Retirement Savings: What You Need to Know About Social Security and 401(k)s

Retirement planning is a big deal for many Americans. Two key players in this game are Social Security and 401(k) plans. Let's break down what you need to know about these sources of income.

Social Security: A Safety Net

• Purpose: Designed for retirees, the disabled, and families of eligible workers.
• Function: Replaces only a portion of your income, not all expenses.
• Think of it as: A supplement, not your main source of income.

Sobering Fact

The Social Security trust fund might run out of money by 2035. If that happens, benefits could be cut by 23%.

401(k)s: Employer-Sponsored Plans

• How it works: Lets you save and invest a part of your paycheck.
• Bonus: Many employers match your contributions, which is like getting free money.

Types of 401(k)s

1. Traditional 401(k)

   • Contribute pre-tax dollars.
   • Lower your taxable income now.
   • Pay taxes on withdrawals later.

2. Roth 401(k)

   • Use after-tax dollars.
   • Pay taxes upfront.
   • Withdrawals are tax-free.

Investment Tips

• Diversify: Spread your money across different types of mutual funds to manage risk.
• Update Beneficiary Information: Regularly.

Contribution Limits (2026)

• Standard Limit: $24,500
• Aged 50 and above: Up to $32,500