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Retirement is supposed to be the golden age of relaxation. Whether it be reading the garden, lazy days spent fishing, or early mornings on the golf course, when you retire, there are no bosses or daily meetings to preoccupy you. But what is the best way to get there?

Saving for retirement can seem daunting, especially when you consider housing expenses, student loan debt, and other day-to-day living expenses.

The average American retirement savings leave much to be desired. Most Americans nearing retirement age in the U.S. have only 12% of the recommended $1 million saved.

Actively preparing for retirement is one of the best ways to ensure you can spend your later years relaxing and enjoying your well-earned time off. There are a wide variety of accounts that allow you to save for retirement, from Traditional and Roth IRAs to a 401k, 403b, or other investment accounts. One of the most popular retirement vehicles is the 401k.

If you’re getting ahead on saving for retirement you may be wondering “how much should I have in my 401k?” While the answer to that varies depending on your financial situation, age, and more, there are a few retirement guidelines that can help you better prepare for the future.

What Is a 401k?

A 401k is an employer-sponsored retirement plan that allows both you and your employer to make contributions to the account. If your employer offers a 401k plan, you are most likely able to select a percentage or specific monetary amount to contribute to your 401k from each paycheck.

One of the major benefits of a 401k is that your employer can also make contributions. If your employer offers matching contributions, it makes sense to participate in the 401k plan, at least up until the matching maximum. Matched contributions are determined at your employer’s discretion, so check your company policy to see what is offered at your workplace.

There are two kinds of 401ks. When you contribute money to a traditional 401k, the money is tax deductible, but will be taxed when you withdraw it in retirement, at the income bracket you are in at that time. When you contribute to a Roth 401k, the money is taxed at the time of contribution, at the tax rate you are currently in. But it’s not taxed when you withdraw the money.

For both Roth and Traditional 401ks, the contribution limit for 2018 is $18,500. If you are over the age of 50, you are allowed to contribute an additional $6,000, known as a catch-up contribution. When you contribute money to a 401k, it is intended to be used in retirement .

Because of this, there is a penalty if you withdraw money before the age of 59 ½. On the other side of the age spectrum, if you do not begin withdrawals by the age of 70 ½, you will be faced with fines and penalties.

Average 401k Balance by Age

Your readiness for retirement will depend on a few factors; including your age, income, and expected retirement age. While everyone’s situation is different, it’s never too early—or too late—to start preparing for retirement.

To see if you’re on track with your retirement goals, take advantage of free online resources, like a retirement calculator that will help you estimate your financial readiness for retirement.

The earlier you start saving for retirement, the better. But if you’ve gotten a late start, there are ways to boost your retirement savings. As you age, your strategies for saving for retirement will shift. Here’s what to expect in your 20s and beyond.

In Your 20s

You’re just starting out in the work force and chances are you’re still paying off your student loan debt. While paying off your student loans and spending money on happy hour may seem more important than saving for retirement, the earlier you begin saving, the more time you will have to benefit from compound interest.

Compound interest is interest calculated on the initial principal and on the interest accumulated over the previous deposit period. This means saving for retirement in your 20s has significant advantages when you are finally ready to retire. Some experts think by the time you turn 30 , you should have saved one year’s salary toward your retirement. The average 401k savings for someone in their 20s in 2017 was $9,900.

In Your 30s

Your 30s are when you want to kick your retirement savings into high gear. It’s a good rule of thumb to up your retirement savings contributions to 15% of your monthly income . You may have other expenses like kids or a mortgage, but you’re also likely making a bit more money than you were in your 20s—so take advantage and invest some of that money in your future.

No one else will be looking out for your financial health in retirement. The average 401k savings for someone in their 30s in 2017 was $38,400.

In Your 40s

By the time you have reached your 40s, you should have a considerable chunk of change socked away for retirement. Common financial advice is that you have at least three times your annual salary saved at 40 if you intend to retire at 67. Often times, your 40s are also when you’re faced with financing your children’s education.

And when push comes to shove, many parents will put their child’s education ahead of their retirement savings. You’re now considerably closer to retirement than you were at 22, so consider opening an independents retirement savings account like an IRA, in addition to contributing to your company’s 401k plan.

Diversifying your investments may help reduce some investment risk. The average 401k savings for someone in their 40s in 2017 was $91,000.

In Your 50s

When you turn 50, you can begin making catch-up contributions to your 401k and IRA. You can contribute an additional $6,000 a year to a 401k and an additional $1,000 a year to your IRA. Take advantage of these catch-up contributions and continue to save.

Consider adding any bonuses or extra income into your 401k to boost your savings. The average 401k savings for someone in their 50s in 2017 was $152,700.

In Your 60s

As you get into your 60s, you can see retirement at the next exit. Now would be a good time to adjust your investments into less risky options. As retirement becomes more real, take the time to prepare for the unexpected and safeguard some of your investments. The average 401k savings for someone in their 60s in 2017 was $167,700.

But the average couple in their mid-60s will have to cover approximately $280,000 in health care costs. Make sure your retirement plan accounts for health care costs.

About 70% of Americans surveyed in 2016 said they plan to work as long as possible. Extending your working years could lead to financial gains down the road. Depending on when you were born, you qualify for Social Security benefits at different ages. If you were born after 1960, you won’t be able to collect Social Security until you are 67.

Invest with SoFi Invest®

If you are looking for opportunities to expand your retirement savings and complement your employer-sponsored 401k plan, consider investing with SoFi. If you have an old 401K, we can help you find out how much you are paying in management fees. Then, we can help you determine the impact of rolling over your 401K into an IRA with SoFi. Schedule an appointment here.

Additionally, at SoFi, we offer a competitive wealth management account with no SoFi management fees and members get complimentary access to financial advisors.

We’ll work with you to establish your financial goals and determine the risk profile you are most comfortable with. SoFi will work to diversify your investments and automatically rebalance your profile as needed. You can start investing with as little as $100.

Ready to take control of your financial future? See how a SoFi Invest account can help you reach your retirement goals.

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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.
Diversification can help reduce some investment risk. It cannot guarantee profit or fully protect loss in a down market.
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.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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You probably already know that you should have an emergency fund—a bit of extra cash on hand in case of an unforeseen event, like getting laid off or needing to move.

But many of us don’t know more than that. How much should you have? How, exactly, do you save that cash? And should you focus on building this fund or paying off debt first?

SoFi advisor and Certified Financial Planner Alison Norris recently talked about all of this and more at a recent #WealthWednesday discussion on the SoFi Member Facebook page. (Yep, SoFi members have daily access to complimentary advisors on social media and via phone—check out more about the SoFi Member Benefits.)

And today, we’re bringing that discussion, as well as other common questions about emergency funds and her expert answers, to you.

How much should I have in an emergency fund?

Your emergency fund should be three to 12 times the amount you spend monthly. The exact amount should reflect your risk aversion to unexpected unemployment. If you have reason to believe you could quickly land another job—say, you’re a software engineer in San Francisco—then you might be comfortable with three months’.

If, on the other hand, you’d expect a longer job search—for example, you’re in a specialized line of work, or a finding a new job would likely entail moving to a new city—your emergency fund should reflect that

Also, consider this: Would you be willing to amend your lifestyle if income slows or something costly crops up? If you’re OK living on a friend’s couch eating ramen, then you might survive with a smaller rainy day fund. If you wish to keep living the life you’re accustomed to, then you may want more of a backup.

Where should I keep my emergency fund—my checking account, a savings account, or elsewhere?

You want to keep your emergency fund money “liquid,” or available to access as soon as you need it. It’s also smart to separate cash on hand from your emergency fund. Cash on hand can be left in your checking account, earmarked for paying upcoming bills. Your emergency fund works well in a FDIC-insured savings account.

With that said, many savings accounts only pay you 0.01% interest on cash balances. This doesn’t keep pace with inflation, so you’re essentially losing money. Instead, you might consider a high-yield savings account that earns 1.0% interest or more. Bankrate is a good place to compare your options.

What do you suggest if you have roughly $5K built up so far for an emergency fund and also about $3K in credit card debt?

Should I wipe out the debt and then build the fund back up, or chip away at the debt and maintain the fund?

I might suggest knocking out that credit card debt in full. Here’s the order of operations that works best for most:

•   1. Keep enough cash on hand to pay recurring bills and avoid living paycheck to paycheck. (This isn’t your emergency fund, just cash that’s good to have on hand.)

•   2. If your employer matches contributions to a retirement plan, max out that match.

•   3. Pay off consumer debt, including high-interest credit cards.

•   4. Build your emergency fund.

Also keep in mind that the comfort of having a cash cushion and not living on the financial edge may outweigh other purely financial benefits of wiping out high-interest debt. Sleeping soundly at night is another benefit to building up an emergency fund.

Could a credit line be considered a pseudo emergency fund?

While I don’t have credit card debt, I do have a ton of student loans I want to pay off more aggressively. My credit cards would allow me to live for a good three months or so if I needed to.

I commend your desire to pay off your student loans aggressively, but I wouldn’t do so if it means you would instead have revolving credit card debt.

Say, for example, you have a 6% rate on your student loans and a 20% rate on your credit card loans, and $1,000 in outstanding debt with both. You’ll end up paying $140 less toward your student loan each year (maybe even less because there are tax deductions for student loan interest). I might suggest prioritizing the emergency fund while making minimum payments on your student loans.

What’s the best way to save up for my emergency fund, quickly?

The basic equation for wealth building is: Money In – Money Out = Money Saved.

But you don’t need us to tell you how math works. The key is to figure out which levers to pull to increase your odds of success.

Start by tracking your expenses, either in a spreadsheet or using a free service like Mint.com. You’ll quickly get a handle on your monthly cash flows, which will enable you to target an emergency savings goal tailored to your needs.

The next step is key: Pay yourself first. Schedule recurring auto-deposits into your savings account to coincide with your paychecks. You’ll find this cash flow will quickly become painless and invisible. More importantly, it ensures that when you overspend in a given month, it’s discretionary items—like eating out one more time—that get cut, rather than your savings.

I’m almost at my savings goal for my emergency fund. Where should I put my money next?

The earlier you save for retirement, the better, so you can let the power of compounding interest work for you. And even better than compounding is free money. For both reasons, the first place to invest for retirement should be in your employer-sponsored retirement plan, if you have access to one.

Many employers will match part of your contribution, which is essentially free money. Once that match is met, aim to keep contributing to tax-advantaged accounts. You can invest in the employer retirement beyond your match, contribute to an IRA, or (our preferred strategy) both. To understand which IRA account you can contribute to, use this IRA calculator.

From there, document your assets and liabilities. Know your good debt from bad. A mortgage or student loan? Good. A high-interest credit card? Not so good. Also write down your long- and short-term goals—for example, paying for wedding, saving for a house down payment, or even taking a summer vacation.

Once you’re saving for retirement, you can plan a savings or investment strategy for these goals, based on their time horizon.

Are you ready to start saving? Learn more about SoFi Invest® to see if it is the right fit for you!

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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.
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.
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.
Neither SoFi nor its affiliates is a bank.
SoFi Checking and Savings^TM is offered through SoFi Securities, LLC, member FINRA / SIPC . Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.

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