By Jeffrey Quiggle TheStreet
In general, U.S. workers recognize that Social Security and 401(k) accounts are essential tools for maintaining financial stability and covering daily expenses in retirement.
Personal finance expert Suze Orman highlights the significance of understanding some specific details regarding retirement planning, particularly 401(k) plans, as a means to secure a stable financial future.
Orman warns Americans against mismanaging their investments and savings - and provides a key piece of advice - especially in a volatile stock market.
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Enrolling in a 401(k) plan sponsored by one's employer is an effective way to accumulate retirement savings, particularly if the employer provides matching contributions.
Because contributions are automatically deducted from a worker's paycheck, this system promotes consistent saving without requiring extra effort, making it both practical and straightforward.
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In 2025, the maximum contribution limit for 401(k) plans has risen to $23,500, an increase from $23,000 in 2024. Additionally, individuals aged 60 to 63 are now permitted to make larger catch-up contributions, up to $11,250, compared to the $7,500 limit available to those 50 and older.
Suze Orman warns Americans on 401(k) options and investing for a stock market downturn
Orman says that having a 401(k) is great, particularly when employers offer matching contributions. However, she warns workers against relying solely on a traditional pre-tax 401(k).
Instead, she strongly advocates for choosing a Roth 401(k) option if available, as it offers significant long-term advantages. According to Orman, the biggest error individuals make is prioritizing immediate tax deductions for their retirement contributions, which could lead to substantial tax burdens in the future.
She encourages people to fully embrace the Roth approach for smarter financial planning.
More on retirement:
- Scott Galloway sends strong message on Social Security
- Jean Chatzky cautions U.S. workers on Social Security, retirement money
- Dave Ramsey bluntly warns Americans about retirement
In an exclusive interview with TheStreet, Orman was asked how retirees can protect their savings from market fluctuations or economic downturns.
"You should always, in your retirement accounts - especially when you are retired - you need to have 3 to 5 years of expenses in cash," Orman said. "So you need to total how much income you know you have coming in with Social Security, whatever it may be, income from your stocks and everything. And how short are you of your actual expenses - whatever that deficit is. It might be the entire amount that has to be in cash within your retirement account, in a money market account."
Orman explained more about how she views the logic behind this strategy.
"You do not want to be selling stock when the markets have gone down significantly just to pay your bills," she said. "So to buffer you from a really downward move in the stock market, that's what you need to do."
"Why three to five years?" Orman added. "Because it takes three years to five years from the top of the market to the bottom of the market, back up to the top again."
Related: Scott Galloway sends strong message on Social Security, boomers
Orman offers advice on when to claim Social Security
In addition to those strategies for retirement money, Orman also talked with TheStreet about her recommendation on when to claim Security benefits.
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Workers in the United States can begin collecting Social Security retirement benefits at age 62. However, accessing the full amount of benefits requires waiting until the designated full retirement age, which is 67 for individuals born in 1960 or later.
Postponing benefits beyond the full retirement age up to age 70 results in increased monthly payments, offering greater financial advantages.
Individuals who claim benefits early may miss out on compounding growth, which significantly impacts the overall benefit amount, Orman explained.
For those who can afford to wait, delaying retirement until age 70 can maximize their Social Security benefits.
Although she says that these age thresholds may change in the future, Orman encourages workers approaching retirement today to consider waiting until at least full retirement age or age 70 to optimize their financial stability.
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This story was originally published April 23, 2025 at 7:44 PM.
