Many U.S. workers who are doing their best to save and invest for their retirement years are smartly utilizing employer-sponsored 401(k)s as a key component of their planning strategies.
Personal finance author and radio host Dave Ramsey, however, strongly urges people to look beyond their workplace retirement plans for investment tools that can provide them with a significant share of their income while they are retired.
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One major reason is that Social Security monthly payments were never meant to provide enough money on which to rely for all expenses once one has left one’s working years behind.
The average monthly Social Security check is about $1,900, which is $22,800 annually. That is barely above the 2025 poverty line for a two-person household of $21,150.
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Contributing to a 401(k) is an important step as a solid foundation for a retirement plan. If a worker gets an employer match, that’s an instant 100% return on the portion of the funds they put into it.
And 401(k) contributions are made pre-tax, making it easy for employees to invest more money in them. Those investments grow tax-deferred, allowing their values to grow faster.
But Ramsey strongly emphasizes his view that a 401(k) should only be where a person’s retirement planning begins.
A retired couple is seen holding hands and walking on a beach. Personal finance radio host Dave Ramsey emphasizes the need to invest in more than only an employer-sponsored 401(k) plan.
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Dave Ramsey shares a warning on 401(k) and Social Security income
Ramsey explains that even with Social Security monthly paychecks and regular withdrawals from 401(k) accounts, retirees will need other sources of income to maintain a desirable lifestyle.
“All that is great, but it won’t be enough for most people,” Ramsey wrote.
The personal finance coach believes workers should save money in at least one more investment tool as they make retirement preparations.
“Once you’re getting the full employer match on your 401(k), your next step is to invest in a Roth IRA, which has several positive points of its own,” he wrote.
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A Roth IRA (Individual Retirement Account) differs from a 401(k) in that contributions to it are made with after-tax money — and that money grows tax-free.
Ramsey explains that, when using a Roth IRA, no taxes will need to be paid until money is withdrawn in retirement.
“We don’t have to get super-technical to get this point across,” Ramsey wrote. “Taxes will have an effect on how long your nest egg will last. That makes a tax-free Roth IRA a must-have for a secure retirement.”
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Dave Ramsey explains that Roth IRAs offer a wide selection of mutual funds
Ramsey notes that 401(k) plans have a limit on the number of mutual funds from which a contributor can choose.
With Roth IRAs, thousands of mutual funds are available to consider, allowing people to select the highest performing growth stock mutual funds in order to build a well-diversified portfolio as a large portion of one’s retirement nest egg.
The Ramsey Show host emphasizes that, not only does having two different investment accounts increase the amount one invests for retirement, but an intelligently balanced mix of funds can have a major impact on the potential for those accounts to grow in value.
Ramsey also likes the idea of setting up retirement investing plans that allow for a 401(k) and a Roth IRA to work together.
“The investments you choose for each account should complement each other and work together to help you make the most of the stock market’s growth, while limiting your risk,” Ramsey wrote.
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