It helps to serve as some sort of cushion in retirement. However, it won’t keep your lifestyle rolling in without an average monthly benefit of $1,925 by November 2024. Basic expenses can be covered, but you want to plan for income sources besides Social Security. You may need a little kickstart to retire and save some serious money. Three smart strategies you can employ before retirement include:
Maximize workplace benefits
Pensions no longer feature today, but the 401(k) and related plans are so common. These retirement accounts allow you to save and invest with pre-tax or even after-tax funds, and various tax advantages often apply. Many employers offer matching contributions, which add significantly to savings.
For instance, if you earn $100,000 a year and contribute 6% to your 401(k), that is saving $6,000 to your retirement pot. Your employer matches 50%, so you end up with an additional $3,000. Employer matching over time can balloon into six-figure sums that can have the most significant impact on your retirement finances.
Contribution Limits:
In 2025, the 401(k) contribution limits are as follows:
| Age | Contribution Limit |
|---|---|
| Under 50 | $23,500 |
| 50+ | $31,000 (including a $7,500 catch-up contribution) |
Other Workplace Benefits
- Consider these benefits beyond 401(k)s
- Stock Options or RSUs: Invest in company shares for long-term growth.
- Employee Stock Purchase Plans (ESPPs): Buy stock at a discount.
- Assess these benefits to determine their value and risks.
Open Individual Retirement Accounts
While workplace plans are important, Individual Retirement Accounts (IRAs) provide another means of wealth accumulation. Select between:
Traditional IRA: Contributions may be tax-deductible, with taxes applied during withdrawal.
Roth IRA: Contributions are made post-tax, but withdrawals in retirement are tax-free.
IRA Contribution Limits (2025):
| Age | Annual Limit |
|---|---|
| Under 50 | $7,000 |
| 50+ | $8,000 |
Consistent contributions can lead to tremendous growth over time. Assuming an average annual return of 8% to 10%, here’s a projection:
| Years of Saving | Growth at 8% | Growth at 9% | Growth at 10% |
|---|---|---|---|
| 10 | $109,518 | $115,922 | $122,718 |
| 20 | $345,960 | $390,352 | $441,017 |
| 30 | $856,421 | $1,040,027 | $1,266,604 |
| 40 | $1,958,467 | $2,578,043 | $3,407,963 |
Build a Dividend Income Portfolio
Dividend income portfolios could be a total lifesaver for someone seeking extra money outside of their retirement accounts. Dividends represent portions that companies pay out to shareholders; many companies pay their shareholders dividends from profits.
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Why Consider Dividends?
- Passive Income: Regular payouts can supplement Social Security.
- Reinvestment Opportunities: Through Dividend Reinvestment Plans (DRIPs), dividends can compound over time.
Important Considerations:
Dividends are not guaranteed. Research a company’s history and financial health before investing to ensure its ability to sustain payouts.
Don’t Rely Solely on Social Security
Social Security is designed to provide a foundation for retirement income—not cover all expenses. If you’re still working, now is the time to bolster your savings. Starting early allows your money to grow through the power of compounding.
Already retired? Consider:
- Picking up a part-time job or consulting work.
- Exploring side gigs to generate extra income.
- Making your savings work harder or reducing expenses to stretch your budget.
With proactive planning and smart financial decisions, you can ensure a more comfortable retirement.
FAQs:
How much does the average retiree receive from Social Security?
The average monthly benefit is $1,925 as of November 2024.
What is the 401(k) contribution limit for 2025?
$23,500 for those under 50, $31,000 for those 50 and older.
What’s the difference between a Traditional and Roth IRA?
Traditional IRA contributions may be tax-deductible; Roth IRA withdrawals are tax-free.
What is dividend income?
Payments companies make to shareholders, often as a share of profits.
