May
04
2023
business man on tablet mobile

Vesting Schedule: Important Things to Know

By | Growing Wealth, invest, Investing, Life & Career | Comments Off on Vesting Schedule: Important Things to Know

Employers may contribute matching retirement funds, shares of company profit, or stock options as part of an employee’s compensation package, based on a certain cadence known as a vesting schedule.

The vesting schedule is a set of requirements employees must meet in order to become “vested” and gain ownership of the assets the employer is providing. These usually include a certain amount of time at the company, but hitting specific performance benchmarks may also be a part of the vesting contract.

An employee is fully vested when they receive ownership of a portion of, or all of, the assets their employer offers. If the employee were to leave the company before the assets were fully vested, they would lose out on some or all of those contributions/profits/stock options.

What Is a Vesting Schedule?

A vesting schedule is essentially a way to incentivize employees to stay with a company for a period of time, and penalize those who break their contract early. The reward for remaining with the company may include stock options or restricted stock units, retirement plan contributions (also known as the employer match), or other rewards.

So how does an individual know when they are partially or fully vested? They can ask their employer for a vesting schedule, which tells them the conditions they must meet or the dates that must be reached before vesting begins.

Employees who are partially vested may not be entitled to the full amount of the assets. These employees may not meet certain requirements, such as years spent with the company or hours worked during the year, for example. Those who are not “vested” are typically not entitled to any assets at all.

Three Types of Vesting Schedules

Vesting schedules may come in a few different varieties: immediate, graded, and cliff vesting.

Immediate Vesting

Immediate vesting schedules give employees full ownership of assets as soon as the assets hit their accounts. That means employees are 100% vested when their employer makes a contribution.

For example, under an immediate vesting schedule, if an employer makes a matching contribution to a retirement account, that contribution belongs to the employee regardless of any other conditions. The employee is now free to do what they will with the contribution.

Graded Vesting

A graded vesting schedule increases the portion of vested assets over time. Typically as an employee’s tenure at a company increases, the amount of vested assets gradually increases — until the employee eventually owns 100% of the assets.

If the employee should leave the company before the vesting period is over, they will only be entitled to the portion of the assets in which they are already vested.

Graded vesting schedules are usually no longer than six years for retirement plans, according to federal guidelines, though employers may choose to use a shorter vesting schedule. With a hypothetical six-year vesting schedule, an employee might be 0% vested for their first two years of employment and 20% vested every year after that.

Cliff Vesting

This type of vesting schedule transfers 100% of assets to employees after a certain amount of time has passed. For example, an employee may need to work at their job for two years before they are fully vested. If they separate from employment for any reason before that period is up, they aren’t entitled to any of the assets.

Cliff vesting schedules for retirement accounts are three years at most, according to federal guidelines, but may be shorter.

Vesting and IRAs

Most people might be familiar with traditional IRAs and Roth IRAs, which individuals can set up and contribute to themselves. But there are a couple of IRA options that employers can contribute to as well, including SEP and SIMPLE IRAs.

Employers may offer SIMPLE IRAs in place of a 401(k). They can then offer funds that match employee contributions, or they can make non-elective contributions, money they put in an employee’s account regardless of how much that employee has contributed themselves.

A SEP IRA is a retirement plan available to self-employed workers and small business owners. Unlike with other IRA plans, with a SEP IRA employees do not make contributions. Employers, including the self-employed, make contributions for them. Self-employed individuals act as their own employer and employee.

By law, required employer contributions to SEP IRAs and SIMPLE IRAs are immediately vested. This goes for any other IRA-based plan as well.

Vesting and 401(k)s

When you contribute to your 401(k), your employer may offer matching contributions to incentivize you to save at least enough to make the match.

While your own contributions to your 401(k) are 100% yours immediately, your employer may decide to give you ownership of the employer match funds according to a vesting schedule.

It’s important to know the difference between your vested 401(k) balance and your overall balance. Your 401(k) may offer a variety of different vesting schedules, the terms of which are laid out in the plan document. Some plans offer immediate vesting, while others may offer cliff vesting after up to three years of service, or a graded vesting system in which an employee’s vested percentage grows over time.

When Must Employees Be 100% Vested

A retirement plan’s “normal retirement age” is the age set by the plan at which an employee is eligible to receive their full accrued benefits. In the case of annuity payments or other installment payments, this is the date employees can begin receiving payments. According to government rules, employees must be 100% vested by the time they reach normal retirement age.

Additionally, employees must be immediately 100% vested in their accrued benefits if an employer decides to terminate a plan, including for the following reasons: voluntarily; as part of bankruptcy proceedings; when the company is sold; or because of a switch to another retirement plan. At such a point, employer matching contributions and any profit sharing is fully vested regardless of any previous vesting schedule.

Sometimes employers will terminate only part of a retirement plan — for example, if a factory closure forces 25% of the company workforce to be laid off. In this case, workers affected by the partial termination have the same vesting rights as those affected by a full plan termination.

Vesting Stock Options

Employee stock options offer employees the chance to buy company stock at a predetermined price, and are often offered on a vesting schedule as well. Employees are often not allowed to buy the stock — also known as exercising their option — until they are vested.

As with other types of compensation, vesting can follow a number of schedules, including graded scheduling, which allows employees to exercise their stock option gradually, and cliff scheduling. In some cases employees may be granted stock options that are immediately vested.

Once a stock option vests and an employee exercises it, they can sell the stock or hang on to it and hope the value appreciates.

Restricted stock units (RSUs) are another form of compensation in which employees are promised a specific amount of stock at a later date. While there are some differences between ESOs and RSUs, one similarity is that both may follow a vesting schedule and don’t belong to the employee until they are vested.

Employees who receive RSUs from a private company — a company whose shares don’t trade on the open market — may not be able to sell them until the company goes public in an initial public offering.

Why Companies Choose to Use Vesting

The different vesting schedules and the rules around them can get complicated. So why would an employer go through all that trouble? By using vesting schedules, employers are trying to align employees’ incentives with their own. It can be time consuming and costly to find new employees, so when an employer finds someone they like, they want them to stick around. Vesting schedules are one way employers can tempt employees to stay with the company for a certain period of time.

Some types of compensation, such as stock options, add another layer of incentive to the mix. That’s because as a company flourishes, that company’s stock should theoretically become more valuable, incentivizing workers to work hard to keep the company successful.

Additionally, having some time before an employee is fully vested in their benefits allows companies a bit of a trial period. If a new hire doesn’t work out, the company can let them go without owing them additional benefits.

How to Find out About Your Vesting Schedule

It’s critical to know how and when employer contributions to retirement accounts vest. That way, individuals can make informed decisions about when to leave their jobs while minimizing the amount of money they’re leaving on the table. For example, to make the most of their benefits, an employee with 12 months to go before they are fully vested may want to hang on to their job for another year before they start looking for a new one.

To fully understand an employer’s vesting policies, employees can speak with a representative in their human resources department. They may also get details of their retirement plan by reading the summary plan description, which lays out how it operates and what it provides. Individuals may also check their annual benefits statement. This statement should reflect an employee’s accrued and vested assets, and it may lay out what assets an employee will forfeit upon termination.

The Takeaway

Vesting schedules are a tool used by employers to entice employees to stay with the company by offering full monetary or stock contributions after a certain period of employment. There are three different types of vesting: immediate, cliff, and graded.

For employees, it’s important to understand the vesting schedule of one’s retirement plan, stock options, or RSUs. This information can help guide career decisions as well as investment decisions.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
03
2023
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The Risks of Playing the Stock Market

By | Growing Wealth, invest, Investing | Comments Off on The Risks of Playing the Stock Market

Playing the stock market is a common but misleading phrase: The stock market is not a game and it does come with investment risks.

To some degree, those risks can be mitigated by using certain strategies, including using a more long-term, buy-and-hold strategy and embracing diversification, among other things.

And while investing is a serious business, playing the stock market can have an element of fun to it in the sense that investors who do their research — and tune into the news and business cycles — can take advantage of trends that might enable them to earn better returns on investment.

Playing the Stock Market: What Does It Mean?

Despite the phrase “playing” the stock market, it’s important to make the distinction between investing and gambling up front.

While both gambling and investing involve risk, investing actively attempts to manage various forms of risk, rather than relying on blind luck. Second, smart investing involves a strategy, something that a gambler pulling the lever on a slot machine can’t employ.

But because all investing involves an element of risk — there is no 100% safe investment — in a way each investment can feel like a gamble. However, it’s important to keep in mind that the market is not a casino, and just because there’s risk involved doesn’t mean that “playing the market” is the same as playing roulette.

Playing the Market: Risks and Rewards

Learning how to play the stock market — in other words, become a good investor — takes time and patience. It’s good to know the basics of the risks and rewards.

Potential Risks

In a broad sense, the most obvious risk of playing the market is that an investor will lose their investment. But on a more granular level, investors face a number of different types of risks, especially when it comes to stocks. These include market risk, liquidity risk, and business risks, which can manifest in a variety of ways in the real world.

A disappointing earnings report can tank a stock’s value, for instance. Or a national emergency, like a viral pandemic, can affect the market at large, causing an investor’s portfolio to deflate. Investors are also at the mercy of inflation — and stagflation, too.

For some investors, there’s also the risk of playing a bit too safe — that is, they’re not taking enough risk with their investing decisions, and as such, miss out on potential gains.

Potential Rewards

Risks reap rewards, as the old trope goes. And generally speaking, the more risk one assumes, the bigger the potential for rewards — though there is no guarantee because risk always entails the possibility of losses as well. Investors may earn returns in a couple of different ways:

•   By seeing the value of their investment increase. The value of individual stocks rise and fall depending on a multitude of factors, but the market overall tends to rise over time, and has fully recovered from every single downturn it’s ever experienced.

•   By earning dividend income. Dividends from stocks can also be reinvested, in order to further grow your investments.

•   By leaving their money in the market. It’s worth mentioning that the longer an investor keeps their money in the market, the bigger the potential rewards of investing are.

How to Play the Stock Market Wisely

Nobody wants to start investing only to lose money or see their portfolio’s value fall right off the bat. Here are a few tips regarding how to play the stock market, that can help reduce risk:

Invest for the Long-term

The market tends to go up with time, and has recovered from every previous dip and drop. For investors, that means keeping their money in the market for the long haul can be one strategy to mitigate the risks of short-term market drops.

As another common saying has it: “Time in the market beats timing the market.”

Consider: If an investor buys stocks today, and the market falls tomorrow, they risk losing a portion of their investment by selling it at the decreased price. But if the investor commits to a buy-and-hold strategy — they don’t sell the investment in the short-term, and instead wait for its value to recover — they effectively mitigate the risks of short-term market dips.

That said, you can’t rule out the risk of a downturn from which the markets never recover. It’s never happened, but no one has a crystal ball.

Do Your Research

It’s always smart for an investor to do their homework and evaluate a stock before they buy. While a gambler can’t use any data or analysis to predict what a slot machine is going to do on the next pull of the lever, investors can look at a company’s performance and reports to try and get a sense of how strong (or weak) a potential investment could be.

Understanding stock performance can be an intensive process. Some investors can find themselves elbow-deep in technical analysis, poring over charts and graphs to predict a stock’s next moves. But many investors are looking to merely do their due diligence by trying to make sure that a company is profitable, has a plan to remain profitable, and that its shares could increase in value over time.

Diversify

Another risk-mitigation strategy that investors can employ is diversification. Diversification basically means that an investor isn’t putting all of their eggs into one basket.

For example, they might not want their portfolio to comprise only two airline stocks, because if something were to happen that stalls air travel around the world, their portfolio would likely be heavily affected. But if they instead invested in five different stocks across a number of different industries, their portfolio might still take a hit if air travel plummets, but not nearly as severely as if its holdings were concentrated in the travel sector.

Use Dollar-cost Averaging

Dollar-cost averaging can also be a useful strategy. Essentially, it means making a series of small investments over time, rather than one lump-sum investment. Since an investor is now buying at a number of different price points (some may be high, some low), the average purchase price smooths out potential risks from price swings.

Conversely, an investor that buys at a single price-point will have their performance tied to that single price.

The Takeaway

While playing the market may be thrilling — and potentially lucrative — it is risky. But investors who have done their homework and who are entering the market with a sound strategy may be able mitigate those risks to a degree.

By researching stocks ahead of time, and employing risk-reducing strategies like dollar-cost averaging and diversification when building a portfolio, an investor is more likely to be effective at mitigating risk.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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.


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

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
01
2023
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What Is Panic Selling & How Does it Work?

By | Growing Wealth, invest, Investing | Comments Off on What Is Panic Selling & How Does it Work?

Panic selling is when a large number of investors want to sell their holdings at the same time and it creates a drop in prices. That drop scares other investors into selling, which causes prices to fall still further, which frightens more investors, and so on.

The resulting panic can erase vast amounts of wealth. It can take weeks or even years for the markets to recover from a serious panic-selling event.

For years, the popular advice on panic selling for most investors was simple: Don’t panic. The logic being that over time, and through major financial crises, the equity markets have tended to rebound and rise.

But even if an individual investor resists the urge to sell, a bout of panic selling in the markets could still have an impact on their wealth, and their plans. The more an investor knows about panic selling, the more informed they will be when and if panic sets in.

Panic Selling and Stock Market Crashes

Stock markets — and the market for anything from housing to basic commodities — go down when there are more people selling than buying. And sometimes in the stock markets, the sellers outnumber the buyers to such a degree that sellers panic and are willing to take almost any price to get cash for their investment.

When panic grips enough investors, the markets can crash.

Recommended: What Is Active Investing?

Throughout the history of every kind of market, panic occasionally sets in. Sometimes it’s a major global event that sets it off, like what happened with the stock markets in March of 2020 as the global COVID-19 pandemic picked up speed and countries entered lockdown.

Other times, it’s a matter of a given asset — like housing and real estate in 2008 — being bid up to unrealistic levels, followed by the mass consensus of what it’s worth changing seemingly overnight. The history of U.S. recessions is full of these highly emotional market changes.

What Causes Panic Selling?

While panic is a very human response to the prospect of major financial loss, there are also other factors that can trigger investors to start panic-selling stocks, including: margin calls, stop-loss orders, and algorithms.

Panic Selling and Margin Calls

In the Great Crash of 1929, there were many investors who had borrowed heavily to invest in the stock market. When the markets dropped, they received something known as a margin call, requiring that they pay back the loans they took out to invest.

Those margin calls required that they sell potentially even more stock to pay back the loans, which caused the markets to fall even further.

Panic Selling and Stop-loss Orders

Similarly, there are trading programs that can throw fuel on the fire of a bout of panic selling. These can be as simple as a stop-loss order, a standing order to buy or sell a particular security if it ever reaches a predetermined price, which investors commonly use in their brokerage accounts.

A stop-loss order can be a way to take advantage of price dips to buy a stock at a discount. But during a sudden drop in the markets, stop-loss orders often lead to automatic sales of stocks, as investors try to lock in their gains.

These automatic sales — in large enough numbers, can accelerate the decline in a market, and contribute to the panic.

Panic Selling and Algorithms

There are algorithms employed by major financial institutions and professional investors that will automatically sell if the price of a given stock falls to a certain level. The crash of 1987 was caused in part by some of the first computerized trading programs.

And in 2010, one trader who lost control of his highly sophisticated trading software was responsible for the “flash crash,” which caused roughly a trillion dollars of market capitalization to disappear in under an hour.

The system-wide risk presented by these tools is one reason that most major stock exchanges have installed a series trading curbs and “circuit breakers” in place to slow down panic selling and give the traders who use these programs to recalibrate them before a full-fledged selling spree can run out of control.

The Risks of Panic Selling

When markets drop suddenly, it can be scary for investors. And one of the biggest risks may be to give into that fear, and join in the selling.

But one thing to remember is that markets go up and down, but an investor only loses money when they sell their holdings. By pulling their money out of the stock market, an investor not only accepts a lower price, but also removes the chance of participating in any rebound.

Loss is a big risk of panic selling. People who invest for goals that are years or decades away can likely weather a panic. But if a person is investing for retirement, a sudden panic just before they retire can create a major problem, especially if they were planning to live off those investments.

The danger of sudden, panic-driven drops in the market is one reason it makes sense for investors to review their holdings on a regular basis, and adjust their holdings away from riskier assets like stocks, toward steadier assets like bonds, as they get nearer to retirement.

That risk is also why most professionals recommend people keep 6-12 months of expenses in cash, in case of an emergency. That way, even if a financial crisis causes a person to lose their job, they can stay in the market. It’s a way to protect their long-term plans from being jeopardized by everyday expenses.

Finding Opportunities in Panic Selling

During a panic, there are typically enough scared people making irrational decisions to create valuable buying opportunities. The stock-market crashes in 1987 and in 2008, for instance, were each followed by a decade in which the S&P 500 rewarded investors with double-digit annual returns. (As always, however, past performance is no guarantee of future success.)

The problem is that there’s no way to know when a panic has reached its end, and when the market has fallen to its bottom. Professional traders with complex mathematical models have had mixed results figuring out when a market will rebound. But for most investors — even savvy ones — it’s a guessing game at best.

There are two ways an investor can try to take advantage of a bout of panic selling:

1.    The first is not to panic.

2.    The other is to keep investing when the market is down, while stocks are selling for much lower prices.

Dollar Cost Averaging

One way to take advantage of panic selling is with dollar cost averaging. With this long-term plan, an investor buys a fixed dollar amount of an investment on a regular basis — say, every month. It allows an investor to take advantage of lower purchase prices and limits the amount they invest at when valuations are higher. As such, it’s a strategy for all seasons — not just during a panic. Most investors already employ some form of dollar-cost averaging in their 401(k) plans.

The Takeaway

Steep drops in the stock market are usually headline news. The causes aren’t always clear or easy to understand. So it makes sense that a sudden drop in the markets can cause even seasoned investors to make mistakes. This is a real risk. But it can also create opportunities.

That’s why it’s important for investors to revisit their financial plan regularly, to make sure they can weather the storm, and still be on track to reach their goals — even if a market decline means they have to take a few steps back.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
01
2023
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Guide to Choosing Where to Retire

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Guide to Choosing Where to Retire

Perhaps retirement is years or even decades away or something you are planning right this very moment. Regardless of your timeline, your dream lifestyle is likely to be something very specific to your lifestyle and dreams. Maybe you imagine living by the shore and walking on the sand every morning. Or perhaps you see yourself in a college town, spending afternoons at bookstores and cafes. Or you might think of moving within an hour of your grandkids for frequent multigenerational gatherings.

There’s a good chance that your vision of retirement isn’t just about location. Some people may think of downsizing to a smaller home in a low-cost area so they can free up funds to travel the world. Others might want, after decades of hard work, revel in their dream home with a view of a lake or mountains.

Where to live in retirement depends on several factors but is a uniquely personal choice. If you could use some help deciding where to spend that chapter of your life, read on. You can take a quiz to help you zero in on good options, and after that, you’ll learn more about such topics as:

•   What factors can help you decide where to retire?

•   What are some great places to retire?

•   What are some affordable ideas for retirement?

•   When should you start saving for retirement?

Where to Retire Quiz

First, here is a “where to retire quiz” to help you to create your plans.

Factors to Consider When Choosing Where to Retire

Next, here are four factors to keep in mind while choosing where to live in retirement years.

Climate and Topography

When you picture yourself in your ideal location, what is the weather like? Are you the type who wants to live the “70-plus degrees and sunny” lifestyle year-round? Or do you want to experience the full array of season, with fall leaf-peeping and some wintertime snow to delight in?

As you think about your surroundings, it can be smart to daydream a bit and envision where you’d like your retirement to be. One person might want to be in the mountains, another in a small city with loads of easy walking trails but no hills, thank you.

As you contemplate these options, it can be worthwhile to delve into climate reports for each of the states in the United States and check out the “past weather” tabs to see what patterns you may observe. Which sounds most appealing to you? And, here’s a U.S. geographic website that allows you to explore the counties and rivers in a state, elevation, topography, and more.

Friends and Family

When thinking about retirement, don’t overlook the value of having loved ones and their social support nearby. Your dream may be to live where your children or your grandchildren do. If that sounds like you, consider whether these family members are rooted in their communities or if they frequently move (say, for work).

If the first is true, then the situation is probably simpler than if there’s a good chance that your family would move, leaving you in a community that you chose because they were living there.

Do you have close friends that have decided where they want to retire? If so, you might want to consider the area they have in mind. Having the continuity of their friendship could add to your quality of life and help you transition into retirement.

Peace and Quiet? Or Action?

You might love the peace and quiet of small towns, rural areas, and the like, where you can fish, stroll through the woods, and otherwise appreciate the beauty of nature. Or you may want to retire right where the most action is, living in a big city with everything you need within a block or two of your place, plus an array of restaurants, shows, museums, and other attractions to keep you busy. Or you might prefer a suburb that offers the best of both worlds.

Also worth thinking about: Do you want to be in a place where there’s always something going on that you can join? For some people, a 55+ community with ongoing planned activities can be most appealing.

Career Plans

Do you envision saying a permanent goodbye to the workplace in the future, or do you plan to keep working after retirement — perhaps part-time or as a consultant — through your 60s and 70s, and maybe beyond? Or maybe you’re looking forward to having a second act in a field of great interest.

You may have pursued your original career because you needed to earn a certain income, but now you can work in an area that brings you joy, perhaps in animal rescue. Or maybe you want to volunteer for an organization you feel passionate about. There are lots of buzzwords describing the new ways people may work as they reach retirement age, such as semi-retirement and unretirement. Regardless of what you call it, some retirement locations may offer more opportunity than others, depending on the path you envision.

Taxes

There’s no ignoring the impact of finances on where you choose to retire. Some states are more tax-friendly than others. There can be income tax, property tax, sales tax, and other taxes in the mix, so it can be wise to consider the best places to retire for tax purposes before you commit. For some people, where they choose to live in retirement can wind up making a difference of tens of thousands of dollars in taxes.

As you think about your options of where to live when retired, it can be wise to research the potential tax burden of a move (you can find information via some online searching) or meet with a professional who can advise you.

On the subject of taxes and affordability, another facet to keep in mind when thinking about retirement is cost of living. If you imagine retiring to, say, Austin, Texas, you are likely going to need to spend more for that in-demand city life than to live in a small town a couple of hours away from it.

Great Places to Retire

USNews.com provides in-depth information about the best places to retire in 2022-2023. U.S. News & World Report surveys people in pre-retirement and those of retirement age to determine what’s most important to them, and then they use the following formula to come up with their conclusions:

•   Quality of Life Index, 32.5%, which includes such variables as healthcare affordability, air quality, and crime rates, among others.

•   Value Index, 25%, which incorporates factors like housing costs and median household income.

•   Job Market Index, 20%, which reflects the area’s average salary and unemployment rate.

•   Desirability Index, at 17.5%, which reports on the results of a survey of 3,500 people about which metro areas are most appealing to them.

•   Net Migration, 5%, which determines if people are actually moving into or out of the area.

Top 5 Place to Retire

Here are the top five results for 2022-2023:

•   Lancaster, Pennsylvania, which can offer the best of a small city, suburbs, and rolling farmland in one location.

•   Harrisburg, Pennsylvania, a state capital where one can walk, run, or bike along the Susquehanna River.

•   Pensacola, Florida, which offers beaches, boating, and fishing in a warm climate and career opportunities as well.

•   Tampa, Florida, combines the best of city life (concerts, major-league sports) with beautiful weather and access to the water.

•   York, Pennsylvania, has loads of history to explore as well as a lively downtown area with an arts community, shopping, and more.

What’s best for you, of course, depends upon what’s most important to you, so it makes sense to visit places of interest, ideally for enough time that you get a sense of what it would be like to live there, rather than just visit.

For example, before you decide whether to rent or buy a home for retirement in a particular area, you might test-drive living there for a number of months to see what you really think of the climate, activities in the area, cost of living, and so forth.

And, at least in some cases, after people getting ready to retire visit locations that once seemed like the ideal place to live, they find that they’re really happier right where they are. If that’s the case, good for you.

You’ll be retiring in a place you already know well, able to maintain your circle of friends.

Helpful Resources

Beyond the U.S. News resource mentioned above, there is an array of information online, whether you want to research housing prices in a given area on a real-estate listing site or read a blog about what it’s like to retire in a foreign country. Certainly, there are books on these and additional topics as well. AARP magazine is also full of information about retirement locations.

Don’t forget about the value of word-of-mouth. Talking to friends, neighbors, colleagues, and family members about their plans and those of members of their circle can help you learn about what like-minded people are thinking.

Affordable Places to Retire

According to U.S. News, the five most affordable places to retire for 2022-2023 are:

1.    Fort Wayne, Indiana

2.    Ocala, Florida

3.    Scranton, Pennsylvania

4.    Pittsburgh, Pennsylvania

5.    Youngstown, Ohio.

And, no matter where you want to live, funding your retirement in the style you want is crucial.

When to Start Saving

As far as when to start saving for retirement, the answer is likely to be ASAP. In terms of how to save, you may have such options as:

•   401(k) Retirement Plans: These are employer-sponsored plans and can be a convenient way to start saving for retirement.

•   IRAs (Individual Retirement Accounts): Whether or not your employer offers a retirement plan, you can open this type of retirement account yourself. There are two types — traditional and Roth — which are treated differently, tax-wise.

•   Self-Employment Retirement Plans: Contribution limits are higher, because you’re both the employer and the employee. There are several types, the most common being SEP IRAs, Simple IRAs and a Solo 401(k).

•   Pension Plans: If you work for the government or military (or possibly for a large company), you may also benefit from a pension plan. These are less common than they used to be, but still exist.

And, besides asking yourself “Where should I retire?” you’re probably also wondering about choosing a retirement date. To cut to the chase, if you’re looking to live on $40,000 a year in your retirement, you need to save $1 million. Double that if you’re hoping to live on $80,000.

As you save, it can be wise to frequently check in on how your savings are performing. This can help you monitor whether you’re on track, regardless of which of the different types of retirement plans you are utilizing, and make any necessary adjustments.

If you aren’t heading towards your targets at a good rate, you may want to rebalance your portfolio to help meet your goals.

Recommended: Understanding Portfolio Diversification

What If I Want to Retire Early?

Some people want to retire before they reach 65 or 70. If you are among that group, consider the Rule of 25, which says that someone should save 25 times their annual expenses to retire — not annual earnings, but annual retirement expenses.

So if you are calculating how to retire early with annual expenses of $75,000, that means that someone would need to save $1,875,000 to stop working (at a minimum).

Important note: As you do the math, remember that this figure can’t include Social Security benefits because those aren’t available until the designated time (meaning, not during early retirement).

It can also make sense to spend less and save more now to maximize what you’ll have saved for retirement. This can have a doubly good impact. First, spending less can lower the amount needed to save for early retirement, because you’ll have fewer expenses. In addition, the money not being spent today can be invested.

Here’s another way to calculate what may be needed. Take a look at the current budget, cut out what you reasonably can, and then figure out how this budget may change in retirement years. What may require more funds (healthcare, for instance)? Less (like money spent on one’s kids)? This can help you forecast what your line item budget may look like in the years ahead.

Open a Retirement Account With SoFi

When you open a retirement account at SoFi, we can help put your money to work. We first provide you with the educational tools to help you with goal planning, with a focus on mapping out a plan to help you achieve your goals more quickly, and to also help you stick with that plan. We can help diversify your portfolio, aiming to reduce some of your risk. In fact, we invest in hundreds of assets.

And it’s simple to get started: Setting up an investment account with SoFi can take just minutes.

Easily manage your retirement savings with a SoFi IRA.

FAQ

What are the safest places to retire?

Different sources list different locations, but according to U.S. News, the safest places to live in the U.S. are Naples, FL; Port St. Lucie, FL; Fort Myers, FL; Portland, ME; and Lakeland, FL. Once you have an approximate idea of where you want to retire, you can then research crime rates in that zone.

What are the best places to retire financially?

According to one recent report, the best places to retire financially and enjoy an affordable lifestyle are Fort Wayne, IN; Ocala, FL; Scranton, PA; Pittsburgh, PA; and Youngstown, OH.

What are the warmest places to retire?

Among the places where one can retire with good weather year-round are Florida, California, and North Carolina.

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