly—don’t pick a date sooner than your actual retirement and then be surprised when there’s not as much return as you want).
And check in regularly to update your target date as necessary—something most people don’t do. One research paper analyzed 34,000 participants in target date funds and found that investors were more likely to pick a target date ending in “0” rather than one ending in “5,” simply because it’s easier to round to zero.
Assess Your Risk Tolerance
A big question with any investment—and target date funds are no different—is how much risk you want and are willing to tolerate. Your risk tolerance can also change over time, and you may want to change the mix of your investments as that happens.
Do you want your target date fund to carry you to retirement or through retirement?
Some target date funds are “to” retirement, meaning they’ll hit their most conservative allocation at the target date and then won’t change much once you retire. But other target date funds are “through” retirement, meaning they continue to adjust and rebalance their mix of funds even after you retire.
Check in on the mix of investments and the fund’s glide path
It’s probably not a great idea to really “set it and forget it.” You’ll want to check in periodically to ensure your fund still meets your needs. Although many employers may automatically enroll you in a target date fund, it doesn’t mean you have to stay in the fund.
If you’re going to want to be more actively involved in investing for your retirement or more aggressive than a traditional asset allocation strategy, then a target date fund might not be right for you. Additionally, if you’re going to need or want more customization, then you might want a different investment product.
Before you decide on products and investment strategies, think about what your financial plans are and your goals for retirement. As a first step, use our retirement calculator to figure out how much you should be saving.
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It’s never too early—or too late—to take control of your retirement savings. If you’re ready to start actively preparing for retirement, consider investing with SoFi Invest. When you open a invest account at SoFi, you’ll gain access to a team of financial advisors who will work with you to create a long-term financial plan. You can get started with as little as $100, with no SoFi management fees.
Ready to invest for your future? Check out SoFi Invest today.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Being a doctor is super rewarding. (We’ll admit, it’s pretty hard to beat saving lives every day.)
But there can be some downsides to the career path, especially when it comes to saving. Because physicians are known to have higher incomes, they are often ineligible for a number of tax breaks and retirement programs. And while recent studies show that 60% of doctors are retired just shy of turning 70¹, current doctors have the opportunity to pursue life outside the hospital long before that.
With a few smart moves, early retirement is possible. Here are three ways doctors can save more now and end their careers at an early retirement age:
Refinance Your Student Loans
Paying back med school loans could keep you working for a while. One way to pay them off more quickly? Refinancing to a lower interest rate or choosing better terms.
As a bonus, this move can save you thousands of dollars that can help you head to earlier retirement. (However, if you are pursuing Public Service Loan Forgiveness Program, don’t do this with your federal student loans—it will make them ineligible.)
Save, Save, Save—Up to 30%
The average worker should aim to save 15% of their income for retirement4. However, it’s different for doctors—due to all the extra schooling and high burnout rates in the field, their earnings window is much smaller. That means physicians have less time to take advantage of the compounding interest that comes with investing, or even a regular savings account.
To make up for this, doctors should consider saving at least 30% of their income if they want to retire early. (One helpful tip: Live like you’re still making what you made as a resident!)
Considering Taking Advantage of any and All Pre-Tax Programs at Work
Got an employer match on a 401(k) and 403(b)? HSA or FSA accounts? Commuter benefits? Consider taking advantage of them as a way to put away more money, pre-tax.
Any opportunities you have to save money on taxes can help out a lot when it comes to your goals toward early retirement. In fact, saving money on taxes is one of the best options for doctors with early retirement goals.
These strategies are just a few of the ways you can start working toward financial independence.
If you’re interested in saving money on student loans, one thing you can do right now is check your rate in just two minutes.
Sources:
1. https://www.annfammed.org/content/14/4/344.full
2. https://members.aamc.org/iweb/upload/2017%20Debt%20Fact%20Card.pdf
3. https://www.medscape.com/slideshow/2018-compensation-overview-6009667#2
4. https://time.com/money/4807504/are-you-saving-as-much-of-your-pay-as-the-average-401k-investor/
SoFi can’t guarantee future financial performance.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
As a medical resident, your schedule is incredibly busy. (And even that’s an understatement.) On top of that, you’re saddled with student loan debt—and your residency salary isn’t exactly going to make a huge dent in it just yet. So what should you do about it?
There are options that can help reduce the stress of student loans—and even save you money in the long run. Here’s a quick guide to the four top student loan repayment options, so you can choose the best one for you:
1. Deferment
What it is: A temporary suspension of federal loan payments, where interest DOES NOT accrue on certain types of loans.
Pros: If you’re struggling to repay loans due to challenging short-term circumstances, it can be beneficial. Big caveat, though—residents tend not to qualify for deferment.
Cons: Not all loans are eligible for deferment, and only subsidized federal loans do not accrue interest. So if you have unsubsidized loans (typically used for medical school), your balance will still increase during deferment.
Best for: Residents who qualify. Those who have other debts to pay off first that make it a challenge to pay back loans, such as higher interest credit card debt, could be in this category.
Not great for: Residents who need a more long-term or permanent option, as interest will still accrue on unsubsidized loans, growing your balance.
2. Forbearance
What it is: A temporary suspension of loan payments, where interest DOES accrue on all loan types.
Pros: Medical residency and internship programs are usually qualifying circumstances for forbearance. As long as you meet basic requirements1, mandatory forbearance is an option that can be granted for residents up to 12 months, and be extended for up to three years, upon request.
Cons: As mentioned, interest will continue to accrue on all loans in forbearance. That means your balance will grow.
Best for: Residents with lower loan balances, or who are experiencing financial hardship where the burden of student loan payments would be significantly challenging.
Not great for: Residents with normal to high balances who have the ability to make payments and start making progress on their debt.
3. Income-Driven Repayment (IDR)
What it is: A repayment program where your monthly loan payment is a percentage of your discretionary income, typically between 10-20%. Options include PAYE, REPAYE, IBR and ICR, which vary by the percentage of income you owe and the amount of time they add to your loans.
Pros: IDR allows borrowers to keep monthly payments low without defaulting on their loans. For residents who eventually pursue Public Service Loan Forgiveness (PSLF)2, this option can lead to the greatest amount forgiven.
Cons: IDR will often extend the term of your loan to 20-25 years. Plus, your payments may not cover the full interest owed. If that is the case, interest will compound monthly, and you will be paying interest on interest.
Best for: Residents who plan to pursue federal student loan forgiveness.
Not great for: Residents who don’t plan to pursue loan forgiveness and would like the avoid compounding interest that creates a higher loan balance.
4. Medical Resident Refinancing
What it is: Refinancing is consolidating your student loans (federal and/or private) with one private lender, usually for a lower interest rate. During residency, refinancing reduces student loan payments to just $100/month. Check out SoFi’s medical resident loan refinancing rates & terms.
Pros: Refinancing simplifies your student debt by reducing your student loan payments to one low monthly payment. This option also makes it possible to avoid compounding interest during residency.
Cons: Refinancing makes you ineligible for PSLF or other federal repayment benefits. Interest will still accrue during residency, but it will not compound during that time, so you won’t pay interest on interest.
Best for: Residents who plan to work in the private sector (like a private hospital or for a private practice), and would like to reduce their interest rate on their student loans, keep payments low during residency, and save money on compounding interest.
Not great for: Residents who plan to pursue loan forgiveness or other federal repayment options by working in a public sector hospital.
It’s worth considering all your medical school loan repayment options before you dive back into the throes of residency—after all, you have patients to see and work/life balance to manage and lives to save.
Interested in seeing how much you could save by refinancing your student loans? Check your rate in just two minutes.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation. 1 https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance 2 https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
When you become an official 30-something, the constant advice from parents, friends, and money experts to start investing in your future may sound like a broken record that you want to turn off. But they’re right. While you might think you still have plenty of time to start saving, consider this — one in three U.S. employees expects to work past age 70, and only 26% expect to retire before age 65.
Those are sobering statistics, especially when predicting how they might look for today’s young workforce. The good news is that even if you spent your 20s with a cavalier attitude toward finances, it’s not too late to shore up your long-term financial goals.
And just imagine following a financial strategy that takes you right back to that carefree lifestyle when you’re in your golden years — instead of having to take a part-time job to make ends meet.
Here is a list of 10 financial milestones to strive for during your 30s that can kick-start your savings, but let’s be honest — some of this might hurt a little. Saving money means sacrifice, compromise, and diligence, but always remember the end goal. Retirement. Complete, fully unemployed (unless you just really want to work), worry-free retirement.
1. Establish a Good Credit Score
We put this at number one because good credit can lead to better results with everything else finance-related. It determines the interest rate you’ll pay on a new car or house, (see number three), and how much you can save if you refinance your student loans (see number two). Bottom line, a good credit score equals cash saved.
And even better news? It doesn’t have to be perfect. A target score of 740 or more will put you into favorable range for lenders. If you have no credit or low credit, educate yourself on ways to improve your credit score. Find your current score via a number of free websites, including Credit Karma , and learn ways to better manage your debt.
2. Pay off Your Student Loans
This is a huge one. By the time you reach 40, you’ll be almost 20 years out of college: It’s time to graduate from that payment. One thing to note is that you don’t have to stick with your original payment plan.
Refinancing your student loan debt could lead to considerable monthly savings, even if the interest rate drops by just half a percentage point. SoFi’s student loan advisors can help you map out a way to refinance your debt, and remember that the higher your credit score, the better your rate will be.
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No account or overdraft fees. No minimum balance.
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3. Get Rid of the Credit Card Debt
High-interest credit card payments are among the most likely financial hurdles to keep you from getting ahead. If you are paying on several high-interest cards at once, SoFi can help you make a plan to get out of debt and stay out. A number of free debt calculators are available online to help you get a solid picture of your overall debt.
4. Invest in your Retirement
It might be one of the most frequently asked questions about retirement: How much savings should I have? The answer is based on your retirement goal, so a good way to answer that question is to start at the end and work all the way back to a monthly investment goal. Once you have that number in mind, take every opportunity to meet that number, and exceed it where possible.
Many employers offer 401(k) matching programs, and it’s a powerful tool for supercharging your investment. Consider contributing at least up to the amount of your employer match. Another easy way to invest is a high-yield savings account, which is a growing trend. If you’ve managed to eliminate or lower some monthly debt payments, consider putting at least a portion of your newfound cash into retirement instead.
5. Create an Emergency Fund
Living paycheck to paycheck can work for a while, but life is inevitably bound to happen. Unexpected medical bills, storm damage, sudden job loss, and a host of other scenarios could add a financial burden to your household if you aren’t prepared.
A good goal for an emergency fund would be six months’ income, and a high-yield savings account can help you get there faster. The key to a successful emergency fund is to resist the urge to dip into those funds for everyday use.
6. Establish a Monthly Money Routine
Especially if you are the type who can’t remember where all the money went last week, consider creating a budget for monthly management, and stick to it. A host of budgeting apps are available to meet your needs or your style, so set one up, turn on the notifications and make it your most-used app.
Think of it like calorie counting: Nothing goes in your body (or in this case, out of your bank account) without being logged. It creates financial discipline and good habits quickly, and may even become a fun challenge. As part of that routine, set reminders to stay on top of your bills, because late payments can negatively affect your credit score.
7. Become a Homeowner
The cost of a house down payment when your career is young can seem unachievable, but becoming a homeowner in your 30s, or even buying a house in your 20s, could be a smart investment. And it’s not as difficult as you think.
One way to start saving money would be to take any cash you save from refinancing student loans or consolidating credit card debt and set it aside for your down payment. If you’ve already learned to live without that money, it could be a relatively painless transition. SoFi’s home buyer’s guide has even more tips and advice to help you get started.
8. Protect your Life
Find out whether your employer offers life insurance and take advantage of it. Often, it is only a few dollars (if not pennies) per month, which is a small amount to pay for peace of mind. If you have family (or even if you don’t), also consider supplemental life insurance as well.
Establishing a life insurance plan in your 20s, when you’re the picture of health, can be a lot more affordable than waiting until health problems start to creep up.
Nothing is more important than having a plan when the unexpected happens. With SoFi Protect via Ladder, you can set up an affordable life insurance plan for you and your loved ones.*
9. Protect your Income
Signing on for your employer’s disability insurance plan pulls double duty because it not only gives you time off to get the medical help you need, but it also protects your job. Like life insurance, short-term and long-term disability plans can cost mere dollars per paycheck. Combined with the Family Medical Leave Act, you can be confident that your salary is secure. Think of your income as your biggest asset, and work hard to protect it.
10. Budget in Some Fun
Saving money can be a painful process that requires a lot of self-discipline and focus, especially when your friends are all meeting at the new restaurant in town and you’re staring at a frozen lunch. But hard work deserves reward, and money shouldn’t be all business.
The SoFi wealth management team is available to help you develop a money strategy that’s right for you. Contact us today for a consultation.
*Coverage amounts range from $100k to $8 million. Instant coverage is available to applicants who meet certain risk and eligibility requirements. A medical test may be required for applicants that do not meet these eligibility criteria.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
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What is a finance charge? How about a purchase charge? The jargon used to describe credit card late fees is enough to make anyone’s head spin. Unfortunately, a survey by CreditCards.com of 100 common credit cards found that while fees have remained stable (or even gone down a bit) thanks to recent annual percentage rate (APR) hikes, these charges are still pretty universal—and potentially very costly.
Of the 100 credit cards surveyed, for example, 98 charged a late fee for missed payments. And credit card companies made $104 billion from the fees and interest we all pay on our credit card debt. Any interest and fees we pay are collectively called “finance charges.”
Finance charges might sound like another complicated fee, but they’re really just a way of referring to the interest charges that accumulate on your credit card balance. The amount you pay in interest is determined by the credit card’s APR.
In an ideal world, we would all pay off our credit card balance in full at the end of each billing cycle. If you’re doing that, then you don’t have to worry as much about your interest rate or racking up finance charges. But in reality, nearly 45% of credit card accounts are considered “revolvers,” meaning they carry a balance from month to month.
And any time you have an unpaid balance, you’re probably going to be paying a finance charge on that money. Because most credit cards have sky-high interest rates (the average for new accounts was 17.01% in October, 2018), the amount of interest you’re paying can add up quickly.
What is a Finance Charge?
A credit card finance charge refers to all fees and interest you pay on credit card debt. You’re essentially paying the credit card company a fee in exchange for them financing your debt. Again, finance charges only come into play if you carry a credit card balance.
If you pay off your credit card balance in full when it’s due, or you’re paying your balance during a 0% interest rate promotion, then you won’t accrue any finance charges. Typically, there is a grace period between the end of a billing cycle and when the payment is due. After that due date, a finance charge is typically calculated based on the amount you owe, how long you’ve owed it for, and your APR at the time your bill is due.
Even if you make the minimum payment when it’s due, you can still accrue a finance charge if you don’t pay the full statement balance. The finance charge will simply be levied on the amount of debt you still owe, and a late fee can be additionally assessed if you don’t make at least the minimum payment by the due date.
Using the Finance Charge Formula
The finance charge formula is based on your annual percentage rate and credit card balance—which means the exact amount can vary from billing cycle to billing cycle.
The APR is used to calculate a daily interest rate, which you can figure out by dividing your APR by 365. You then multiply your daily interest rate by how much debt you carry on your credit card, and how many days you’ve carried that debt, to determine the total finance charge. This is added to what you already owe on your credit card.
For example, if your credit card has a 16% APR, then your daily interest rate is .16 divided by 365 days, which equals .0004383. That means you accumulate .04383% of interest per day. (Remember that when converting numbers into percentages, you need to divide by 100. That’s why 16% became .16 instead.)
That daily credit card interest rate of .04383% is then multiplied by the balance you’re carrying and by the number of days you’ve had this balance.
So if you carried an unpaid $1,000 balance for 28 days after it was due, then $1000 x .0004383 x 28 days = $12.27 in finance charges.
Using our example, you’re adding $12.27 to your credit card if you’ve been carrying a $1,000 balance on your card for 28 days with a 16% APR. That may not seem like a lot up front, but it can add up quickly, because if your balance isn’t paid off in full by the next billing cycle, you can incur another finance charge.
The Credit CARD Act of 2009 did put some limits on fees credit card companies can charge, but once finance charges start piling up, it can get a bit overwhelming. And P.S., if this math gave you a headache, you can always consult a finance charge calculator .
How Can I Get Rid of a Finance Charge on My Credit Card?
The only way to completely avoid paying a finance charge is to pay your credit card in full by the due date. If you’re already paying a finance charge, the only way to get rid of it is to pay off the existing credit card debt that’s incurring the charges. This can get you back to a clean, finance charge-free slate.
It should be noted that some credit cards offer a promotional 0% APR for a certain amount of time. During the promotional period, finance charges do not accrue. It is possible to use a 0% APR credit card to pay off existing debt.
These are usually called balance transfer credit cards. While there is usually a balance transfer fee, the promotional 0% interest rate can allow you to pay off your debt without incurring finance charges. However, promotional 0% interest rates are typically temporary, so if you aren’t able to pay off the new credit card within the promotional period, you could end up back in the same place you started.
Can a Personal Loan Help?
If you need to get out from under your credit card debt and stop incurring finance charges, one way to do that is to pay off the credit card debt with an unsecured personal loan. If you’re considering a personal loan to get out of debt, look for a loan with a lower interest rate than you are paying on your credit card.
With some credit card interest rates hovering around 20%, using a personal loan can be a simpler way to pay off your debt without dealing with exorbitant interest rates.
When taking out a personal loan, you can decide whether your interest rate is fixed or variable. And because personal loans have set terms, you’ll know exactly when you’re going to be out of debt, as opposed to chipping away at your credit card balance indefinitely.
If you’re considering paying off your credit card debt with a personal loan, keep in mind that some personal loans charge origination fees and prepayment penalties. Fortunately, SoFi personal loans don’t have origination, application, or prepayment fees.
If you’re stuck paying finance charges on your high-interest credit card, a personal loan can help. Check out SoFi personal loans if you’re ready to take control of your credit card debt—it takes just two minutes to find your rate.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
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