Suze Orman Sends Strong Message On 401(k)s, Iras, Retirement

A common concern for many American workers as they consider their future retirement plans revolves around one simple question: How can I afford all of this?

Personal finance author and media personality Suze Orman has some strong but easy to understand words on 401(k)s, Roth IRAs — and how people would be well-advised to invest during retirement.

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Orman encourages people to maximize their contributions to employer-sponsored 401(k) plans, especially if the company they work for offers a match. 

She recommends workers aspire to contributing 10% to 15% of their salary in 401(k) plans, depending on their age and financial ability. If their company's plan includes a Roth 401(k) option, she recommends taking advantage of it for its tax-free growth benefits.

Related: Suze Orman drops new surprising words on Social Security, retirement

Orman champions the use of Roth IRAs because they allow for withdrawals in retirement that are tax-free. 

Important note: Starting early makes it possible to leverage compounding growth, she clarifies, to stay on track and maybe even exceed a person's retirement savings goals. 

Orman says investing for retirement is not just about saving. It's an opportunity to make smart decisions and protect (and grow) money. She offers what she calls simple steps to consider. 

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Suze Orman offers 401(k) and IRA advice for retirement investing

Orman boils some major investment tips down to the following plan, which can be viewed as a checklist. 

Determine your retirement income sources 

• Before deciding where to invest, get clear on where your money will come from in retirement. 
• Guaranteed income — Includes Social Security, pension payments, and income annuities. These provide a steady stream of income you can count on.
• Other reliable income — Includes dividends from investments, rental income, and required minimum distributions (RMDs) from retirement accounts. These sources may fluctuate but can still provide additional cash flow.
• Savings — Includes your 401(k), IRAs, Stocks, Savings Accounts, and more.

Plan to cover essential expenses with guaranteed income

• Covering your fixed expenses with guaranteed income gives you peace of mind — and you won’t have to sell investments at a loss when the market drops.
• Delay Social Security — The longer you wait (up to age 70), the higher your monthly benefit will be, providing a more stable income for life.
• Lower Your Living Costs — Use your working years to reduce expenses, pay off debt, and downsize if needed, so your essential costs fit within your guaranteed income

More on personal finance:

• Tony Robbins has blunt words on IRAs, 401(k)s and a tax fact
• Scott Galloway warns U.S. workers on Social Security, retirement flaw
• Dave Ramsey explains a Roth IRA, 401(k) blunt truth

Then Orman discusses and inflation-protected investment strategy that's designed for the long term.

Related: Jean Chatzky warns Americans on a slick Roth IRA retirement move

Orman talks smart investment thinking for retirement savings

The personal finance bestselling author has more to say about retirement investing with a few more notes.

Build a balanced, inflation-protected investment strategy that lasts

• A strong retirement portfolio balances growth, stability, and inflation protection while ensuring your money lasts. 
• Balance stocks and bonds — stocks help grow your wealth, while bonds provide stability and income. A common rule of thumb: Subtract your age from 110 to estimate the percentage of your portfolio that should be in stocks.

Protect against inflation 

• Stocks offer the best chance for inflation-beating growth. This is very important when your goal is to have your retirement last until you’re at least 95.

Diversify your investments

• Index funds or ETFs provide broad market exposure with lower fees and are a great way to diversify and protect your portfolio.

Stay invested for the long term

• Trying to time the market often leads to losses. Stick to your plan and rebalance your portfolio annually to maintain the right mix of investments

Related: Veteran fund manager unveils eye-popping S&P 500 forecast