Maximizing Your Retirement: Beyond Social Security
Social Security can provide financial support during retirement, but relying on it alone may fall short of your lifestyle needs. As of November 2024, the average retired worker receives approximately $1,925 a month from Social Security, amounting to just over $23,000 a year.
While this amount can increase, it’s essential to diversify your income sources. Here are several options to consider as you prepare for retirement.
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1. Utilize Your Workplace Benefits
Pensions have decreased in popularity, with many employers switching to 401(k)s and defined contribution plans. In these plans, it’s your responsibility to save for retirement. However, some employers incentivize saving by offering matching contributions. For instance, an employer might match $0.50 for every $1 you contribute, up to 6% of your salary.
If you make $100,000 annually and contribute 6% ($6,000), your employer contributes an additional $3,000. As your salary increases, these matches can accumulate significantly. Combined with Social Security, they can help you meet basic living expenses in retirement.
To maximize your contributions, keep an eye on the annual 401(k) limits, which will rise to $23,500 for those under 50 in 2025. Individuals 50 or older can add a catch-up contribution, raising their total to $31,000.
In addition to retirement plans, companies may offer other beneficial options such as stock options or an employee stock purchase plan (ESPP). If available, an ESPP allows you to buy company stock at a discount through payroll deductions. Always carefully evaluate these options to determine their suitability for your financial goals.
2. Consider Individual Retirement Accounts
Opening an individual retirement account (IRA) is another way to enhance your retirement savings. Both traditional IRAs and Roth IRAs provide different tax advantages based on your financial situation. They offer a broader range of investment choices compared to most employer plans.
Although IRAs have lower annual contribution limits—$7,000 for those under 50 and $8,000 for those 50 and older in 2025—the growth potential of regular investments makes a significant difference over time. For instance, consistently saving $7,000 annually at an 8% to 10% average return can lead to substantial growth:
|
$7,000 Invested Annually For: |
Growing at 8% |
Growing at 9% |
Growing at 10% |
|---|---|---|---|
|
10 years |
$109,518 |
$115,922 |
$122,718 |
|
20 years |
$345,960 |
$390,352 |
$441,017 |
|
30 years |
$856,421 |
$1,040,027 |
$1,266,604 |
|
40 years |
$1,958,467 |
$2,578,043 |
$3,407,963 |
Data source: Author calculations.
3. Build a Dividend Income Portfolio
If retirement accounts don’t appeal to you, constructing a dividend income portfolio might be a viable alternative. Companies distribute dividends to their shareholders from profits. If you don’t need immediate cash, consider reinvesting dividends through a dividend reinvestment plan (DRIP) to generate additional income over time.
This extra cash can help with expenses during retirement. However, be mindful that dividends are not guaranteed. Research each company’s financial health and dividend payment history to assess their reliability.
Expand Your Retirement Strategy
While Social Security is a helpful financial resource, it is not meant to cover all retirement expenses. If you haven’t retired yet, now is an excellent opportunity to boost your savings. Acting sooner allows more time for your investments to grow.
If you are already retired, consider part-time work, side gigs, or consulting as options to generate extra income. If those aren’t feasible, focus on maximizing your current investments or cutting unnecessary expenses to stretch your budget further.
The Overlooked $22,924 Social Security Boost
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