The U.S. retirement system involves many key issues that worry American workers as they prepare for retirement.
Personal finance author and media personality Suze Orman explains why the transition to retirement can be a difficult experience.
She also provides guidance on how to complete tasks and succeed in situations that many find confusing.
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Many workers worry that the savings they are trying to put aside will not be enough to sustain their current retirement lifestyle.
A monthly Social Security paycheck is not enough to retire comfortably. Federal programs also face tough financial realities.
Americans have reason to worry that Social Security benefits will be reduced sometime in the next decade as its trust funds appear to be running out of money. Without legislative action, wages could be reduced to 80% of current projections.
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Concerns about health care coverage are another factor. Medicare does not cover all costs. Premiums, prescription drug costs and out-of-pocket costs make it important for retirees to be prepared.
And most long-term care costs are not covered by Medicare. People need to buy insurance to cover these potentially huge expenses.
What Orman focuses on in his blunt assessment of the challenge is the complexity of the costs of these retirement plans.
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Suze Orman is outspoken about pensions, Social Security and 401(k)s
The reality is that few workers plan for the future, making financial planning for retirement a daunting task, Orman explained.
“The reality is that few workers enjoy traditional pensions that provide a guaranteed income in retirement,” Orman wrote on LinkedIn.
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The personal finance author also directly discusses the issues of 401(k) plans and Social Security.
“Another problem is that the 401(k)/403(b) system is poorly structured and filled with many tripping potholes,” she wrote. “I would consider the unintended consequences of our Social Security system, and if you’re in good health in your early 60s, the benefits of waiting to collect retirement benefits can be difficult to understand and plan for.”
She recommends delaying Social Security retirement benefits as long as possible, noting that a person can start receiving these benefits at age 62, but their monthly salary will be higher for each month they wait.
Full retirement age is 67 for most people, but waiting until age 70 to claim Social Security gives people the maximum amount they can receive.
Orman then explained some steps people can take to address these challenges in their own financial lives.
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Suze Orman encourages people to start saving more now
Ohman said yesterday was the perfect time to start saving.
But starting today, taking advantage of your employer’s matching 401(k) plan is a strategy you can’t miss.
Another important financial tool is a Roth 401(k) (if you have one).
Orman believes both are great ways to save for retirement. She has one specific piece of advice for Roth 401(k)s.
“The big difference is when you pay your taxes,” Orman explains. “With a Roth 401(k), you contribute money that has already been taxed. It can then grow tax-free for decades, and when you withdraw money in retirement, you get a big win: No taxes on your withdrawals. “
Orman also encourages people to save more. Her goal is to save 15% of her income as a starting point.
But she realizes that not everyone is in the financial position to start here. If a worker can save 5% or 10% and increase it by 1% each year, that could lead to substantial retirement savings for the future.
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