SoFi

The amount of money a couple needs for retirement can depend on several factors, including age, health, life expectancy, location, and desired lifestyle. There’s no exact number that represents what is a good monthly retirement income for a couple, as every couple’s financial needs are different.

Creating a retirement budget and considering what might affect your cost of living can help you narrow down how much monthly income you’ll need. You can use that as a guide to decide how much you’ll need to save and invest for retirement.

How Being a Couple Affects Your Income Needs

Being the main breadwinner in a couple usually increases the amount of income you’ll need for retirement, since you’re saving for two people instead of one. The money you save has to be enough to last for your lifetime and your spouse or partner’s, so that neither of you is left without income if you outlive the other.

Aside from differences in life expectancy, there are other factors that affect a couple’ income needs, including:

•   Lifestyle preferences

•   Estimated Social Security benefits

•   Target retirement dates for each partner

•   Part-time work status of each partner in retirement

•   Expected long-term care needs

•   Location

All of those things must be considered when pinpointing what is a good monthly retirement income for a couple. The sooner you start thinking about your needs ahead of retirement, the easier it is to prepare financially.

It’s also important to keep in mind that numbers to be used for the sake of comparison can vary widely. Consider this:

•   According to the Pension Rights Center, the median income for fully retired people aged 65 and older in 2023 was $24,190.

•   The average income after taxes for older households in 2022 was $63,187 per year for those aged 65–74 and $47,928 per year for those aged 75 and older, according to U.S. News Money.

💡 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.

What to Consider When Calculating Your Monthly Income

One couple’s budget for retirement may be very different from another’s. A budget is simply a plan for spending the money that you have coming in.

If you’re wondering how much to save each month, it’s helpful to start with the basics:

•   What do you expect your retirement expenses to be each month?

•   How much income will you have for retirement?

•   Where will this income come from?

It’s also important to consider how your retirement income needs may change over time and what circumstances might impact your financial plan.

Spending May Not Be as Low as You Think

Figuring out your monthly expenses is central to determining what is a good monthly retirement income. According to the Bureau of Labor Statistics, the typical household age 65 and older has annual expenditures of $72,967. That breaks down to monthly spending of about $6,080 per month. The largest monthly expense is typically housing, followed by transportation and food. If you’re planning to live frugally in retirement, spending, say, under $50,000 a year may sound achievable, but it’s not a realistic target for every couple.

For one thing, it’s all too easy to underestimate what you’ll spend in retirement if you’re not making a detailed budget. For another, inflation during retirement can cause your costs to rise even if your spending habits don’t change. That fact needs to be recognized and budgeted for.

Spending Doesn’t Stay Steady the Whole Time

It’s a common retirement mistake to assume spending will be fixed. In fact, the budget you start out with in retirement may not be sustainable years from now. As you get older and your needs or lifestyle change, your spending habits will follow suit. And spending tends not to be static from month to month even without events to throw things off.

You may need less monthly income over time as your costs decrease. Spending among older Americans has been found to be highest between ages 55 and 64 and then dip, according to Social Security reports.

It’s very possible, however, that your monthly income needs may increase instead. That could happen if one of you develops a serious illness or requires long-term care. According to Genworth Financial’s 2023 Cost of Care survey, the monthly median cost of long-term care in a nursing facility ranged from $8,669 for a semi-private room to $9,733 for a private room.

Expenses May Change When One of You Dies

The loss of a partner can affect your spending and how much income you’ll need each month. If you decide to downsize your home or move in with one of your adult children, for example, that could reduce the percentage of your budget that goes to housing. Or if your joint retirement goals included seeing the world, you may decide to spend more money on travel to fulfill that dream.

Creating a contingency retirement budget for each of you, along with your joint retirement budget, is an opportunity to anticipate how your spending needs might change.

Taxes and Medicare May Change in Your Lifetime

Taxes can take a bite out of your retirement income. Planning for taxes during your working years by saving in tax-advantaged accounts, such as a 401(k) or IRA, can help. But there’s no way to predict exactly what changes might take place in the tax code or how that might affect your income needs.

Changes to Medicare could also change what you’ll need for monthly income. Medicare is government-funded health insurance for seniors age 65 and older. This coverage is not free, however, as there are premiums and deductibles associated with different types of Medicare plans. These premiums and deductibles are adjusted each year, meaning your out-of-pocket costs could also increase.

Common Sources of Income in Retirement

Having more income streams in retirement means you and your spouse or partner are less reliant on any single one to pay the bills and cover your expenses. When projecting your retirement income pie-chart, it helps to know which income sources you’re able to include.

Social Security

Social Security benefits may be a central part of your income plans. According to the Social Security Administration (SSA), a retired worker received $1,845 in benefits and the average spouse of a retired worker netted $886 during the most recent year reviewed.

You can expect Social Security to cover some, but not all, of your retirement expenses. It’s also wise to consider the timing for taking Social Security benefits. Taking benefits before your full retirement age, 65 or 67 for most people, can reduce the amount you’re able to collect.

Retirement Savings

Retirement savings refers to money saved in tax-advantaged accounts, such as a 401(k), 403(b), 457 plan, or Thrift Savings Plan (TSP). Whether you and your partner have access to these plans can depend on where you’re employed. You can also save for retirement using an Individual Retirement Account (IRA).

Tax-advantaged accounts can work in your favor for retirement planning, since they yield tax breaks. In the case of a 401(k) plan, you can also benefit from employer matching contributions that can help you grow your savings faster.

Annuities

An annuity is a contract in which you agree to pay money to an annuity company in exchange for payments at a later date. An immediate annuity typically pays out money within a year of the contract’s purchase while deferred annuities may not begin making payments for several years.

Either way, an annuity can create guaranteed income for retirement. And you can set up an annuity to continue making payments to your spouse for the duration of their lifetime after you pass away.

Other Savings

The other savings category includes money you save in high-yield savings accounts, money market accounts, and certificate of deposit accounts (CDs). You could also include money held in a taxable brokerage account in this category. All of these accounts can help to supplement your retirement income, though they don’t offer the same tax advantages as a 401(k) or an IRA.

Pensions

A pension is an employer-based plan that pays out money to you based on your earnings and years of service. Employers can set up pension plans for employees and make contributions on their behalf. Once you retire, you can take money from your pension, typically either as a lump sum or a series of installment payments. Compared to 401(k) plans, pensions are less commonly offered, though you or your partner may have access to one, depending on where you’re employed.

Reverse Mortgages

A reverse mortgage can allow eligible homeowners to tap their home equity. A Home Equity Conversion Mortgage (HECM) is a special type of reverse mortgage that’s backed by the federal government.

If you qualify for a HECM, you can turn your equity into an income stream. No payment is due against the balance as long as you live in your home. If your spouse is listed as a co-borrower or an eligible non-borrower, they’d be able to stay in the home without having to pay the reverse mortgage balance after you die or permanently move to nursing care.

Reverse mortgages can be used to supplement retirement income, but it’s important to understand the downsides as well. Chief among those are:

•   Interest will accrue: As interest is applied to the loan balance, it can decrease the amount of equity in the home.

•   Upfront expenses: Funds obtained from the loan may be reduced by upfront costs, such as origination, closing, and servicing fees, as well as mortgage insurance premiums.

•   Impact on inheritance: An HECM can cause the borrower’s estate to lose value. That in turn can impact on the inheritance that heirs get.

How to Plan for Retirement as a Couple

Planning for retirement as a couple is an ongoing process that ideally begins decades before you’ll actually retire. Some of the most important steps in the planning process are:

•   Figuring out your target retirement savings number

•   Investing in tax-advantaged retirement accounts

•   Paying down debt (a debt payoff planner can help you track your progress)

•   Developing an estate plan

•   Deciding when you’ll retire

•   Planning for long-term care

You’ll also have to decide when to take Social Security benefits. Working with a financial advisor can help you to create a plan that’s tailored to your needs and goals.

Maximizing Social Security Benefits

Technically, you’re eligible to begin taking Social Security benefits at age 62. But doing so reduces the benefits you’ll receive. Meanwhile, delaying benefits past normal retirement age could increase your benefit amount.

For couples, it’s important to consider timing in order to maximize benefits. The Social Security Administration changed rules regarding spousal benefits in 2015. You can no longer file for spousal benefits and delay your own benefits, so it’s important to consider how that might affect your decision of when to take Social Security.

To get the highest benefit possible, you and your spouse would want to delay benefits until age 70. At this point, you’d be eligible to receive an amount that’s equal to 132% of your regular benefit. Whether this is feasible or not can depend on how much retirement income you’re able to draw from other sources.

Recommended: Does Net Worth Include Home Equity?

The Takeaway

To enjoy a secure retirement as a couple, you’ll need to create a detailed financial plan with room for various contingencies. First, determine your retirement expenses by projecting costs for housing, transportation, food, health care, and nonessentials like travel. Then consider all sources of retirement income, such as Social Security, retirement accounts, and pensions, and budget well.

If you want a simple way to track your progress, SoFi can help.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is the average retired couple income?

Figures vary. According to the Pension Rights Center, the median income for fully retired people aged 65 and older in 2023 was $24,190. The average income after taxes for older households in 2022 was $63,187 per year for those aged 65–74 and $47,928 per year for those aged 75 and older, according to US News Money.

What is a good retirement income for a married couple?

A good retirement income for a married couple is an amount that allows you to live the lifestyle you desire. Your retirement income should also be enough to last for your lifetime and your spouse’s.

How much does the average retired person live on per month?

According to the Bureau of Labor Statistics, the typical household age 65 and older has annual expenditures of $72,967. That breaks down to monthly spending of about $6,080 per month. Many factors, however, can impact a particular household’s spending and the amount of money they need to feel secure.

Photo credit: iStock/yongyuan

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.

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.

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.

SORL-Q224-1921278-V1

A 30-day no-spend challenge is a set period of time — 30 days, in this case — during which you can only spend money on absolute necessities. Allowed expenses include utility bills, rent, transportation costs, and groceries. Anything that falls outside the necessity bucket is banned for the 30-day duration.

With many people looking to cut back on expenses due to recent price increases, a 30-day no-spend challenge can be a great way to take stock of your spending habits and find ways to use your money more wisely.

How Does the 30-Day No-Spend Challenge Work?

Again, a no-spend challenge is a time period during which you stop spending money on anything other than what you absolutely need to live. To get started, you create a list of items and services you consider essential. When you review the list, ask yourself if all of your so-called essentials really are that important, or are some superfluous or impulsive?

Keep in mind that this challenge is designed to help curb troublesome overspending or more specific bad spending habits. So don’t beat yourself up if you do spend some money on wants versus needs.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Allowed Expenses During the 30-Day No-Spend Challenge

During the no-spend challenge, you will still need to pay your rent or mortgage, gas, utility bills, insurance, and things like your internet and phone bills. You can purchase essential personal care items, too, such as medications, groceries, and cleaning products. A budget planner app can help you decide on your “needs” list.

But the lines can get blurry. For instance, what happens if you wear out your shoes and want/need a new pair? After all, walking in cheap, poorly made shoes could lead to injury or avoiding activity. Feel free to give yourself some wiggle room in deciding what’s essential for you.

Recommended: The 70/20/10 Rule for Budgeting

Forbidden Expenses During the 30-Day No-Spend Challenge

Remember that before you begin the challenge, you’ll be questioning what’s essential and how strict you want to be. It’s smart to decide in advance which of the following will be on your do-not-spend list:

•   Eating out: fast food, restaurants, takeout, alcohol, coffees, etc.

•   Personal care items or services

•   Clothing

•   Gifts and gift cards

•   Home decor and furnishings

•   Hobbies

•   Entertainment: movies, concerts, books, streaming services

You may determine ahead of time that there will be certain exceptions to these categories. For example, you can decide on “no gifts” except for your mom’s birthday. Or no salon appointments except for a needed haircut.

Tips for Completing the 30-Day No-Spend Challenge

Anticipate what will be the most difficult part of the challenge for you, and create strategies for coping. Is your busy social life going to tempt you to break the rules? Or will the siren call of online shopping be your undoing?

Come up with a plan on how you will get past your specific spending challenges. If your social life will be tough to navigate that month, recruit pals to join the challenge and make it a friendly competition. If online shopping is your budget-killer, unsubscribe from retail email lists and delete shopping apps from your phone. The point is to make the challenge as easy on yourself as possible.

Here are a few additional ways to set yourself up for success:

•   Unsubscribe from memberships and apps

•   Set aside time during the week for meal prep, and bring lunch to work

•   Dust off your travel mug, and skip the coffee shop

•   When you get an urge to buy something, add it to a post-challenge wish list

•   Print out a 30-day calendar and make a checkmark at the end of each successful day. Visual reinforcement can motivate you to keep going.

10 Free Things to Do Instead of Spending Money

Taking part in a 30-day no-spend challenge doesn’t have to mean isolating yourself at home in an effort to save money. This is a time to get creative and search out free activities. You may find that some free experiences are more fun than what you normally spend money on.

1. Take a Hike

Whether you’re walking a mile or seven, hiking is a great way to spend the day outdoors. You can invite friends or go solo and get in tune with nature.

2. Get Some Exercise

Many great athletes and trainers offer workouts on social media and YouTube. Or download one of the many free apps that feature yoga, strength training, and high-intensity workouts.

3. Set Up a Sports League

Call your friends and organize a weekly game of flag football, basketball, or frisbee. Encourage folks to BYO beverages and snacks so that there’s no need to visit a restaurant or bar after the game.

4. Dine Al Fresco

Get your picnic blanket and paper plates ready, and propose a pot-luck in the park.

5. Host a Movie Night

Try a free, library-affiliated streaming service like Hoopla or Kanopy, and immerse yourself in a great film. If you’re feeling inspired, select a classic film, and ask friends to come dressed in the style of that time period.

6. Sand and Surf

Sticking to your challenge budget during summer is simple: Head to the nearest free parking beach. Bring towels, chairs, and umbrellas and set up shop for the day. And of course, pack a cooler full of sandwiches and drinks.

7. Have an At-home Spa Night

You don’t need to spend hundreds at the spa. Set the tone with candles and music.
And use personal care items that you already have to pamper yourself.

8. Check Out a Local Park

Odds are, there’s at least one park near your home that you’ve never visited. If you live near a botanical garden, even better. Also, see if any national or state parks nearby have free visitor days.

9. Visit Art Galleries and Museums

Support local artists by visiting small art galleries, or see if any local museums have free visitor days.

10. Whip Up a Gourmet Meal

Instead of dining out, try recreating your favorite meal yourself. Take your time, find recipes, get groceries, and have fun with it. You can pull up an online recipe or follow along with a cooking show.

The Takeaway

Intended to encourage better spending habits, the 30-day no-spend challenge asks you to limit your purchases for one month to essential items and services only. Utilities and groceries are allowed; dining out and other “treats” are not. You’ll likely learn a lot about your money habits, and perhaps let go of some “needs” that you really aren’t.

Before the challenge, review your monthly spending habits with SoFi.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is the no-spend challenge?

A no-spend challenge is a stretch of time during which participants vow not to spend money unnecessarily. Essentials are still allowed, such as bills, transportation, and groceries. Anything that falls outside of your predetermined needs has to wait until the challenge is over.

How do you do a no-spend month challenge?

Don’t spend any money you don’t have to — it can be as simple as that. Before you begin the challenge, ask yourself which items are essential (such as groceries) and how strict you want to be. The goal is not to purchase anything unnecessary.

How do you challenge yourself to not spend money?

Make spending less money a game by trying a 30-day no-spend challenge. Motivate yourself to stick with it by setting up a reward once the challenge is over. And be sure to track how much you save over those 30 days.

Photo credit: iStock/Seiya Tabuchi

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.

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.

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.

SORL-Q224-1921296-V1

There are two basic types of income: earned and unearned. Earned income is the money you make from working, and unearned income is money you receive that isn’t tied to a business or job.

The difference between these two types of income is very important when it comes to saving for retirement and paying your taxes. Here’s what you need to know about each of them, and how they affect your finances.

What Is Unearned Income?

Unearned income is a type of passive income. It’s money you make without working or performing some kind of professional service. For example, money you get from investing, such as dividends, interest, and capital gains is unearned income.

Other types of unearned income include:

•   Retirement account distributions from a 401(k), pension, or annuity

•   Money you received in unemployment benefits

•   Taxable social security benefits

•   Money received from the cancellation of debt (such as student loans that are forgiven)

•   Distributions of any unearned income from a trust

•   Alimony payments

•   Gambling and lottery winnings

Dividends from investments in the stock market and interest are two of the most common forms of unearned income. Dividends are paid when a company shares a portion of its profits with stockholders. They may be paid on a monthly, quarterly, semi-annual, or annual basis.

Interest is usually generated from interest-bearing accounts, including savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs).

How Is Earned Income Different From Unearned Income?

Earned income is the money you make from a job. Any money you earn from an employer — including wages, fees, and tips in which income taxes are withheld — counts as earned income.

If you’re part of the freelance economy and the companies you work for don’t withhold taxes, those wages still count as earned income. These could be wages earned by performing professional or creative services, driving a car for a ride share service, or running errands.

Money you make from self-employment — if you own your own business, for example — also counts as earned income, as does money you earn from a side hustle.

Other types of earned income include benefits from a union strike, disability benefits you receive before you reach full retirement age, and nontaxable combat pay. This guide can help you learn about all the different types of income there are.

You can keep tabs on all the types of income you have by tracking your checking, savings, investment, and retirement accounts in one place with an online money tracker. It allows you to organize your accounts on a single dashboard, as well as monitor your credit score and budget for financial goals.

How Income Types Affect Taxes

All earned income is taxed at your usual income tax rate. Taxes on unearned income are more complicated and depend on what type of unearned income you have, including:

Interest

Interest, which is unearned income from things like bank accounts and CDs, is taxed the same as earned income that you work for.

Dividends

Dividends from investments fall into two categories: qualified and non-qualified. Generally speaking, qualified dividends are those paid to you by a company in the U.S. or a qualified foreign company, and are taxed at a lower rate. Non-qualified dividends don’t meet IRS requirements to qualify for the lower tax rate and are taxed at the same rate as ordinary income.

Capital Gains

Investments that are sold at a profit are subject to capital gains taxes. If you held the investment for less than a year, your profits are subject to short-term capital gains rates, which are equal to your normal income tax rate. If you kept the investment for a year or more, it’s subject to long-term capital gains rates, which means it will be taxed at 0%, 15% or 20%, depending on your taxable income and filing status. The higher your taxable income, the higher your rate.

Social Security

If your income is more than $25,000 a year for individuals or $32,000 a year for married couples filing jointly, you will pay federal income tax on a portion of your Social Security benefits. You’ll be taxed on up to 50% of your benefits if your income is between $25,000 and $34,000 for an individual, or $32,000 to $44,000 for a married couple. And you’ll be taxed on up to 85% of your benefit if your income is more than that.

Alimony

As a result of the Tax Cuts and Jobs Act of 2017, alimony payments that are part of divorce agreements made after January 1, 2019, are not taxable by the person who is paying the alimony, nor are they taxable for the person receiving the alimony.

Gambling Winnings

Money you earn from gambling — including winnings from casinos, lotteries, raffles, and horse races — are all fully taxable. This applies not only to cash, but also to prizes like vacations and cars, which are taxed at their fair market value.

Debt Cancellation

If you have a debt that is canceled or forgiven for less than the amount you were supposed to pay, then the amount of the canceled debt is subject to tax and you must report it on your tax return.

If you have debts to pay off, debt payoff planning can help you pay what you owe.

How Earned vs. Unearned Income Affects Retirement Savings

Retirement accounts, including 401(k)s, IRAs, and the Roth versions of both, provide tax advantages that help boost the amount that you are able to save.

For example, 401(k) contributions are made with pre-tax dollars, which can then be invested in the account. The investments are then allowed to grow tax deferred until withdrawals are made in retirement, and then they are subject to income tax. Contributions to Roth accounts are made with after-tax dollars. These grow tax free, and withdrawals made in retirement are not subject to income tax.

You must fund your retirement accounts with earned income. You cannot use unearned sources of income to make contributions.

There are certain exceptions to this rule. If you’re married and you file a joint return with your spouse and you don’t have taxable compensation, you may be able to contribute to an IRA as long as your spouse did have taxable compensation.

The Takeaway

The difference between earned income and unearned income is an important distinction to comprehend, especially when it comes to paying your taxes. Unearned income, which is income you make not from a job but through other means, such as investments, can be taxed at different rates, depending on what type of unearned income it is. Make sure you understand yours — and the tax implications. Doing so can have a big impact on how you save for your future.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why do I need to know the difference between earned and unearned income?

It’s important to understand the difference between earned and unearned income because the two may be taxed differently. Also, in most cases, you must use earned income to fund your retirement accounts.

What is an example of unearned income?

Unearned income is money you receive without working for it. Interest, such as that from a bank account, and dividend payments are two of the most common types of unearned income.

Photo credit: iStock/FluxFactory

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.

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.

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

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.

SORL-Q224-1921188-V1

“Competitive pay” is a term commonly used among employers looking to attract qualified candidates to their business. Offering competitive pay means providing a compensation level that is equal to or above the market rate for a given position, geography, or industry.

Competitive pay typically includes base salary as well as additional employment benefits such as a signing bonus, health insurance, retirement benefits, or stock options offered to an employee.

Why Is Competitive Pay Important?

In highly competitive job fields, or when there is a shortage of talent, offering competitive pay can be a powerful lever for employers to attract and retain highly qualified employees. At the same time, employees who are in high demand might choose to seek out competitive pay in order to earn more than their counterparts at other companies.

Competitive pay is ultimately a measure of an employee or job candidate’s value to the business, and is something that can be offered by an employer or negotiated by an employee or candidate.

But whatever your take-home pay is, a money tracker can help you monitor your spending and provide valuable financial insights.

What Determines Competitive Pay?

Competitive pay rates can be determined by a variety of factors:

Location

Where you are physically located can greatly impact the competitiveness of the pay you are offered. For example, an employee in a metropolitan area like New York or San Francisco with a higher cost of living may be able to earn more than a counterpart in a more affordable geographical area. Certain states also have higher minimum wage standards, which can increase the average compensation for any job offered within that state.

Level of Education and Experience

Many jobs will offer competitive pay commensurate with a candidate’s education and experience. That means that a candidate with a college degree and 10 years of industry experience may be offered higher compensation than someone with no degree and fewer years of experience. Candidates with specialized degrees or certifications can sometimes use that to negotiate more-competitive pay.

Job Title and Industry

Most job titles and industries will have a baseline market pay rate that employers use to guide their job offerings and employee salaries. If you want to compare a job offer with the market, you can find market pay rates for most jobs on the Bureau of Labor of Statistics website or through websites like Indeed and Glassdoor.

Market Demand

One of the biggest drivers of competitive pay is the overall supply and demand for a job in the market. If a job is highly in demand, either due to a shortage of workers or a sudden increase in the number of available jobs, compensation for that role may become more competitive. Candidates can potentially use that to their advantage when applying to jobs and negotiating salaries with employers.

Recommended: 15 Entry-Level Jobs for Antisocial People

Competitor Salaries

Similarly, when multiple companies in the same or adjacent industries are competing for employees, they may offer more competitive compensation packages to try and win over prospective job candidates.

Minimum vs. Competitive Wages: How They’re Different

While competitive wages are offered at the discretion of employers, minimum wage is the minimum hourly pay rate under federal law. States can also establish and enforce minimum wage requirements for certain jobs or industries.

Like competitive pay, minimum wage typically takes into consideration living costs, geography, and job titles or industries. However, it tends not to change as often or dramatically as competitive wages. In fact, the current federal minimum wage of $7.25 per hour has not changed since 2009. Also, minimum wage only takes into consideration base salary, whereas competitive pay includes other benefits and forms of compensation, such as signing bonuses.

Recommended: Pros and Cons of Raising the Minimum Wage

Examples of Competitive-Paying Jobs

Competitive pay rates are constantly shifting, especially as the market for talent becomes increasingly competitive. However, here are the some of the most competitive-paying jobs in 2023 — the most recent data available from the BLS:

Cardiologists

•   Average annual salary: $423,250

Computer and Information Systems Managers

•   Average annual salary: $180,720

Lawyers

•   Average annual salary: $176,470

Financial Managers

•   Average annual salary: $166,050

Physicists

•   Average annual salary: $158,270

Recommended: The Highest-Paying Jobs by State

How to Negotiate for More Competitive Pay

Whether you’re applying for a new job or reconsidering your current employment situation, negotiating competitive pay is an important part of getting paid what you believe you are worth. There isn’t an exact formula for negotiating higher pay, and it’s important to take a methodical approach that considers both your needs and the perspective of your employer. Here are five strategies that can help you in the course of negotiating competitive pay:

1. Establish your priorities

Going into a pay negotiation, you should think about what you would need financially to consider joining or staying with a company. You’ll want to determine your needs, including any debt you may be paying off — a online budget planner can be a useful resource. Then once you have a number in mind, try to identify a compensation package that meets your financial requirements.

Competitive pay can also mean different things to different employees. For some, it may mean a higher base salary, while others may want other perks like assistance in paying off college tuition or student loan debt, greater workplace benefits, or better health coverage. Identifying exactly what you need is important for deciding when it makes sense to push back or walk away from a negotiation.

2. Build Your Case

Even in competitive markets, an employer may not be willing to meet your salary or benefits requirements. However, going into that conversation with evidence and clear reasoning for why you are asking for more competitive pay can help support your case.

You’ll want to clearly show why you believe your compensation isn’t as competitive as you’d like it to be, due to the fact that you’ve been working harder, delivering greater value to the business, or have incurred higher living costs.

3. Know Your Pay Rate in the Market

Before negotiating, it’s also important to research how the competitive rate for your specific job title or industry has changed. Or, if you’ve suddenly taken on additional responsibilities outside of your core job function, you may want to look at what similar employees in those roles are getting paid and factor that into your pay rate. All of that data will help you to know what you’re worth as an employee and be able to communicate it to your employer.

The Takeaway

“Competitive pay” is a term commonly used among employers to refer to a compensation level that is equal to or above the market rate for a given position, geography, or industry. Other factors that help determine competitive pay include a candidate’s education and experience, and market demand.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Is competitive pay a red flag?

“Competitive pay” has become an industry buzzword used by many employers on their job postings and websites. While seeing “competitive pay” on a job posting isn’t a red flag, it’s still important to conduct your own research to ensure pay rates are competitive with similar industries, geographies, and employers.

Does competitive pay come with good benefits?

Competitive pay does not necessarily come with good benefits like 401(k) matching, health insurance, or paid time off. However, those benefits are becoming increasingly important for job seekers. When analyzing competitive pay, it’s important to look at an employer’s full compensation package (benefits and salary) to ensure it meets your needs.

Photo credit: iStock/insta_photos

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.

SORL-Q224-1921242-V1

Credit references are documents that verify your credit history. They can come in the form of a credit check report, asset documentation, or character references.

A limited or poor credit history can potentially impact your approval when applying for a rental. If you have a spotty payment history, a low credit score, or little to no history, your chances of getting approved may go down. Landlords or property management companies can approve or deny rental applications based on these references.

If this description of a less than stellar reference fits you, don’t fret. There are ways to put your best foot forward with credit references in today’s competitive market.

Definition of a Credit Reference

Credit references paint a picture of your borrowing and payment habits and history. Property managers and landlords use it to help determine whether you’re likely to pay rent on time and in full.

Documents of financial agreements can be used as a credit reference. They come in the form of:

•   Credit reports

•   Character references

•   Asset documentation

•   Credit reference letters

In some cases, letters from personal lenders or documents from a car loan can be used. Be sure to clarify what the landlord needs when applying for an apartment. It’s also helpful to pull together the documents ahead of time, so you can pull together references for multiple apartments at once.


💡 Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.

When You Need Credit References

At the end of the day, landlords want to know if you’re able to pay rent. Getting an apartment rental is a business transaction between two strangers. Credit needed for an apartment plays a key role in rental applications.

Why Landlords Want Credit References

A credit reference is proof of your financial history. They detail how much debt you have, how timely your payments are, and your credit score, among other factors.

For instance, if your credit references show that you’ve been able to pay off your debts in full in a timely manner, a landlord will likely approve your rental forms.

Applicants with low credit scores or poor payment histories have lower chances of being approved.

Recommended: Does Net Worth Include Home Equity?

Types of Credit References

As mentioned, credit references come in different forms, like credit reports, character references, or formal letters from bank loan officers.

Credit Report

The most available type is a credit report. Three major credit bureaus provide credit reports: Equifax®, Experian®, and TransUnion®. You can obtain a free credit report every 12 months to check your score and scan for errors. The credit scoring system known as FICO® can be used by all three.

Credit reports contain information like your credit history, current debt, bankruptcies and foreclosures. It can also include the age of your debt and how many credit inquiries you’ve had. Importantly, it’ll also contain your score; credit scores range from 300 to 850.

Landlords will look at this report to determine the financial risk of each applicant. Generally speaking, a credit score of 670 or higher is considered acceptable, though requirements may vary based on the lender or circumstances.

Another factor that can impact your credit score and report is the number of inquiries into your credit history. If there are a lot of inquiries, it may lower your score since it can be perceived that you may be struggling financially. Some rental applications will include a fee for running the credit check.

Bad or no credit may give a landlord pause — but it may be possible to strengthen your case.

Recommended: What is The Difference Between Transunion and Equifax?

Asset Documentation

Asset documentation is proof of income, liquid cash, or investments. It shows landlords that you are financially stable and able to handle unforeseen circumstances, like a job loss.

Your landlord may request a verification letter from your employer, pay stubs, or an offer letter to prove income. You may also have to provide documentation of your savings or investment funds like mutual funds or retirement plans. Reach out to your financial institution or brokerage to provide you with documents of your accounts.

The more assets you have, the stronger your application will be.

Recommended: What Credit Score is Needed to Buy a Car

Character and Credit Reference Letters

Credit reports and asset documentation only tell part of the story. A character or credit reference letter may give context to a spotty part of your credit history. Someone who you’ve had financial transactions with, such as an employer, previous landlord, or business partner, can write a letter confirming your character and values. For example, if you went through hardship, such as a medical illness, but still met your financial obligations, someone such as a prior landlord can vouch for you.

If you have bad credit, for example, an institution can demonstrate if you have taken courses, been given resources such as a debt payoff planner, or worked out a new payment plan to successfully pay off your debt. It demonstrates a commitment to improving personal finance.

Don’t be afraid to ask for a reference letter — many may be willing to write on your behalf. Remember, however, that these types of letters are not as concrete as credit and asset reports. They work better as supporting documentation.

Financier Support Letters

If you have troubled credit history, a financier support letter from a cosigner on a lease can help. These letters are typically for business owners who need to prove they have the capital to meet rent or buy.

For a lessee, a guarantor would write a letter with context on how they can support your rent if needed. This can be helpful if you have an adverse credit history. For business owners, the letters would be obtained from financial institutions or financial partners backing a business lease or purchase.

Credit Reference Examples

If a landlord requests written credit reference letters, have a list of people in mind who can type up a quick letter. You could also ask them to type up a generic letter that you can use across multiple applications, or you might offer to supply a draft of the letter for them to edit as they see fit. Sometimes a property management company or landlord will have their own template, so be sure to clarify which format is acceptable.

A credit reference letter can be brief. But it must include key details such as:

•   Reference full name and contact information

•   Length of relationship

•   Payment history

Additional details may be requested depending on what your landlord requests. Below is a sample template:

   Dear [Landlord Name]:

   I have known Ben as a tenant for three years. He paid rent ahead of time, was quiet, respectful, and took care of our property. Also, he ended his lease in search of a bigger space. He got his deposit returned in full, so he’s highly recommended as a tenant.

If you do not have a history of renting, you can ask a financial institution to vouch for you. Here’s an example letter:

   [ABC Bank] lent $30,000 to Tina Jones in 2014. She made her payments on time and paid off the loan ahead of schedule in 2017.

If you’re still short a reference, try an employer to vouch for your stability at your current job:

   Tim has been an employee of ACB Company for 3 years and has been promoted once. Her current salary is $92,000. She’s responsible and puts our clients’ interests first. She will make a great tenant.

How to Secure a Credit or Character Reference Letter

Before you send a mass email to all your contacts, confirm with your landlord what details are needed. If there’s a template letter to use, so much the better. Once details are confirmed, reach out to your contacts. Be sure to provide them with all the information they need to include in the letter.

There’s no formal process to request a letter from financial institutions. You can go in person to speak to a banker who can provide you a letter or you can contact your bank and ask how to obtain one.

How to Improve the Chances of Getting a Reference Letter

Asking with plenty of time vs. saying you need a letter tomorrow is obviously a good move. Also consider authorizing your institution to release personal information while you are actively applying for rentals. Not doing so could cause delays as the letter goes through the chain of command.

The Takeaway

Landlords want to see that you earn income and honor your debts. Credit references are formal documents that support your profile as a reliable tenant. They come in the form of records from credit bureaus and character reference letters from employers, among others.

If budgeting is not your strong suit and you want to build your financial profile, a money tracker app can help.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What do I put as a credit reference?

That depends. Ask your landlord what documents he or she requires for a reference. It can mean a credit report, bank statements, character reference — or all three.

Who counts as a credit reference?

A credit reference can be someone with whom you have a tenant-landlord or business relationship. It can be a representative at a bank who can give a formal written letter of loans or accounts you have with them. Or, if you have limited or no credit history, a reference can be a current or former employer who can highlight your reliability.

Why do I need a credit reference?

Most property management agencies or landlords require credit references in order to approve a tenant application. This gives them an idea of your financial history and whether you’ll pay rent on time.

Photo credit: iStock/damircudic

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.

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.

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.

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 .

SORL-Q224-1911245-V1