Suze Orman has blunt words on 401(k)s and Social Security

Table of Contents

The American retirement system raises several key concerns for workers who are preparing for their retirement.

Suze Orman, a renowned personal finance author and media personality, notes that the experience of transitioning to retirement can be challenging.

She also offers some coaching on effective strategies that people can use to navigate the task and achieve success despite the challenges many people face.

Many employees are concerned that their savings will not be enough to support their current standard of living during retirement.

Monthly Social Security checks, on their own, typically aren't sufficient for a comfortable retirement. The federal Social Security program also faces significant financial challenges.

Americans are justifiably worried that Social Security benefits may decrease over the next decade due to concerns about the trust funds running out of money. If no legislation is implemented, the projected payouts could be cut down to 80% of what they are currently expected to be.

Healthcare coverage is another area of worry. Medicare doesn't cover all the expenses, and retirees have to pay for premiums, prescription medication, and copays out-of-pocket, which requires them to budget accordingly.

Most long-term care expenses are not covered by Medicare. People will probably need to purchase private insurance to pay for those potential high costs.

The intricacies of these retirement planning costs are what Orman zeroes in on in her candid evaluation of the challenge.

Suze Orman offers a straightforward opinion on pensions, Social Security, and 401(k)s

Few workers actually have a pension planned out for their future, making it difficult for them to plan financially for retirement.

on LinkedIn.

More on Suze Orman

• Suze Orman shares her insights on Social Security for retired Americans.
• Suze Orman Offers Insights on postponed Social Security Benefits
• A personal finance author offers advice on how to overcome a major money fear right now.

The author also candidly discusses the issues with 401(k) plans and Social Security.

One major problem is the flawed 401(k)/403(b) system, which is full of pitfalls that are easy to stumble over, she said. "Additionally, the Social Security system has an unexpected result of making it difficult to figure out and plan for the benefits of waiting until your early 60s to claim your retirement benefit if you're in good health.

She advises delaying Social Security retirement benefits for as long as possible, adding that a person can start collecting them at 62, and that each month they delay will result in a larger monthly payment.

Full retirement age for most people is 67, but delaying claiming Social Security until they are 70 results in the highest payment.

Orman then explains a few steps that individuals can take to address these challenges in their own financial situations.

Suze Orman advises individuals to begin taking action now and maximizing their savings.

As Orman asserts, yesterday is actually the optimal time for individuals to start saving.

But starting today, make a smart choice and take advantage of your employer's matching 401(k) plan.

Another significant financial resource to consider is a Roth 401(k) when it is available.

Ourman believes both are good ways to save for retirement. She specifically suggests that Roth 401(k)s are a worthwhile option.

The main difference is when you're taxed," Orman says. "With a Roth 401(k), you contribute money that has already been taxed. It then grows tax-free for many years. And when you make withdrawals in retirement, the big gain is that you won't owe taxes on your withdrawal.

Orman also urges people to simply save more. She recommends starting with saving 15% of a person's income as the goal.

She understands that not everyone is financially prepared to start saving significantly. But if an employee can begin by setting aside 5 or 10 percent and boost that amount by 1% each year, this simple strategy can lead to substantial retirement savings over time.