Most working Americans understand that Social Security and 401(k) plans are essential for their financial support during retirement. Suze Orman, the renowned personal finance author, underscores the significance of comprehending specific retirement planning details to ensure a secure future. She has issued a significant warning for Americans regarding common Social Security and 401(k) mistakes to avoid.
The average monthly Social Security benefit is approximately $1,900, which translates to around $23,000 annually, just above the 2025 U.S. poverty line of $21,150. Many employees benefit from employer-sponsored 401(k) plans and further enhance their savings using investment tools like tax-advantaged IRAs (Individual Retirement Accounts).
In 2025, the annual contribution limit for workers participating in 401(k) plans will increase to $23,500, up from $23,000 in 2024. Those aged 50 and older can contribute an additional $7,500, resulting in a total annual limit of $31,000. The annual contribution limit for IRAs remains at $7,000, with individuals over 50 able to add $1,000, allowing for an annual limit of $8,000. Recognizing these and other financial challenges tied to retirement savings and investment, Orman offers insight to help navigate these complex financial matters.
Suze Orman advises Americans against starting Social Security benefits too early. American workers can begin collecting Social Security retirement benefits at 62, but to receive the full amount, they must wait until their designated full retirement age, which is 67 for those born in 1960 or later. Postponing benefits beyond full retirement age until 70 increases monthly payments.
Orman is explicit in her advice on this matter, stating that claiming Social Security at 62 or before full retirement age is a significant mistake because it impedes the compounding growth of the benefits. She advises waiting until 70, if possible, as ages and circumstances may change.
Regarding 401(k) plans, Orman insists on the importance of choosing a Roth 401(k) over a traditional pre-tax 401(k), especially if the employer offers matching contributions. Contributions to a Roth 401(k) are made post-tax, allowing retirees to withdraw tax-free later. Orman warns that the biggest mistake is obtaining a tax write-off now for retirement contributions only to pay more later.
Orman also highlights that continuing to work in retirement can supplement income and provide personal validation. She believes many retirees mistakenly view their savings as their sole financial source without considering that retirement often means increased spending on activities like dining out, visiting family, and traveling. According to Orman, this misconception leads to miscalculations in estimating retirement needs.