Social Security provides a safety net during retirement, but the average benefit—$1,925 per month as of November 2024—is unlikely to sustain your lifestyle on its own. While Social Security helps cover basic expenses, it’s crucial to plan for additional income sources. If you’re looking to boost your retirement savings, here are three smart strategies to consider before you retire.
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Maximize Workplace Benefits
In today’s workplace, pensions are rare, but 401(k)s and similar plans are common. These accounts allow you to save for retirement with tax advantages. Many employers offer matching contributions, which can significantly enhance your savings.
For example, if you earn $100,000 annually and contribute 6% to your 401(k), you’re saving $6,000. If your employer matches 50%, you get an additional $3,000. Over time, employer matches can grow into six-figure sums, making a significant impact on your retirement finances.
Contribution Limits:
For 2025, 401(k) contribution limits are:
| Age | Contribution Limit |
|---|---|
| Under 50 | $23,500 |
| 50+ | $31,000 (including a $7,500 catch-up contribution) |
Additional Workplace Perks
Beyond 401(k)s, explore options like:
- Stock Options or RSUs: Grow wealth with company shares.
- Employee Stock Purchase Plans (ESPPs): Buy stock at a discount.
Evaluate these benefits to determine their potential value and risks.
Open Individual Retirement Accounts
While workplace plans are essential, Individual Retirement Accounts (IRAs) offer another way to build wealth. Choose 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 result in substantial growth over time. Here’s a projection assuming an average annual return of 8% to 10%:
| 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
For those seeking additional income outside retirement accounts, creating a dividend income portfolio can be a game-changer. Dividends are payments companies make to shareholders, often as a share of profits.
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 secure 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.
What can I do if Social Security isn’t enough?
Explore workplace benefits, IRAs, dividend portfolios, or part-time jobs.
