If you're a new investor, you have several decisions to make. For example, you must determine where to invest. Ideally, you want an investment vehicle that allows your money to grow steadily over time. But is that a Roth IRA or a 401(k)? Here, we'll compare the two and help you determine which one best meets your needs.

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The best features of a Roth IRA

Each retirement plan has its own list of advantages. Here's what a Roth IRA has going for it.

• Tax-free withdrawals: With a Roth IRA, you make all contributions with after-tax dollars (in other words, on money you've already paid taxes on). Because a Roth is funded with after-tax dollars, you don't have to pay taxes on the money again when you make withdrawals in retirement. Not having to pay taxes when you're on a fixed budget is a real perk.
• Flexibility: While you would have to pay a penalty for withdrawing contributions (not earnings) from most retirement accounts before a certain age, the same is not true with a Roth IRA. You can withdraw contributions at any time without penalty.
• Investment options: When comparing the two, Roth IRAs typically offer a wider range of investment options than most employer-sponsored plans, such as 401(k)s.
• No required minimum distributions (RMDs): Unlike other types of retirement plans, Roth IRAs don't require you to take distributions. You can make withdrawals as needed. If you prefer, you can allow your savings to remain in the account and grow tax-free for even longer.

The best features of a 401(k)

• You can save more: 401(k) plans generally allow for higher annual contributions than Roth IRAs, allowing you to build your nest egg at a faster clip.
• Employer matching: Many employers offer to match a portion of your contribution each month, a move that can dramatically boost your savings.
• Lower taxes: Most 401(k) contributions are made with pre-tax dollars, meaning your contributions are deducted from your annual adjusted gross income (AGI). The ability to avoid taxes during your prime earning years is an advantage if you expect to earn more while you're working than in retirement.
• Automatic deductions: The fact that contributions are deducted directly from your paycheck makes it easier to save consistently.

The less attractive side of Roth IRAs

Few financial products can be called perfect. Here are some disadvantages associated with Roth IRAs.

• Contribution limits: You can contribute much less to a Roth IRA annually than to a 401(k). Let's say you're in your 40s and have an AGI under $150,000 (if you're single) or an AGI under $236,000 (if you're married, filing jointly). The most you can contribute to a Roth IRA this year is $7,000. If you are over 50, you can make an additional catch-up contribution of $1,000, for a total contribution of $8,000.
  
  By contrast, the 401(k) contribution limit for 2025 is $23,500. If you're aged 50 to 59 or 64 or older, you can pitch in an additional $7,500 in catch-up contributions. And beginning this year, if you're between 60 and 73, your catch-up contribution can be as much as $11,250. In short, a 401(k) allows you to contribute anywhere from $23,500 to $34,750, depending on your age.
• Income limits: If you're a high earner, you may be ineligible to contribute to a Roth IRA.
• Must wait for tax benefits: Since you're paying taxes on the funds before they're contributed, you don't receive an immediate tax benefit with a Roth IRA.

The less attractive side of 401(k)s

Again, it's tough to be perfect. Here's the downside of 401(k)s.

• Limited investment options: 401(k)s typically offer a limited selection of investment options compared to IRAs or brokerage accounts. Limited investment options mean less ability to diversify your portfolio.
• Sneaky fees and expenses: 401(k)s come with investment management fees and administrative costs that can eat into your returns over time. Worse, if you feel rushed to sign up for an employer-sponsored 401(k), you may not take the time needed to familiarize yourself with how much you're paying in fees and expenses.
• Withdrawal restrictions: It can be a challenge to access funds from a 401(k) in the event of an emergency. That's because withdrawals made before age 59 1/2 typically incur a 10% penalty in addition to income taxes at your ordinary tax rate.
• RMDs: Beginning at age 73 (or 75 if you were born in 1960 or later), you must begin taking RMDs from your 401(k), even if you don't need the funds to cover bills. It's at that time that you'll owe taxes on the amount withdrawn. While it's nice to get a tax break while contributing to a 401(k), the taxman eventually wants his piece of the pie.

The good news is this: Choosing between a Roth IRA and a 401(k) is not an all-or-nothing scenario. There's no rule saying you can't invest in both, and that may be precisely what you decide to do. In the meantime, how nice is it to know you have options?

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

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"Enjoy the magic of compounding returns. Even modest investments made in one's early 20s are likely to grow to staggering amounts over the course of an investment lifetime." -- John C. Bogle

That's right, you can become a millionaire over time without pulling a six-figure salary, and maybe even if you earn an average income. Here's a look at how it can happen.

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Modest incomes

Sure, it would be wonderful to be earning, say, $100,000 or $200,000 per year -- especially if you're married to someone with similar or greater earnings. But that's not the norm. The Bureau of Labor Statistics has reported that the median weekly earnings of full-time workers in America were $1,194, or $62,088 for the year, as of the first quarter of 2025.

If there are two people in a household earning that, we're looking at household income of $124,176. But in many cases, a household may have one full-time worker and a stay-at-home parent or a part-time worker.

As we proceed, let's imagine people or households earning between $60,000 and $100,000. And know that people with modest incomes -- such as teachers and secretaries and janitors -- can become millionaires, and that more than a few average folks have done so.

How money grows

Before delving into the nuts and bolts of compounding, it's useful to understand what's possible. So check out the table below, which shows how money can grow over time. It assumes 8% average annual growth because while the S&P 500 has averaged annual gains of close to 10% over many decades (not including inflation), how it will perform over your particular investing time frame is unknown.

Data source: Calculations by author.

You can see that with enough time, it's possible to amass a million dollars or more, only socking away $600 per month -- which is less than many people's car payments.

Note that if all you can save and invest right now is just $300 or $500, it's still very much worth parking those dollars in the stock market because your earliest invested dollars are your most powerful ones. Also, there's a good chance that your income will go up over time, due to your getting raises, better jobs, or potentially a more lucrative career.

Compounding at work

So here's how compounding works. Note that "compound interest" and "compounded growth" are somewhat different things. Compound interest refers to interest-bearing accounts, where you might earn, say, 5% on your $1,000 account one year, adding $50 and bringing your account value to $1,050, and then 5% the next year, adding $52.50 for a new total of $1,102.50. So the amount your account grows by keeps increasing as your total value increases.

That also happens to be compounded growth, which stock investments can give you. For example, if your portfolio is worth $200,000 and it grows by 10%, it will add $20,000 of value and be worth $220,000. If it grows by 5% the following year, it will add $11,000 and be worth $231,000. If it grows by 15% the next year, it will gain $34,650 and become worth $265,650. That's compounding at work.

How can you take advantage of compounding?

For compounding to work its magic, there are three important factors:

• How much money you invest, ideally regularly
• How much time your money has to grow
• How quickly your money grows

To get the most out of compounding, then, aim to:

• Invest as much as you can reasonably invest, ideally regularly. Increase the amount of your investments as you're able.
• Give your money as much time to grow as you can. If you're starting late and hoping to retire at, say, 65, consider delaying a few years to give your portfolio a little more time to grow.
• Invest effectively. Know that it's hard to beat the stock market for long-term growth, so consider investing in one or more low-fee index funds, such as the Vanguard S&P 500 ETF.

It's possible for many of us to retire as millionaires, given enough time. We can let compound interest help us get there with our short-term savings and the compounded growth of long-term stock investing can help with the rest.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Social Security is a complex program. It doles out benefits to over 69 million Americans each month, so it's tough to accommodate that many people with a one-size-fits-all solution.

It is for perhaps this reason that retirees can claim benefits at different ages. Retirees can start claiming Social Security as early as age 62. They can also delay benefits until age 70. There are trade-offs to both options and certainly no one right answer, but here's the No. 1 reason to claim benefits early at age 62.

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Understanding the trade-offs

If retirees can start claiming benefits as early as 62, why wouldn't they? Well, the main reason is that the benefits received at this age will be a lot less than what retirees could be entitled to if they wait.

Retirees pay Social Security taxes for years and often decades before they can claim benefits. The Social Security Administration (SSA) determines a person's benefits largely based on how many years they worked and how much they paid in Social Security taxes, which is based on annual wages. So, the more a worker makes, the more they pay in Social Security taxes, and the more in benefits they are likely to qualify to receive. However, workers can only pay Social Security taxes on wages up to $176,100 in 2025.

Image source: Getty Images.

The maximum amount of benefits one can qualify for, determined from these criteria, is called the primary insurance amount (PIA). The PIA is the maximum amount of benefits a retiree is entitled to at their full retirement age (FRA), which is 67 for those born in 1960 or after. This is important because it essentially sets a baseline for a retiree's benefits. If retirees start taking benefits prior to turning 67, they will see their benefits reduced, while waiting until 70 will increase benefits.

Claiming benefits at 62 can reduce a retiree's benefits by as much as 30% -- the earlier one takes them prior to their FRA, the more they are reduced. Meanwhile, retirees who wait until age 70 could increase their benefits by 24%. The purpose of this is to provide flexibility for retirees who want or need to take benefits at different times in their 60s.

Assuming one lives to the average life expectancy in the U.S., the actuarial adjustments are intended to give a retiree an equivalent amount of benefits through their life, regardless of the age they claim.

The main reason to claim at 62

If retirees can get higher benefits by waiting, why take them early? Well, the most obvious answer in my mind is that they need the money. By the time retirees reach their 60s, they could be at very different stages of their lives. Some might have saved enough to the point where they don't really need Social Security, while others may still be constrained financially.

One factor is health. If a retiree's health is struggling, they may need the additional funds to help pay for care and treatment. Or if there are questions about their life expectancy due to significant health issues, then it makes sense to claim benefits sooner than later, in order to make use of their hard-earned funds.

Another consideration is lifestyle. Some retirees are happier with less and decide to wait, while others may want to travel or purchase vacation homes and need more now.

I'll reiterate that there is no right or wrong decision. If at 62 a retiree is healthy and financially stable, then it likely makes sense to wait to claim benefits. But if retirees need the money, they shouldn't hesitate to claim benefits as soon as possible at 62.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

The premise seems compelling enough. Forego a tax break that may or may not do you much good right now in exchange for tax-free withdrawals in the future -- when your tax rates might be higher. Although nobody knows for sure what the future holds, that's the higher-odds/lower-risk bet most people are making.

Except, Roth retirement accounts' tax-free distributions in retirement aren't necessarily always the right fit. It's possible you'd still be better served by making tax-deductible contributions to an IRA now and paying whatever taxes come due then.

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Here's a closer look at when and why the non-Roth option might make more sense for you.

Roth IRA versus regular

If you're not familiar with the ins and outs of either, here's the deal.

Traditional IRAs -- sometimes called contributory IRAs -- allow you to make yearly tax-deductible contributions to them. Investments made with this money are also allowed to grow tax-free, whether that be through dividends, capital appreciation, or any other form of gain. This money is only taxed (as ordinary income) if and when it's withdrawn from the retirement account.

Roth IRAs work the other way around. While contributions to a Roth retirement account don't reduce your taxable income for the year in which they're deposited, this money is also allowed to grow tax-free, and comes out of these accounts without creating any tax liability. Indeed, since the IRS has nothing to gain from these withdrawals, the agency doesn't even force you to take distributions from Roth IRAs. That's not so with ordinary contributory individual retirement accounts, which of course are subject to required minimum distributions once you turn 73 years old.

Just keep in mind that -- unlike traditional IRAs -- there are income-based limits to Roth IRA contributions.

On balance it doesn't seem to matter much either way. All other things being equal (and assuming you're investing your tax-savings effectively whenever you realize them), paying taxes now or paying taxes then should ultimately leave you with the same amount of spendable cash in retirement. And to be fair, for plenty of people that is the case.

There are some scenarios, however, in which a Roth IRA makes less financial sense than a regular individual retirement account funded with tax-deductible contributions. And one scenario stands out among them all.

When not to use a Roth IRA

Cutting straight to the chase, most investors are best served by paying their IRA-related income taxes when their effective income tax rates are likely to be at their lowest. For example, if you're confident you're earning more in work-based wages now than you'll be collecting in retirement income later in life, your potential tax liability is at its highest right now. Contributing to an ordinary IRA will lower your current taxable income, or more to the point, will postpone the taxability of some of this income -- as well as the investments made with it -- until you retire and you're in a lower tax bracket.

Conversely, if you've got reason to believe that your retirement income will be greater than your current work-based income (perhaps you have a seven-figure IRA, for example), you'll want to minimize your tax liability then even if it means not making tax-deductible contributions now. In this scenario a Roth IRA likely offers you an advantage.

For most people, of course, the former is the more likely scenario.

Image source: Getty Images.

That's not the only noteworthy scenario in which a Roth IRA might not be ideal, however. If you're going to need to access the money in this account before you turn 59 1/2 and if your account is going to be opened and initially funded for less than five full years, a Roth may not make the most sense. See, although there are some exceptions (like medical bills or the purchase of your first home), if you aren't going to be able to meet both criteria, withdrawals could be subject to penalization or taxation or both.

Withdrawing money from an ordinary IRA before turning 59 1/2 also incurs a penalty, by the way, on top of the taxation that was always going to be paid anyway. At least there's no five-year minimum waiting period, though.

Given this age-based limitation, it's possible you'd be better off not making contributions to any kind of IRA and instead leaving this money invested in an ordinary brokerage account. It may be taxable every year, but at least it's also flexible.

Of course, you've also always got the option of funding a traditional IRA with tax-deductible contributions and then converting some or all of this individual retirement account into a Roth at a point in time of your choosing in the future.

This is a taxable event, and as such could prove expensive if completed in one shot. But this choice allows you to have your cake and eat it too, with no penalty or additional taxation should you decide later in life that you'd rather have a Roth IRA. You can even pay the taxes on these conversions with money found outside of your retirement accounts. Just bear in mind that you'll still need to be at least 59 1/2 to make penalty-free withdrawals from a converted Roth, and that the five-year taxation waiting period on the withdrawal of any gains (be sure to keep good records!) will possibly still apply beginning the year the conversion was completed.

Nevertheless, this flexibility alone is reason enough to not bother with a Roth until you've got more clarity regarding your financial future. Visit here to learn more about Roth conversions.

Crunch your best-guess numbers, and re-crunch them later

Figuring out which individual retirement account works best for you is admittedly easier said than done. Everyone knows their current financial situation. What may not be nearly as clear, however, is where you'll stand in the future. This exercise will require a bit of well-reasoned and honest conjecture, including about future tax rates. If you're in your 30s or 40s, this could prove particularly difficult to do.

Still, to the extent it's possible, making the best possible projections of your retirement income is time well spent. If you're disciplined enough to invest whatever tax savings you achieve when you achieve them you could ultimately lower your tax bill. The savings could be worth thousands of dollars per year, in fact, for most typical households that manage these not-so-little details.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Proper retirement planning is more than just budgeting, tax planning, and investing. It should also include estate planning.

Estate planning is the process of laying out how your assets will be managed and distributed after your death. Although it could seem a little morbid to do, being proactive about it can save your loved ones a lot of time, stress, and money.

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There are a few ways to leave behind your assets, including via a living trust. Although a living trust may not be the best option for everyone, it offers several benefits that make it worth considering. Let's discuss three.

Image source: Getty Images.

1. You can avoid the probate process

Probate is a process where a court confirms the validity of a will and oversees the distribution of your assets.

Having a court oversee the process can help prevent disputes or fraud. On the other hand, the probate process isn't all smooth sailing. It can be lengthy and expensive.

Depending on your state's laws, the probate process could take months or even years, and the beneficiaries likely won't have access to the assets during this time. This could be a major inconvenience if they need the funds for urgent expenses (like funeral costs or mortgage payments).

The cost associated with probate will vary by state and the complexity of your estate, but you can generally expect it to be a percentage of your estate's value.

2. You have more privacy

When a will goes through the probate process, it becomes part of the public record. This means that anyone can access information such as beneficiary names, assets left behind, and the value of those assets.

For some families, having this information in the public record may not matter because their estates are relatively modest and they have no privacy concerns. However, for public figures or high-net-worth individuals, this could present some issues.

For example, imagine if a wealthy person leaves a young beneficiary with a large lump sum of cash. This could attract unwanted attention from people with bad intentions or cause tension with someone else who may have felt entitled to some of the inheritance.

A living trust provides the privacy that could help prevent some of these issues.

3. It helps manage assets better if you become incapacitated

Incapacitation is when someone becomes physically or mentally unable to make important life decisions.

Unfortunately, in most cases, this means a court would need to appoint someone to handle your affairs, which isn't the easiest process. Luckily, living trusts allow you to include instructions on how your trust should be managed and handled if you're unable to do so due to an illness or other causes.

Whoever you choose as your successor trustee will have the power to manage your assets and other financial affairs without needing to get a court to appoint someone.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

There's a reason Social Security is such a big part of so many people's retirement planning. Those benefits could end up being a critical source of income for you later in life.

In a recent survey by the Employee Benefit Research Institute, 87% of workers today expect to rely on Social Security for income in retirement. And among current retirees, 94% identify it as a key income source.

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Image source: Getty Images.

But while it's perfectly OK to count on Social Security as a source of retirement income, you don't want to depend on those benefits too heavily. Doing so could upend your plans -- and cause you a world of financial stress.

Are you setting yourself up to be too reliant on Social Security?

If you work and pay into Social Security your entire career, there's a good chance you'll qualify for benefits once you retire. And while that's money you can count on to some degree (keeping in mind that Social Security cuts are still on the table), you don't want to rely on it too heavily.

So, how do you know if you're going overboard? It's simple. If you expect Social Security to constitute the bulk of your retirement income, you're potentially making a mistake. If you think Social Security will provide all your retirement income, you're making an unquestionably huge mistake.

In a best-case scenario -- meaning, if Social Security cuts don't come to be -- you can expect your monthly benefits to take the place of 40% of your wages. This assumes you earn an average paycheck and aren't a particularly high earner.

Most seniors inevitably need about 70% to 80% of their former income to live comfortably once they stop working. And while there's certainly some wiggle room with this formula on either side, for the most part, living on 40% of what you used to earn won't make for a very enjoyable existence.

Granted, if you're someone who earns $100,000 a year and routinely lives on $40,000 a year, you're the exception. (And hey, congratulations for mastering the art of living below your means.)

But it's a common thing to spend the bulk of your paycheck while you're working. If that's something you tend to do, then you can't let yourself retire on Social Security alone. And you shouldn't necessarily let those benefits constitute the majority of your retirement income, either.

Save for retirement so you have more flexibility later on

Once you retire, you don't want to be pinching pennies. Rather, you want the flexibility to enjoy life and cover your bills without worrying about every single expense.

If that's your goal, build savings to supplement your benefits so you can make sure you're not relying too heavily on Social Security. If you end up socking away enough money so that half of your retirement income is derived from Social Security and the remaining half comes from your individual retirement account (IRA) or 401(k) plan, you're probably in a good spot.

Just as importantly, get an estimate of your Social Security benefits well ahead of retirement so you can see what monthly payments you may be looking at, assuming broad cuts don't happen. You can get that information by creating an account on SSA.gov. The more you know what to expect from Social Security, the more efficiently you can map out your income needs and position yourself to meet them later on.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

What's the ideal age for claiming Social Security retirement benefits? It depends on who you ask. The earlier you start, the smaller your checks. But, you'll collect these payments for more time. That's the trade-off.

But what exactly are your options, and how much of a difference can claiming later rather than earlier make? The answer might surprise you.

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The cost of claiming early vs. the benefit of waiting

To be a government-run program, Social Security offers taxpayers a respectably wide range of payment options. Eligible individuals can claim as early as the age of 62, but can also wait until they turn 70. Or, they can file at any point in time in between. Each of these choices, however, results in a different monthly payment.

And the disparity between these payments can be stark.

The table below puts things in perspective, comparing the difference in payment size for each age of this nine-year range relative to this year's average Social Security retirement benefit of $1,976 per month. Notice that while there's a progressive reduction in benefits the earlier you claim, there's also an ever-growing benefit for delaying the initiation of benefits beyond your full retirement age (or FRA). This additional benefit, however, stops growing once you turn 70.

Data source: Social Security Administration. Note that this year's official FRA is 66 years and 10 months for people born before or in 1959. For those born in or after 1960, it is 67. Payment amounts as well as percentage comparisons to intended payments at FRA have been rounded, and could be different for beneficiaries wishing to name a spouse as a co-beneficiary.

You're reading that right. For the average beneficiary right now, the difference between claiming when you're 62 versus claiming at the age of 70 is over $1,000 per month. That's no small amount for most households. And the bigger your payment, the bigger the potential difference.

Other things to consider

The comparisons are clear -- there's an obvious and meaningful mathematical upside in waiting as long as possible to file for Social Security's retirement benefits.

Except these numbers alone don't necessarily tell the entire story for every individual and their unique situation. It's possible there's a very good reason to claim Social Security benefits as early as you possibly can, like health-related matters. You may also have enough money saved up to tap later in your life (like an IRA) to allow you to begin collecting some income before you otherwise might.

There's another often overlooked upside to claiming at 62 years of age, however, even if you don't need this money yet because you're still gainfully employed. That is, you might be able to do something more financially productive with these cash payments than the Social Security Administration is doing for you on your behalf.

Although the figure's not etched in stone, the average internal rate of return on money withdrawn from your paycheck and forked over to Social Security has been in the ballpark of 4%, after inflation. Sometimes it's more. Other times it's less. Any given year's effective return on this "investment," however, mirrors the average yields on longer-term U.S. Treasury Bonds at the time. Right now that's between 4% and 5%. If you can take these payments and do something more constructive with the money, it makes sense to do so.

Image source: Getty Images.

But won't collecting Social Security while you're also working possibly reduce your Social Security payment?

If you're below your full retirement age, yes, it can. Specifically, any work-based wages beyond $23,500 you earn this year will start to shrink any Social Security payments you're already collecting. If you're going to earn enough at your job in 2025, in fact, it's possible you could erase all of your current Social Security benefits payments.

You're not actually losing money if this ends up being the case, however. These reductions are ultimately credited toward future Social Security payments, which are no longer reduced by work-based income once you're past your full retirement age. (There's also a very specific income threshold that applies only in the year in which you reach your full retirement age, although that's best left to another discussion.) In many regards this option allows you to have your cake and eat it, too.

For most people though, just know that plans to invest their early Social Security payments rarely pan out as initially intended. Successfully implementing such a plan requires a great deal of discipline.

Just think about it very carefully

Bottom line? There's no one-size-fits-all answer as to when you should claim your Social Security retirement benefits. You'll want to think carefully about your particular situation, including making some predictions as to what it will look like in the future.

Broadly speaking though, it rarely hurts to wait just a little while longer to claim, if only to make sure that plan is going to work for you, or to beef up your numbers just a little bit more.

And you will most definitely want to make sure it works for you before making the decision. The Social Security Administration will allow people who have claimed at or after reaching full retirement age to suspend these payments if they've only been collecting for 12 or fewer months. Anyone initiating these benefits before reaching their full retirement age, however, is permanently locked into their reduced payments.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

• Alvaro Munevar Jr. leveraged middle management jobs to help him retire early from his tech career.
• Now, Big Tech companies are culling middle managers, a reduction that Munevar Jr. said makes sense.
• He said he witnessed how middle managers allowed fiefdoms to thrive and slowed down productivity.

I spent nearly all of my 30-year tech career in middle management. I managed teams that built and delivered web and mobile business applications.

I intentionally stayed in the middle management bracket, where I was paid well and typically worked 40 to 45 hours most weeks. This meant I had enough time to build a real-estate side business. Doing that helped me achieve my goal of early retirement.

In 2024, I left my corporate job and live off my real-estate passive income.

My retirement at 59 came as the wider tech industry began eliminating many middle management positions.

Big Tech companies like Microsoft, Amazon, Meta, and Google have been trying to flatten their company structure by removing managers. Google's CEO, Sundar Pichai, has said this is to increase efficiency, while Amazon's Andy Jassy, who has said he wants the company to run like the "world's largest startup," has suggested that removing management layers can cut bureaucracy.

Although I really enjoyed working and learning as a middle manager, I did occasionally question the value I was bringing at that level.

I worked in startups and bigger companies alike

Beginning in the late 1990s, I worked in both engineering and middle management roles for a few small startup companies.

These startups maintained a flat management structure where the CEO worked directly with individual contributors to quickly make key decisions and deliver software products. There were few middle managers, and little bureaucracy. This leaner model meant we had fewer scheduled meetings and fewer roadblocks to building out products.

In the startups I worked for, everyone was focused on rapidly solving problems to reach the objective. Your job and future stock awards were based on the team's ability to focus and deliver quickly. Teams could make and execute plans more rapidly without the bureaucracy of a middle management layer — the reviews and approvals that middle managers tend to oversee in larger companies often only slow things down.

When I worked in tech roles at larger companies, my role often involved monitoring progress and confirming that software development teams were meeting the project timelines. I was responsible for explaining the delays to senior management and recommending improvements to avoid future hold-ups.

I spent significant time relaying status updates to the leaders above me and directives to the individual contributors below me. From working at startups, I knew that this back and forth could be reduced in a leaner management environment.

While working at larger companies, I also noticed that fiefdoms began to thrive due to the large number of middle managers.

Fiefdoms, a well-known phenomenon in tech, are essentially siloed groups of workers who are closely controlled by middle managers. These managers oversee what information about the group they share with the rest of the company.

I noticed that fiefdoms often benefited managers. By overseeing a larger head count, they had a greater perceived value. However, it unfortunately ended up isolating teams and departments from one another, leading to duplicated efforts across the company due to limited communication between groups.

On several occasions, my team and I would spend months building out a new software solution only to learn upon presenting our work that another manager's silo of engineers had already built out a similar one.

This is a management fiefdom scenario at its worst, and it negatively impacted morale. My team members were furious that their efforts had been wasted because of the lack of communication.

I'm not sad to see middle managers go

I built my tech career in middle management, so it may seem odd that I recommend removing the very role I once performed.

But after working in tech for over 30 years, I've witnessed significant wasted effort, duplicated results, and territorial management practices in the traditional, heavier middle management model.

There may be disruption and some confusion until the new model has fully worked itself out, but I expect that flattening companies will ultimately create leaner, better working environments.

Do you have a story to share about middle management in tech? Contact the editor, Charissa Cheong, at [email protected]

As always, The Motley Fool cannot and does not provide personalized investing or financial advice. This information is for informational and educational purposes only and is not a substitute for professional financial advice. Always seek the guidance of a qualified financial advisor for any questions regarding your personal financial situation. If you'd like to submit your question for feedback, you can do so here."

One of the biggest income sources retirees have at their disposal today is Social Security. With an average retired worker benefit of $2,000 a month, it's clear that living on Social Security isn't ideal. But when combined with other income sources, those benefits can be a source of financial stability and lead to a comfortable retirement.

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The problem is that Social Security is facing its share of financial challenges. And as a result, many people are worried about Social Security going away completely.

Image source: Getty Images.

A recent survey by the Employee Benefit Research Institute found that 87% of workers expect Social Security to provide them with retirement income. And so not surprisingly, when asked to identify their top retirement concerns, "changes that would reduce your Social Security retirement benefit" was the top worry among workers, with 60% expressing that fear.

In light of the program's financial woes, a 30-year-old Reddit poster recently posed an interesting Social Security question: Should I be saving for retirement like my Social Security won't exist? The poster is worried there won't be benefits for the program to pay by the time they retire.

Should I be saving for retirement like my social security won’t exist by then?
byu/hi_goodbye21 inpersonalfinance

It's a valid question to be asking. And it's not a bad idea to save for retirement as if Social Security won't exist. But that's not the reality this poster, or any worker today, is likely to face.

What's really happening with Social Security?

It's true that Social Security is facing a major financial crisis. In the coming years, baby boomers are expected to exit the workforce in droves. And they've earned the right to retire after putting in their time.

The problem is that Social Security gets the bulk of its revenue from payroll taxes. A shrinking labor force thanks to the mass exodus of baby boomers is expected to result in a revenue shortfall.

Social Security will be able to tap its trust funds as long as money remains to keep up with benefit payments. Once those trust funds run out of money, benefit cuts will be on the table.

That doesn't mean Social Security cuts are guaranteed. But it's not safe, financially speaking, to assume that benefits won't be reduced.

The most recent estimate from the Social Security Trustees has the program's combined trust funds running out of money in 2035. That time frame could change, of course. But unless lawmakers intervene, workers today may be looking at reduced benefits in the future.

To be clear, though, there's a big difference between Social Security cutting benefits and going away altogether. The Reddit poster seems convinced there won't be any Social Security for them when, in reality, today's workers could still end up getting the bulk of the benefits they're owed once they retire. But the poster's line of thinking also isn't terrible.

It's not a bad thing to save as if Social Security will be gone

Pushing yourself to save for retirement isn't an easy thing. It means you'll have to give something up – a nicer home, vacations, free time – to consistently fund an IRA or 401(k).

Some people have trouble motivating themselves to save independently for retirement. But if you don't save for retirement, you might end up in a dire financial situation even if Social Security isn't cut.

If you earn an average paycheck, you can expect Social Security to take the place of 40% of your pre-retirement wages. But most retirees need roughly 70% to 80% of their former income to live comfortably.

You may be able to get by on less with a frugal lifestyle. But all told, you should expect to need savings of your own to maintain your standard of living. So if telling yourself that Social Security won't be around is what lights a fire under you to prioritize your savings, that's not a terrible thing.

How much should you be saving? Experts say to set aside 15% to 20% of your income. If that's not doable, don't give up. Save less, but save consistently and invest strategically.

Socking away $300 a month in an IRA or 401(k) over 40 years could amount to almost $933,000 if your investments generate an annual 8% return, which is a notch below the stock market's average. A nest egg that large could supplement your Social Security checks nicely in retirement – no matter what they amount to.

Keep in mind that it's important to diversify your retirement investments so your portfolio can grow without being exposed to too much risk. If you have a 401(k), consider investing in S&P 500 index funds. With an IRA, a combination of S&P 500 funds and individual stocks across different market sectors could be a good bet.

All told, Social Security isn't in danger of disappearing so much as cutting benefits. And even those cuts aren't a given. But it's important to save on your own for retirement so you're able to cover your costs without worry. If telling yourself Social Security won't be around for you serves as motivation to save, so be it.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Is a required minimum distribution (RMD) on your near-term radar? If you'll be 73 years old or older at any point this year and you've got a non-Roth IRA of any size, then the answer to the question is "yes" -- whether you need it (or even want it), you'll soon be taking a distribution from this account. The IRS requires it, in fact. That's why it's called a required minimum distribution.

That doesn't mean you can't do something productive with this withdrawal, though. Indeed, anyone who doesn't need this money to cover ordinary living expenses may want to simply reinvest it. Before putting any of this money back to work, however, there are a handful of important details to consider.

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But first things first.

What's a required minimum distribution?

Just as the name suggests, a required minimum distribution is a mandated -- and taxable -- withdrawal from an individual retirement account, or IRA. These accounts are typically funded with tax-deductible contributions, and allowed to grow without being taxed as long as the investments made with this money remain in the account. The IRS eventually wants to collect, of course, so once you turn 73, the agency comes knocking.

But what's the minimum? Well, it depends. It's always a percentage of the prior year's ending value of the IRA in question, for the record, but that percentage grows the older you get. For instance, the RMD for a 73-year-old is just a tad over 3.77% of the previous year-end value, while for 85-year-olds, the RMD is 6.25% of the account's value as of the last business day of the prior year. At 100 years of age, it's about 15.62% of the prior year's final balance.

The IRS provides forms to help you determine your exact RMD, although your brokerage firm or IRA's custodian will supply you with the relevant year-end value needed to make the calculation.

There are some other noteworthy rules to know. One of them is that the rules don't apply to Roth IRAs. After all, these accounts are funded with after-tax (nondeductible) dollars, and as such, withdrawals from them are tax-free. Since the IRS isn't due anything from these distributions, the agency doesn't care when, if, or how much -- or how little -- you remove from a Roth account.

Image source: Getty Images.

Also, if you happen to have more than one eligible individual retirement account, you don't necessarily need to take an RMD for every single one. You can mix and match, so to speak; the IRS is only concerned that you remove the total proper dollar amount in any given tax year. Exceptions to this rule are 401(k) accounts and similar 403(b) accounts. You must take the correctly calculated RMD for each and every 401(k) you own.

You can combine required minimum distributions for 403(b) accounts, as long as you withdraw the proper amount in any given year. But you can only remove this amount from some combination of your 403(b) accounts.

Finally, there's timing. Required minimum distributions are to be completed by the end of the calendar year. The one exception is your first one for the year you turn 73. That one doesn't need to be done until April 1 of the calendar year after your 73rd birthday.

Just be careful if that's your plan. Waiting to take your first RMD until the year after you turn 73 will mean making two taxable withdrawals in one tax year, which could bump you into a higher tax bracket.

What you need to know about reinvesting RMDs

Those are the basic logistics of required minimum distributions. But what about strategically making the most of RMDs if you're simply going to reinvest these withdrawals? Here are four key things to know.

1. You may not need to sell and then buy anything

Most required distributions are made in the form of cash, and often funded by the proceeds from the sale of an investment (or multiple investments). This isn't your only option though. You could also take what's called an in-kind distribution of assets like stocks, bonds, or funds. You'll simply need to give your custodian or brokerage firm these instructions; the total value of the RMD will be determined as of its pricing the day the transfer is completed.

There's no additional tax benefit in using this approach, to be clear -- the tax due is determined by the dollar value of whatever's being withdrawn the day of the withdrawal. It's just one of convenience, allowing you to stick with your current allocation without risking a disadvantageous sell and repurchase.

2. It's an opportunity to optimize the taxability of your accounts

That being said, if you're already doing a bit of management with your IRA and brokerage accounts, you may as well optimize for this shift of assets from a tax-deferring account to a taxable one.

What this means will differ from one investor to the next. If you want or need investment income in retirement, your RMD would be best used to purchase dividend stocks or interest-bearing bonds. If you don't need the money anytime soon and would like to continue minimizing your annual tax bill, growth stocks give you more control of when you create a tax liability with a capital gain.

3. The required minimum isn't the allowed maximum

For most investors, one of the chief goals is minimizing any given year's tax bill. Taking the bare minimum required withdrawal from a non-Roth IRA will of course help accomplish this goal. You don't necessarily have to take the minimum possible amount, however. There may be cases when it makes sense to make more than the required minimum withdrawal from your IRA, even if doing so increases that year's tax liability.

For instance, you might need to free up enough cash to meet a new and immediate investment-income need. Another possibility could be a married spouse intentionally pushing their combined taxable income right up to the very brink of a higher tax bracket, knowing that the other spouse will soon begin their sizable RMDs. This will mean smaller required distributions from the first spouse's retirement account(s) in the future, perhaps preventing that dreaded push into a higher tax bracket.

Just bear in mind such cases are relatively rare, and won't likely apply to your situation.

4. You don't have to make the decision right now

Finally, if you're a retiree looking to reinvest your required minimum distribution, remember that you don't necessarily have to do something productive with this money right away. You can think about it for a while if, for example, stocks have soared to frothy levels that leave them vulnerable to a sizable sell-off. You're likely to make a more level-headed decision when you're not feeling rushed.

Just don't get too complacent if this is your plan, particularly if you're taking your RMD in the form of cash. Most brokerage accounts' basic money market funds aren't paying much more than low-yield checking accounts or banks' savings accounts. If you're willing to place a simple trade, however, you can park this money in a money market fund that's yielding on the order of 4% to 5%. That's not huge, but it certainly tops inflation.

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• Running out of money in retirement is a big concern for many Americans.
• Economic uncertainty is making it even harder to afford retirement.
• These are the top states where your retirement nest egg will go the furthest.

As people live longer and spend more time in retirement, it's more important now than ever to plan for life after your job.

To make matters even more complicated, the ongoing trade war has created a tricky economic backdrop for older Americans to retire in, causing people to delay their retirements, wait to collect Social Security, or "unretire" and go back to work.

That's why being smart about where you live in your golden years can have far-reaching consequences, as housing costs — whether it be a mortgage, property taxes, or rent expenses — are typically the largest part of your monthly expenses.

Financial technology company Remitly compiled data on Americans' retirement savings across the country. How much you need in retirement varies, but the rule of thumb is that by the time you retire, you should aim to have around 10 times your salary saved. Remitly found that Americans between the ages of 55 and 64 have typically saved an average of $537,650 and a median of $185,000 — meaning there's high variability in the amounts that people have saved.

When calculating how much money you need for a comfortable retirement, take into consideration annual expenditures such as housing, utilities, transportation, and healthcare — and also factor in an additional 20% buffer for unexpected costs.

Depending on the state you retire in, the cost of living could fluctuate wildly. Remitly looked at the average retirement savings and expected annual expenditures for a comfortable retirement for each state to calculate how long a retirement nest egg lasts in different parts of the country.

While the annual expenditure to retire comfortably in many states hovered in the $60,000 to $80,000 range, a few states took the cake for sky-high costs of living. In Hawaii, Remitly found the average annual expenditure to be $129,296. California was the second-most expensive state, with annual retirement expenditures coming out to $100,687. In those states, retirement savings will only last 2.8 and 4.5 years, respectively.

On the other hand, Kansas takes first place for sustainable living costs in retirement — retirement savings last 7.5 years on average there.

Listed below are the top ten states where retirees can get the most bang for their buck. The average amount of savings at the time of retirement, the annual retirement expenditures, and number of years the retirement savings will last are also included.

Kansas

Average retirement savings: $452,703
Annual expenditures: $60,620
Years of comfortable retirement: 7.5 years

Iowa

Average retirement savings: $465,127
Annual expenditures: $62,565
Years of comfortable retirement: 7.4 years

Minnesota

Average retirement savings: $470,549
Annual expenditures: $65,828
Years of comfortable retirement: 7.1 years

Virginia

Average retirement savings: $492,965
Annual expenditures: $70,342
Years of comfortable retirement: 7 years

Pennsylvania

Average retirement savings: $462,075
Annual expenditures: $66,384
Years of comfortable retirement: 7 years

Illinois

Average retirement savings: $449,983
Annual expenditures: $64,787
Years of comfortable retirement: 6.9 years

Connecticut

Average retirement savings: $545,754
Annual expenditures: $78,605
Years of comfortable retirement: 6.9 years

South Dakota

Average retirement savings: $449,628
Annual expenditures: $64,856
Years of comfortable retirement: 6.9 years

Michigan

Average retirement savings: $439,568
Annual expenditures: $63,745
Years of comfortable retirement: 6.9 years

Kentucky

Average retirement savings: $441,757
Annual expenditures: $64,301
Years of comfortable retirement: 6.9 years

Required minimum distributions (RMDs) are the minimum amounts you must withdraw annually from certain retirement accounts, like traditional IRAs and 401(k)s. They may not be fun, but they are necessary.

For many retirees, RMDs begin at age 73. However, if you were born in 1960 or later, you have until age 75 to start RMD withdrawals. RMD guidelines are stringent and have changed over the years, making it no surprise that many of us make an RMD-related mistake from time to time.

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Here are some of the most common -- so you can hopefully avoid them.

Image source: Getty Images.

1. Missing the all-important deadline

Your first RMD deadline is April 1 of the year after you turn 73. So, if you're turning 73 this year, your first deadline is April 1, 2026. Subsequent RMDs must be taken care of by Dec. 31, each year.

2. Withdrawing the wrong amount

Withdrawing the wrong amount can end up being an expensive mistake. For example, if your annual RMD is $50,000 and you accidentally withdraw $40,000 instead, your withdrawal is $10,000 short. The IRS will impose a 25% excise tax on the amount not withdrawn (in this case, that would be $2,500). However, if you correct the mistake by withdrawing the required amount within two years, the IRS penalty drops to 10% ($1,000).

Note that there may be exceptions. Let's say your reason for failing to take an RMD was because you were seriously ill, a spouse died, or your house burned down, or your accountant (who normally takes care of the issue) fled the country. That may be considered a "reasonable error." If that's the case, file an IRS Form 5329 and request a waiver.

3. Overlooking tax implications

While an RMD sets the minimum amount of money you must withdraw, you can take more if needed. However, don't forget that RMDs count as taxable income. Before you decide for sure how much you're going to withdraw, make sure you know if it will knock you into a higher tax bracket. Use that information to deterine if you want to scale back on how much you're withdrawing, or move ahead.

4. Failing to consolidate accounts

If you have multiple retirement accounts, RMDs need to be calculated for each account separately. To calculate RMDs for each account, you'll need to:

• Determine the balance for each account as of Dec. 31 of the previous year.
• Divide that balance by the appropriate IRS life expectancy divisor (as published online).
• For IRAs, you can calculate each RMD separately but withdraw the total RMD from one or a combination of the IRAs.
• For 401(k)s and other defined contribution plans, you must take RMDs separately from each account.

5. Having insufficient funds

While you may have more than enough money in your accounts to cover your RMD, that doesn't mean each of those accounts can easily be liquidated or traded for in-kind. For example, non-publicly traded assets can take months to liquidate and could cause you to miss your RMD deadline.

If your account holds assets that can't be quickly turned to cash, make sure you have enough cash or other suitable assets to cover the RMD -- just in case.

While it would be a stretch to compare an RMD to driving a car, the two do have one thing in common: The better you understand the rules, the more likely you are to do things right. No matter how complicated RMDs may seem at first, the more practice you get, the easier it will become.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Nearly 70 million people in the United States collect Social Security benefits, and more than a trillion dollars is paid to these beneficiaries every year. In this video, I'll discuss the most recent data about the average Social Security benefit, and how you could potentially make yours even higher.

*Stock prices used were the morning prices of May 15, 2025. The video was published on May 16, 2025.

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The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy. Matthew Frankel is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through their link they will earn some extra money that supports their channel. Their opinions remain their own and are unaffected by The Motley Fool.

There are a lot of rumors flying around about Social Security's finances -- and not all of them are true.

The idea that the program is going broke, for example, is a big misconception. Social Security can't go broke, due to the fact that it's funded by payroll taxes. So as long as there's an active labor network, Social Security gets to receive revenue.

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Image source: Getty Images.

However, Social Security is facing a major revenue shortfall as baby boomers exit the workforce in droves in the coming years. The program is expected to have to rely on its trust funds to keep up with scheduled benefits until that money runs out.

Once Social Security's trust funds are emptied, benefit cuts may be unavoidable. That's something everyone needs to prepare for.

How bad might benefit cuts get?

It may be a bit premature to predict exactly how much benefits will shrink if Social Security were to implement cuts. There's still about a 10-year period until the program's trust funds are set to be depleted, and revenue projections could change during that time.

As of now, though, Social Security recipients may be looking at about a 21% reduction to their monthly benefits. That percentage could change for better or worse. But it's a number people should keep in mind in the course of retirement planning.

Don't let Social Security cuts wreck your retirement

A 21% reduction to your Social Security benefits, or something in that vicinity, could have a negative effect on your retirement finances. But if you make a commitment to save for retirement, you might manage to accumulate $1 million by the time your career comes to an end.

Start by funding your 401(k) or IRA from a young age -- if not at the time of your first paycheck, then at least during your 20s. Next, make a point to invest your retirement savings in the stock market, whether by adding different stocks to an IRA or choosing something like an S&P 500 index fund for your 401(k). Finally, do this consistently over many years, sit back, and wait for your money to grow.

Let's say you start contributing toward retirement at age 22 and you retire at 67, which is full retirement age for Social Security if you were born in 1960 or later. If you put $220 a month into a retirement account and your investments give you an 8% yearly return, which is a bit below the stock market's average, you'll end up with just over $1 million.

If you don't manage to start saving at such a young age, you'll have to contribute more money each month to reach that same number. The point, however, is that it can be done without parting with half of your salary or being a ridiculously high earner.

Social Security's future is still unknown, and benefit cuts are not guaranteed to happen. But it's important to have a means of supplementing your benefits nicely in case they do. Saving and investing consistently could be your ticket to retiring without financial worries.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

In April, nearly 52.6 million retired workers brought home an average Social Security check totaling $1,999.97. While a $2,000 monthly check might not sound like a lot of money, no social program has consistently played a more vital role in pulling seniors above the federal poverty line and helping them make ends meet than Social Security.

There's just one problem: This nearly 90-year-old program's financial foundation is crumbling.

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Current and future retirees are counting on their elected officials -- including President Donald Trump -- to strengthen Social Security and avoid the prospect of sweeping benefit cuts, which are drawing closer. However, not every proposal to improve Social Security will yield a desired result.

President Donald Trump speaking with reporters in the Oval Office. Image source: Official White House Photo.

Social Security benefit cuts are estimated to be eight years away

In January 1940, the very first retired-worker benefit check was paid from Social Security's coffers. Every year since this first payment was doled out, the Social Security Board of Trustees has published an annual report that details in length how the program generates income and where those dollars end up.

More importantly, these annual Trustees Reports analyze fiscal and monetary policy shifts, along with ongoing demographic changes, to make educated projections about the financial health of Social Security when looking 75 years into the future (what the Trustees refer to as the "long term").

Beginning in 1985, every Trustees Report has warned of a long-term unfunded obligation. In simpler terms, the Trustees projected what Social Security would collect in income in the 75 years following the release of a report and estimated that outlays (benefits + administrative expenses to operate the Social Security program) would outpace income.

In the 2024 Trustees Report, this long-term funding deficit had ballooned to $23.2 trillion. While online myths often blame government theft or undocumented migrants for Social Security's woes, it's significant demographic shifts -- rising income inequality, lower birth rates, and a meaningful decline in net legal migration in the U.S. -- that are the real culprits.

Though $23.2 trillion is an eye-popping figure, it's not the one that should have beneficiaries most concerned. Rather, the most worrisome of all projections is that the Old-Age and Survivors Insurance Trust Fund (OASI) will exhaust its asset reserves by 2033.

The OASI's asset reserves represent the excess income collected since inception that hasn't been paid out in benefits (or administrative expenses). Social Security's asset reserves are invested in special-issue, interest-bearing government bonds, as required by law.

The good news for the OASI is that it doesn't need a cent in asset reserves to keep paying benefits. More than 91% of Social Security's income is collected from the 12.4% payroll tax on earned income. Thus, there's no concern about Social Security going bankrupt or stopping benefit payments.

However, the existing payout schedule, including annual cost-of-living adjustments (COLAs), is at risk of major disruption in 2033. Without reform, the Trustees anticipate that retired workers and survivor beneficiaries will see their Social Security checks slashed by up to 21% in eight years.

The OASI's asset reserves are forecast to run out by 2033. U.S. Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.

President Trump has proposed a foundational change to Social Security

During the first 100 days of Donald Trump's nonconsecutive second term, he's overseen a flurry of Social Security changes. The most publicized one has been his creation of the Department of Government Efficiency (DOGE), which aims to make the U.S. federal government more efficient. In the wake of DOGE's creation, the Social Security Administration announced plans to reduce its staff by 7,000 to 50,000, as well as close some of its physical offices.

Attempting to make Social Security a more efficient program by trimming administrative costs is nothing new for Trump. All four of the president's annual budget proposals during his first term (Jan. 20, 2017 – Jan. 20, 2021) called for modest outlay reductions over a 10-year period.

But President Trump's sweeping Social Security proposal has nothing to do with cutting benefits. Rather, it has to do with eliminating a hated aspect of the program that results in reduced benefits.

.@POTUS: "In the coming weeks and months, we will pass the largest tax cuts in American History--and that will include No Tax on Tips, NO Tax on Social Security, and No Tax on Overtime. It's called the one big beautiful bill..." pic.twitter.com/SRwaWoY9gZ

-- Rapid Response 47 (@RapidResponse47) April 29, 2025

In a social media post to Truth Social on July 31, then-candidate Donald Trump stated, "Seniors should not pay tax on Social Security." In a recent town hall meeting, the president doubled down on his desire to end the tax on Social Security benefits.

Beginning in 1984, up to 50% of Social Security benefits could be exposed to the federal tax rate if provisional income (adjusted gross income + tax-free interest + one-half of benefits) surpassed $25,000 for a single filer and $32,000 for couples filing jointly. A decade later, a second tier was added that allows up to 85% of benefits to be taxed at the federal rate if provisional income tops $34,000 for single filers and $44,000 for couples filing jointly.

The reason the tax on Social Security benefits is so disliked is because these income thresholds haven't been adjusted for inflation since their introduction decades ago. A tax that was only expected to impact around 10% of all senior households in the mid-1980s is now applicable to around half of all senior households. Not surprisingly, an informal poll in 2023 by nonpartisan senior advocacy group The Senior Citizens League found that 94% of respondents didn't believe Social Security income should be taxed.

Eliminating this tax would increase net benefits for about half of all retired-worker beneficiaries -- but it would also have undesirable consequences for Social Security.

Image source: Getty Images.

Trump's proposal to improve Social Security would significantly worsen its outlook

A proposal to remove the tax on Social Security benefits would have overwhelming support from retirees currently receiving benefits and likely garner plenty of support from future beneficiaries. But moving forward with such a proposal would have deleterious effects on Social Security's financial health.

In 2023, Social Security collected a little over $1.35 trillion in income. Though an aforementioned 91% came from the 12.4% payroll tax on earned income (applicable up to $176,100 in 2025), the remainder traces back to the interest income earned on the program's asset reserves, as well as the taxation of benefits.

With the OASI's asset reserves shrinking with each passing year due to demographic shifts, interest income will be a less-meaningful income source over time. Meanwhile, the importance of taxing benefits as a source of Social Security income has only grown over time.

The income generated from taxing Social Security benefits has increased significantly over four decades. U.S. Old-Age, Survivors, and Disability Insurance Trust Fund Income from Taxation of Benefits Receipts data by YCharts.

If the tax on benefits is eliminated, the 2024 Trustees Report estimates that $943.9 billion in income would be lost from 2024 through 2033. This would almost certainly speed up the timeline to the OASI's asset reserve depletion date, as well as potentially increase the percentage that benefits would need to be cut (beyond the estimated 21%) to sustain payouts through 2098 without any further reductions.

Perhaps the saving grace for Social Security's financial health is that President Trump can't amend the program through an executive order. Amending the Social Security Act requires 60 votes in the upper house of Congress. The thing is, neither Democrats nor Republicans have held a supermajority of seats (60) in the Senate since 1979, so any major overhauls to Social Security will require bipartisan support.

Although ending the tax on benefits is wildly popular with seniors, it's fiscally irresponsible and would further cripple an already struggling program. It's highly unlikely the president will find any support from Democrats in the Senate, and it's not even clear if all 53 GOP senators would support such a proposal.

Despite all the hoopla surrounding Trump's popular proposal, it has almost no chance of being enacted.

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The Social Security Administration, or SSA, recently announced that Social Security cards are going digital this summer -- well, sort of. In this video, Certified Financial Planner® Matt Frankel discusses what we know, and what we don't.

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The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Matthew Frankel is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through their link they will earn some extra money that supports their channel. Their opinions remain their own and are unaffected by The Motley Fool.

If you're on Social Security, you may have heard that 3.2 million Americans are due a benefit increase thanks to the passage of the Social Security Fairness Act. This law removed a key provision that had restricted benefits for those who receive a pension from employers that don't pay into Social Security. It also eliminated a rule that restricted benefits to spouses of these workers.

The law was retroactive to January 2024, meaning many of the affected beneficiaries are entitled to back pay as well as a benefit increase. The Social Security Administration is still in the process of making the necessary adjustments. Most affected seniors won't experience any issues during the transition. However, a small group of affected beneficiaries could run into a frustrating issue that might leave them with less than they expected.

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The Social Security Fairness Act ended the Government Pension Offset (GPO)

The Social Security Fairness Act eliminated the Government Pension Offset (GPO). This rule restricted benefits available to spouses of workers who received a non-covered pension. This includes some, but not all, teachers, police officers, and firefighters.

The GPO reduced affected beneficiaries' spousal benefits by two-thirds of the monthly non-covered pension amount. In some cases, it was enough to completely wipe out the spousal benefit, meaning these seniors couldn't claim any Social Security. Now that the GPO is no more, these seniors could be entitled to benefits or to a substantial benefit increase compared to what they were receiving before.

Those who had been receiving some Social Security spousal benefits shouldn't run into any issues. The Social Security Administration (SSA) automated most payment updates in April and expects to have the roughly 800,000 yet-unprocessed adjustments completed by early November at the latest. But things are a little more complicated for those eligible for spousal benefits who weren't previously able to claim anything under the GPO.

Some spouses are limited to six months of retroactive pay

The Social Security Fairness Act says that if you claimed Social Security between January 2024 and when your benefit adjustment took effect, you should be entitled to a one-time retroactive payment. This could be worth thousands or even tens of thousands of dollars for some seniors.

However, there is a small group of spouses who had previously contacted the SSA about applying for spousal benefits only to be told they would have their benefits reduced to zero under the GPO. These seniors claim that government employees advised them not to bother filling out a Social Security benefit application, so they didn't.

Now that the Social Security Fairness Act has passed, these spouses are trying to claim benefits and are being told they only qualify for a maximum of six months of retroactive benefits. This limitation has long been in place for new applicants who want to receive Social Security benefits for months when they were eligible but hadn't applied.

Some U.S. senators, including Bill Cassidy (R-LA), Susan Collins (R-ME), John Coryn (R-TX), and John Fetterman (D-PA), have requested that the SSA change this policy for spouses who were previously discouraged from applying for benefits due to the GPO. They argue that these spouses should be entitled to collect spousal benefits as far back as January 2024, assuming they initially tried to apply for spousal benefits before this date.

So far, there hasn't been any official comment from the SSA on this matter. But if you tried to apply for spousal benefits in the past and were advised not to by an SSA employee, it's worth reaching out to the SSA to inquire about receiving more than six months of retroactive benefits. You can also try reaching out to your Congressional representatives to see if they can offer you any assistance. If possible, present any proof you have, such as when and where the SSA employee told you not to apply for benefits. This may help to strengthen your case.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

A program as important as Social Security is apt to work its way into the news somewhat often. And sometimes, that news just isn't positive.

Social Security has been in the news a lot lately in the context of procedure changes and potential office closures. But current events aside, the program's financial situation is often talked about, simply because it's pretty dire.

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In the coming years, Social Security expects its financial obligations to exceed the revenue it's able to bring in. This will put pressure on the program's limited trust funds and force Social Security to dip in to them to cover benefit payments.

Once Social Security's trust funds run out, the program may have no choice but to start cutting benefits. And that's not ideal.

Still, there's a lot of talk about Social Security going broke. And it's important to recognize that benefit cuts are not at all the same thing as the program running out of money completely.

But you might actually want to tell yourself that Social Security is going broke -- not because that's true, but because it might motivate you to get more serious about building retirement savings.

Why Social Security isn't a great fallback option

If Social Security cuts benefits, monthly payments could be reduced by about 20%. But even if benefit cuts don't happen, there's only so much money Social Security will pay you every month.

Many seniors make the mistake of trying to live mostly on Social Security. And that's not a trap you want to fall into.

Even without cuts, those benefits probably won't replace more than 40% of the salary you're used to making. And while some of your expenses could decline in retirement, you might have a very difficult time getting by on a 60% pay cut, even with a pared-down lifestyle.

So if you've been neglecting your long-term savings, you may want to pretend that Social Security is, indeed, running out of money. That should light a fire in you to start pumping more money in your 401(k) or IRA.

Small savings contributions can add up over time

A big reason so many retirees wind up heavily reliant on Social Security is that it's not an easy thing to build savings. But with a long savings window, you can turn a bunch of smaller retirement plan contributions into a lot of money.

Say you're only able to contribute $250 a month to your retirement savings, but you do over a 35-year period. If your portfolio delivers an 8% yearly return, which is a bit below the stock market's average, you'll end up with a little more than $500,000.

There's no need to stress about Social Security disappearing, despite the things you might read. But it's also not a bad idea to tell yourself that the program is going broke if that's what it takes to push yourself on the savings front. And the more money you save, the less you'll have to worry about Social Security benefit cuts if those become a reality.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

An estimated 69 million Americans will receive a monthly Social Security check in 2025. While the average adult age 65 and older relies on these benefits for close to one-third of their income, according to data from the Social Security Administration, many Americans depend on Social Security almost exclusively in retirement.

Ideally, it's wise to have a plan in place before you file to help maximize your monthly income. Although there's no one-size-fits-all solution for increasing your payments, there is one thing I'd highly recommend every person do before claiming: Make sure you know all the types of benefits you might qualify for.

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Image source: Getty Images.

Lesser-known types of Social Security

Most people who qualify for Social Security will receive retirement benefits. You become eligible for this type of benefit once you've worked and paid taxes for at least 10 years, and you also must be at least 62 years old to begin claiming.

But even if you already qualify for retirement benefits, there are other types of Social Security you might be eligible for, too.

• Spousal benefits: You must currently be married to someone who qualifies for either retirement or disability benefits to receive spousal Social Security. If you're eligible, you could earn up to 50% of your spouse's benefit at their full retirement age.
• Divorce benefits: These are similar to spousal benefits, except you cannot currently be married, and your previous marriage must have lasted for at least 10 years. If you've been divorced for less than two years, you'll also need to wait to file until your ex-spouse begins taking benefits. Like with spousal benefits, your max payment is 50% of your ex-spouse's full benefit amount.
• Survivors benefits: If your spouse passes away, you may be entitled to 100% of their benefit amount in survivors benefits. While these are typically reserved for widowed spouses, they're also sometimes available for other family members -- like financially dependent parents, children, or ex-spouses.

You could receive any of these types of Social Security whether or not you qualify for retirement benefits. Even if you've never worked, you can still potentially collect benefits based on a family member's work record.

One important caveat to consider

If you are entitled to retirement benefits based on your work history, you can still receive spousal, divorce, or survivors benefits -- but only in certain circumstances.

Whether or not you qualify will depend on your retirement benefit as well as the amount you could receive from other types of Social Security. If your retirement benefit is higher, that will disqualify you from collecting other benefits. If it's lower, you'll receive the equivalent of the higher amount.

For example, say you could receive $1,000 per month in retirement benefits, and your spouse will collect $3,000 per month. In this case, your maximum spousal benefit would be $1,500 per month. The Social Security Administration will pay out your $1,000 monthly payment first, then you'll receive an additional $500 per month in spousal benefits.

If you were collecting, say, $2,000 per month in retirement benefits, that would be higher than your maximum spousal benefit -- disqualifying you from that benefit entirely.

Your age will still affect your benefit amount

Like with retirement benefits, exactly how much you'll receive will depend on what age you file. You can generally begin claiming as early as age 62, but filing before your full retirement age -- which is between ages 66 and 67, depending on your birth year -- will permanently reduce your benefit amount.

Unlike retirement benefits, though, waiting until after your full retirement age to take spousal, divorce, or survivors benefits will not increase your payments further. Also, survivors benefits, specifically, may have different benefit limits depending on your relation to the deceased and how many people are claiming on that person's record.

The average spouse or ex-spouse of a retired worker collects around $947 per month from Social Security, as of March 2025, while the average nondisabled widow(er) receives roughly $1,861 per month. These payments can go a long way for many people, so before you file, it's wise to ensure you're collecting every type of benefit possible.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

• I'm an American spending my retirement living in different countries around the world with my wife.
• We've lived in about 50 countries, and Vietnam, Italy, and Malaysia are some of our favorites.
• Our favorite place to live is Croatia, as it's beautiful and there's so much to see there.

My wife and I are Americans who have been fully nomadic since 2019. In the past few years, we've visited about 50 countries.

We have stayed in some places for as little as a few days and others for several months, but our "sweet spot" is four to six weeks, which gives us time to absorb the flavor of the local culture.

Of all the many questions we get asked about our full-time nomadic lifestyle, the most common is probably, "What's your favorite country?"

As simple as that query is, it's also one of the most challenging because we love so many and consider several of them "home."

However, if I had to choose, here are a few of my favorite countries we've lived in — plus our top pick.

Vietnam felt like an affordable expat heaven

We spent 17 months traveling around Southeast Asian countries and fell in love with many places in the region, including Vietnam.

The second time we visited Vietnam, we stayed for all of our 90-day maximum visa period. We felt we got the most bang for our buck in the amazing city of Da Nang.

It seems popular among fellow expats, likely because it's affordable and close (about 30 minutes away) to the ancient city of Hoi An, a UNESCO World Heritage site with incredible preserved history and charming canals.

As expats, Da Nang was also a great city for transitioning into Southeast Asian culture, since it still has many Western-style offerings, like grocery stores with offerings that remind us of home.

The country's fairly inexpensive cost of living made it easy for us to comfortably live, explore, and eat well during our stay.

We had so much affordable and incredible food (and fresh fish) in Vietnam. I loved frequent bahn mi sandwiches for less than a dollar, and pho soup breakfasts for not much more.

My wife and I never had a dull day in the country since it also has many beautiful landscapes, rivers, and beaches. And with the convenience of our affordable $45 a month scooter rental, nothing felt too far away.

Italy is magnificent and filled with history

It's easy to see why Italy is on many bucket lists, and we've now lived there twice.

The country is filled with historic architecture, churches, and museums, which have been incredible to explore.

One of our first stays was in the small medieval town of Tivoli, about 20 minutes east of Rome, where we lived in a 500-year-old apartment. That blew my mind, as it's about double the age of the United States.

The ancient town was founded hundreds of years before Rome, too, and it was my first gut punch of recognizing how little of the world I had seen.

Eight months later, we were on the island of Sicily for six weeks. It carried the same sense of ancient history, with the stunning, centuries-old Temple of Apollo prominently in its town square.

And, of course, we enjoyed Italy's world-famous culinary scene and incredible wine offerings. While in Sicily, we regularly visited the local street market to stock up on fresh fish and $2 bottles of delicious wine.

We appreciate the medical tourism in Malaysia

Over the years, one of our biggest incentives to visit Malaysia has been its affordable yet high-quality medical services.

As full-time travelers, it's been our go-to place for medical tests and scans. After all, Malaysia's medical tourism market is pretty huge.

We've had positive experiences with high-quality clinics in the country that have been more affordable than what we've encountered in the US and most other countries we've lived in.

During our time in Malaysia, we've gotten full-body exams, blood tests, and head-to-toe scans for only a few hundred dollars.

We've easily paid for all our medical expenses here out of pocket without navigating complicated insurance policies and red tape, which is almost unheard of in the US.

Plus, it's worth mentioning that Malaysia has impressive skylines, mountains, and rainforests worth exploring, too.

Croatia is still our favorite country we've lived in

Although we've spent time in about 50 countries, Croatia still tops them all.

We spent almost two months there in 2019, and have been back three more times since. When we first moved to Croatia, we didn't know much about it. However, we quickly fell in love.

Fortunately, English is widely spoken here, so communicating with locals was easy. Plus, we were able to eat tons of fresh seafood while in the area.

During one stretch, we lived in affordable waterfront lodging about 20 minutes north of Split, one of our favorite cities.

Its focal point is the downtown waterfront Diocletian Palace, which has residential and commercial units built into the walls. Its charm and history felt intoxicating.

We loved regularly walking several miles along the city's promenade and enjoying the changing view of the water, ships, and sandy beaches.

A few years later, we toured Croatia's northern region, starting from the Istrian Peninsula and heading south while stopping at half a dozen islands along the way.

Even this excursion barely made a dent in how much beauty there is to see in the country, since it has 49 inhabited islands and hundreds of others.

We look forward to one day going back.