Most American workers have a good understanding of many of the steps people are encouraged to take when planning for retirement.
Suze Orman, the well-known personal finance author and media personality, explains some common investing and savings strategies — and also explains what she calls a retirement stress test people can use to evaluate their progress.
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Because Social Security monthly paychecks by themselves should not be seen as enough to provide for a comfortable retirement, workers would be wise to have other money moves in progress as they plan for their futures.
Starting to save money as early as possible is a generally agreed upon best practice. The sooner one begins, the more time finances have to grow in value.
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Substantial contributions to employer-matching 401(k)s and investments in tax-advantaged IRAs are also effective ways to complement Social Security benefits in retirement.
It is vital to plan for health care costs. Medicare covers many important expenses, but long-term care insurance — which for many is the biggest health care cost in retirement — is often not covered. So it's important to purchase that coverage separately.
Orman advises that other behaviors such as avoiding debt and creating a budget are key strategies as well.
She offers a warning for current workers and then explains a stress-test exercise people can use to anticipate potential financial vulnerabilities.
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Suze Orman explains a retirement stress test to evaluate finances
Orman notes that one common experience many people getting close to retirement age share is that they have likely been dealing with unexpected situations for many years.
This fact means they would have already developed some methods of dealing with adversity. But the finance author cautions people that it can be a different experience when running into financial difficulties after they have already retired.
"Dealing with curveballs in retirement can be tricky," Orman wrote. "That makes it so smart to do your very best to arrive at retirement in the best possible financial shape."
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To give potential retirees a way to take stock of how prepared they are, Orman suggests people put themselves through a stress test.
She picks out a couple financial scenarios and asks how workers might rate themselves if either of them were to occur.
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Suze Orman warns on Social Security and describes a 401(k) change for 2025
Many people express the desire to retire at age 62, the earliest age they can claim Social Security benefits. Others plan to work longer, perhaps until their full retirement age, which for most people is 67 years old.
But often those who intend to work later into their sixties, and perhaps all the way to age 70 (the last year to begin claiming Social Security benefits), find themselves forced to retire earlier than they expected. This can be due to illness, a disability, or losing a job.
The stress test in this case, Orman explains, is for people to ask themselves what their retirement might look like if they suddenly needed to claim Social Security benefits at 62. Would they be able to take a part-time job? Would their mortgage be fully paid?
Orman explained that saving more now can help. She cited catch-up 401(k) contributions as a good way to accomplish that goal. And there are changes for 2025.
"If you are between the ages of 60-63, please know that there’s a new rule in 2025 that allows for super-sized 401(k) catch-up contributions," Orman wrote. "While anyone between the ages of 50-59 can contribute a total of $31,000 this year, if you are 60-63 the contribution limit is $34,750."
Another stress test Orman mentions is to consider how financially secure a person might be in retirement if they were hit with a series of unexpected expenses, such as a car that becomes unusable, a homeowner's insurance increase or a rent increase that is larger than planned for.
Health care costs can also be unpredictable, particularly with regard to any unanticipated intensive care, prescription drug needs, copays and deductibles.
"If that were to happen, would you have the cash in an emergency fund to cover things?" Orman asked.
Orman mentioned a recent survey of retirees in which 4 in 10 said they did not have an emergency fund planned for 3 months of living expenses, which she believes is an adequate period of time for which to aim.
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