Don’t Rely on Social Security Alone: Prepare for Retirement Wisely

In retirement, depending solely on Social Security for financial support is risky. On average, these benefits will only cover about 40% of your income before you retire.

Additionally, a potential funding crisis for Social Security could lead to benefit cuts in less than ten years unless Congress intervenes. Thus, banking on these payments for the majority of your retirement needs may not be a safe strategy.

Instead, consider investing for your retirement independently to build a more secure savings. If your job offers a 401(k) plan, utilizing it may be beneficial.

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The IRS has recently revealed the 401(k) contribution limits for 2025. If you aim to save more effectively for retirement, this information is crucial.

New Higher Contribution Limits for 401(k)s in 2025

This year, workers under 50 can contribute a maximum of $23,000 to their 401(k) plans. In 2025, this limit will increase to $23,500, allowing you to save a bit more in your employer-sponsored retirement plan.

The catch-up contribution limit, which is currently $7,500, remains unchanged for 2025. If you are 50 or older, you can add more to your 401(k), raising your maximum contribution to $31,000.

Should You Fully Fund Your 401(k) in 2025?

If your employer matches your 401(k) contributions, aim to contribute enough to secure that full match. The value of maximizing these contributions can vary based on your specific plan.

However, some 401(k) plans come with high administrative fees that can diminish your returns. If fees exceed 1% annually, you might consider limiting your contributions to at least secure your full employer match. Any additional funds could be better invested through other accounts.

Keep in mind that 401(k) plans often do not allow you to select individual stocks like IRAs do. You may be limited to a selection of mutual funds and exchange-traded funds chosen by your employer. This limitation might restrict your investment growth and could involve funds with high fees. Choosing passively managed index funds can help minimize costs.

If you are content with your 401(k) and can afford to maximize your contributions in 2025, it’s advisable to do so. The sooner you save, the less stress you may experience later.

Contributions to a traditional 401(k) reduce your taxable income for the year you contribute. This is relevant because the Social Security wage cap will increase from $168,600 to $176,100 in 2025. Higher earners might see a slight rise in their tax obligations next year; maxing out your 401(k) could mitigate that impact.

The Overlooked $22,924 Social Security Bonus for Retirees

If you’re like many Americans, your retirement savings may be lacking. However, there are lesser-known “Social Security secrets” that could enhance your retirement income. One simple strategy could potentially provide an additional $22,924 annually! Learning to fully leverage your Social Security benefits might help you retire with confidence. To explore these strategies, simply click here.

View the “Social Security secrets” »

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