Most American workers are familiar with the basics of retirement planning, but according to Suze Orman, personal finance expert and author, it’s not enough to just rely on Social Security. Orman highlights the need for workers to take proactive steps in order to ensure they’re in a financially stable position when it’s time to retire.
In her latest financial advice, Orman encourages Americans to evaluate their financial situation with what she calls a “retirement stress test” to ensure they are truly ready for the future. Here’s what she has to say about common investing strategies, changes to 401(k) contributions, and preparing for unexpected expenses in retirement.
Why Social Security Won’t Be Enough
While Social Security benefits are an essential part of retirement for many Americans, Orman warns that they are not enough to provide a comfortable lifestyle for retirees. She emphasizes that Social Security should only be seen as one piece of the retirement puzzle, and individuals need to build additional savings to make up for the gap.
“Social Security was never meant to be a complete solution,” Orman explains. “It’s just a base amount that can help, but without extra savings, it’s unlikely that you’ll be able to retire with the financial freedom you want.”
Start Saving Early — The Sooner, The Better
One of the most critical pieces of advice Orman offers is to start saving for retirement as early as possible. The earlier you start saving, the more time your money has to grow through compound interest. And this growth can be significant over time.
Orman stresses that contributing to employer-matching 401(k) plans and investing in tax-advantaged Individual Retirement Accounts (IRAs) are some of the best ways to build wealth for retirement. She also encourages workers to avoid withdrawing from these accounts early, as it could lead to penalties and reduced retirement savings in the long run.
Plan for Health Care Costs
Another key area Orman highlights is health care expenses. Medicare, the federal health insurance program for seniors, covers many health-related costs but not everything. For many retirees, the biggest health care expense can be long-term care — which is often not covered by Medicare.
Orman advises workers to plan ahead for these potential costs by purchasing long-term care insurance separately. She also suggests making sure you’re contributing enough to retirement accounts to cover healthcare expenses, especially those that are unpredictable.
Creating a Budget and Avoiding Debt
In addition to saving and investing, Orman also stresses the importance of creating a budget and avoiding unnecessary debt. Living within your means and staying debt-free, or paying down existing debt, can make retirement planning significantly easier.
“Keeping your finances in order before retirement is one of the smartest things you can do,” she says. “That includes paying off credit cards, loans, and anything else that could strain your finances in the future.”
Preparing for Unexpected Setbacks
Retirement doesn’t always go as planned. Many people hope to work until a certain age, but unexpected setbacks such as illness, disability, or job loss can force them into an earlier-than-expected retirement.
Orman suggests conducting a “retirement stress test” by considering how your retirement would look if you had to start claiming Social Security benefits at age 62, the earliest possible age. She urges workers to think about questions such as: “Would I be able to take a part-time job if necessary? Would my mortgage be fully paid off by the time I retire?”
2025 401(k) Changes: What You Need to Know
In her latest advice, Orman discusses a key change to 401(k) rules that will take effect in 2025. Workers aged 60 to 63 will be allowed to make larger “catch-up” contributions to their 401(k) accounts. Currently, individuals between the ages of 50 and 59 can contribute up to $31,000 per year to their 401(k). However, from 2025 onward, workers aged 60 to 63 will be able to contribute up to $34,750.
For those in this age group who may have not saved enough for retirement, this change offers an opportunity to boost their savings in their final working years. Orman recommends maximizing these catch-up contributions to help ensure financial security in retirement.
The Importance of Emergency Savings
Orman also emphasizes the importance of having an emergency fund that covers at least three months of living expenses. Many retirees face unexpected costs, such as medical bills, car repairs, or housing price increases, and having an emergency fund can make it easier to navigate these challenges without derailing retirement plans.
A recent survey found that 4 in 10 retirees did not have an emergency fund that could cover three months of expenses. Orman believes that having this buffer is crucial for long-term financial health.
“If you’re already in retirement, or about to enter it, make sure you have a cushion,” Orman advises. “Unexpected costs can throw you off track, but an emergency fund helps keep you steady.”
Conclusion
The bottom line, according to Suze Orman, is that planning for retirement involves more than just relying on Social Security or a 401(k). It requires careful thought, proactive saving, and budgeting. As more changes to retirement plans — such as the new catch-up 401(k) contribution limits — come into play, it’s essential to stay informed and take advantage of opportunities to increase savings.
By following Orman’s advice and conducting regular stress tests to anticipate possible setbacks, U.S. workers can ensure they are financially ready to face whatever retirement throws their way.
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