Dave Ramsey, a well-known personal finance expert, has sent a significant message about Social Security, 401(k)s, and IRAs. He warns that nearly 50% of Americans are making a big mistake regarding their retirement savings. According to a recent study by Ramsey’s company, 42% of Americans are not currently saving for the future.
This is reflected in the Federal Reserve’s 2022 Survey of Consumer Finances, which shows that only 54.4% of families had retirement accounts. Ramsey stated, “Instead of packing their bags for their dream vacations in their 60s and 70s, millions of Americans will pack their lunch for another day at the office.
Many people plan to rely solely on Social Security benefits in retirement. However, these benefits typically replace just 40% of pre-retirement income.
Ramsey’s Social Security warning
The estimated monthly Social Security retirement benefit for January 2025 was $1,976, which translates to an annual income of $23,712 – much less than a comfortable retirement usually requires. Ramsey recommends three steps to fix this mistake and secure a better financial future:
1. Create a saving benchmark. Set aside a portion of every paycheck for retirement savings, ideally 15% of gross income.
2. Max out tax-advantaged accounts. Utilize 401(k)s and IRAs to reduce tax liability and boost retirement savings.
3. Go beyond the bare minimum. To further improve your retirement prospects, consider adding sources of passive income, investing in taxable accounts, and negotiating a higher salary. Ramsey emphasizes that Social Security alone cannot provide a comfortable retirement.
The system faces funding difficulties, with the ratio of workers to beneficiaries decreasing from 2.7 to 2.4 by 2035. Additionally, the number of baby boomer retirees will skyrocket during this decade, putting further strain on the system. “In its current state, the Social Security system is a mess – and you shouldn’t count on an inept government to fix it,” Ramsey concluded.
He advises Americans to take proactive steps in securing their financial future through effective retirement savings and investments.
Image Credits: Photo by Rostyslav Savchyn on Unsplash
