Dave Ramsey warns Americans on Social Security, 401(k)s

14 Dec 2025, 22:25 · The Fresno Bee

As millions of working Americans prepare for retirement, financial considerations around income they will receive from Social Security and employer-sponsored plans such as 401(k)s come into focus.

With that in mind, bestselling personal finance author and radio host Dave Ramsey offers a warning for people looking to forge a reality out of their retirement dreams.

Social Security replaces some earnings when one retires, becomes disabled, or dies, and helps families by providing payments to spouses, children, and survivors of eligible workers, according to the Social Security Administration (SSA).

"A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts," explains the Internal Revenue Service (IRS).

Both of these sources of retirement income can be the basis of a satisfying and rewarding life after one's career, but understanding each of their roles is key.

Dave Ramsey has a warning on Social Security

Ramsey states matter-of-factly his feelings on two Social Security facts.

"You shouldn't rely on Social Security as your only or major source of income in retirement," he wrote on Ramsey Solutions. "It's only meant to replace a portion - think of it as the little cherry on top of your retirement sundae."

"Unless certain actions are taken by the federal government, the Social Security trust fund reserves are expected to run out of money by 2035 - which will result in reduced benefits for today's workforce," he added.

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This second point is refined a bit more by the SSA, including the year of insolvency.

"The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year's report," the SSA wrote in a 2025 statement.

"At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 77% of total scheduled benefits."

That means that, without legislative action, people's expected Social Security monthly benefit will be reduced by 23%.

Dave Ramsey advises Americans on 401(k) plans

Ramsey puts a lot more stock in the crucial financial importance of 401(k) plans that American workers can build during the course of their careers.

"We talk to people every day who want to build wealth for the future," he wrote on Ramsey Solutions. "And one of the best pieces of advice we can give is this: Your workplace 401(k) is the foundation of a solid retirement plan."

Why Dave Ramsey highlights 401(k)s

Employer contribution matching often provides an immediate 100% gain on the portion you invest in your 401(k). This is essentially free money you should take advantage of.
Tax-deferred growth allows your investments to compound more effectively over time.
Pretax contributions reduce your taxable income, making it easier to allocate more funds toward retirement savings.
In 2026, the maximum contribution limit will increase to $24,500, according to the IRS. If your spouse also has a 401(k), they can contribute the same amount.
For individuals aged 50 and above, the annual limit increases by $8,000 in 2026, totaling $32,500, providing an opportunity to make additional catch-up contributions.

Dave Ramsey explains how to choose 401(k) investments

Begin by reviewing your company's 401(k) plan document, which outlines key details such as employer matching and vesting rules, Ramsey wrote.
Speak with your plan administrator to confirm whether you can choose between a Roth 401(k) and a traditional 401(k). The Roth option, funded with after-tax dollars, allows your savings to grow tax-free and provides tax-free withdrawals in retirement, according to Ramsey.
When selecting investments, aim for diversification across four categories of mutual funds: growth and income, growth, aggressive growth, and international. Focus on funds with a proven history of strong performance, Ramsey explains.
Check your 401(k) beneficiary designation regularly. If it has been some time since you last updated it, contact your plan administrator to ensure your account is directed to the intended recipients.

IRS clarifies Roth 401(k) contributions

When one makes pre-tax salary deferrals to one's retirement plan in a traditional 401(k) plan, those contributions are not taxed at the time one puts them in, according to the IRS.

By contrast, Roth contributions are made with after-tax dollars, so taxes are paid upfront. As a result, taxable income for the year will be higher if Roth contributions are chosen instead of only pre-tax deferrals.

The tax treatment at withdrawal is also different. Pre-tax contributions and the investment earnings they generate are taxed when they are withdrawn from the plan.

Roth contributions, however, are withdrawn tax-free. Additionally, earnings on Roth contributions can be withdrawn tax-free, provided the distribution qualifies.

"A 'qualified distribution' is a distribution that is made at least 5 years after the first contribution to your Roth account," the IRS wrote. "After you're age 59-and-a-half or on account of you being disabled, or to your beneficiary after your death."

TheStreet

This story was originally published December 14, 2025 at 2:25 PM.