When Americans prepare for retirement, many are surprised to discover that Social Security alone isn't enough to maintain their standard of living.
While it provides an essential financial foundation, it was never intended as a complete retirement solution. That's where Individual Retirement Accounts (IRAs) come in, offering essential support to bridge the gap between Social Security income and actual retirement needs.
Why Social Security isn't enough
According to the Social Security Administration (SSA), the average Social Security retirement benefit in 2024 was about $1,915 per month, or about $22,980 a year.
This amount barely covers basic living expenses in most parts of the United States, let alone health care, travel or recreation.
The AARP points out that Social Security is only designed to replace about 40% of a worker's average pre-retirement income. Yet most financial experts agree that retirees need 70% to 80% of their pre-retirement income to maintain their standard of living.
More ominously, the SSA Trustees' 2024 report warned that the Social Security trust fund is expected to be depleted by 2034, when only about 77% of projected benefits will be payable, unless Congress takes action.
Source: SSA
Social Security will provide fewer and fewer benefits if not reformed, putting more responsibility on individuals to save independently, warns a CNBC report on retirement planning.
The role of IRA savings
Individual Retirement Accounts (IRAs) are one of the most effective tools for making up the shortfall left by Social Security.
Whether you choose a Traditional IRA, which allows tax-deductible contributions and taxable withdrawals, or a Roth IRA, which allows tax-free withdrawals in retirement, these accounts offer flexible, long-term growth potential.
Key benefits of IRAs
- Tax advantages: Upfront deductions (Traditional) or tax-free withdrawals (Roth).
- Compound growth: The earlier you contribute, the more time your money has to grow.
- Investment flexibility: Choose from stocks in IRAs, Bonds, ETFs, Mutual Funds and even Gold.
- Contribution limits: In 2025, people under age 50 will be able to contribute up to $7,000 a year, while those aged 50 or older will be able to add $1,000 in catch-up contributions.
How do IRAs and Social Security work together?
Social Security and Individual Retirement Accounts (IRAs) play distinct but complementary roles in a well-balanced retirement plan.
Social Security provides a guaranteed source of income for life, based on your earnings history and the age at which you begin claiming benefits.
It offers the security of monthly payments that are also adjusted annually for inflation through Cost-Of-Living Adjustments (COLAs).
Social Security, therefore, provides a reliable basis for covering essential expenses such as housing, food and basic healthcare.
However, Social Security was never designed to cover all your retirement needs. That's where IRAs come in.
With an IRA, whether traditional or Roth, you have control over how your money is invested and whether your savings can grow over time.
Unlike Social Security, which relies on a fixed formula and federal funding, an IRA offers flexibility and customization: you decide when and how much to contribute (within annual limits), what to invest in, and when to begin withdrawals (typically after age 59½, with minimum distributions required starting at age 73 for Traditional IRAs).
Strategic combination of IRAs and Social Security
One of the most strategic ways to combine an IRA with Social Security is to align their objectives.
Many financial advisors recommend using Social Security benefits to cover fixed, predictable expenses, while using IRA withdrawals to fund variable or discretionary expenses, such as travel, entertainment or unexpected medical bills.
This structure can also help you manage your taxes. You can reduce your taxable income in retirement by balancing taxable IRA withdrawals with tax-advantaged Roth IRA or Social Security payments.
Another advantage of this combination is timing. If you want to delay claiming Social Security benefits in order to receive a larger monthly benefit later (up to 8% more per year of delay until age 70), you can dip into your IRA savings in the meantime to make up the shortfall.
This approach, sometimes called a "transition strategy", can significantly improve your lifetime retirement income.
Together, Social Security and IRAs form a powerful duo, with one offering lifetime stability and inflation protection, while the other offers flexibility, growth potential and tailored income strategies.
An IRA to supplement Social Security retirement
It's risky to rely solely on Social Security. While it offers valuable support, it's not designed to fund a full retirement.
IRAs offer the flexibility, growth and tax advantages needed to take control of your financial future. By combining the two sources, retirees can enjoy a more stable, comfortable and secure retirement.
IRAs FAQs
An IRA (Individual Retirement Account) allows you to make tax-deferred investments to save money and provide financial security when you retire. There are different types of IRAs, the most common being a traditional one – in which contributions may be tax-deductible – and a Roth IRA, a personal savings plan where contributions are not tax deductible but earnings and withdrawals may be tax-free. When you add money to your IRA, this can be invested in a wide range of financial products, usually a portfolio based on bonds, stocks and mutual funds.
Yes. For conventional IRAs, one can get exposure to Gold by investing in Gold-focused securities, such as ETFs. In the case of a self-directed IRA (SDIRA), which offers the possibility of investing in alternative assets, Gold and precious metals are available. In such cases, the investment is based on holding physical Gold (or any other precious metals like Silver, Platinum or Palladium). When investing in a Gold IRA, you don’t keep the physical metal, but a custodian entity does.
They are different products, both designed to help individuals save for retirement. The 401(k) is sponsored by employers and is built by deducting contributions directly from the paycheck, which are usually matched by the employer. Decisions on investment are very limited. An IRA, meanwhile, is a plan that an individual opens with a financial institution and offers more investment options. Both systems are quite similar in terms of taxation as contributions are either made pre-tax or are tax-deductible. You don’t have to choose one or the other: even if you have a 401(k) plan, you may be able to put extra money aside in an IRA
The US Internal Revenue Service (IRS) doesn’t specifically give any requirements regarding minimum contributions to start and deposit in an IRA (it does, however, for conversions and withdrawals). Still, some brokers may require a minimum amount depending on the funds you would like to invest in. On the other hand, the IRS establishes a maximum amount that an individual can contribute to their IRA each year.
Investment volatility is an inherent risk to any portfolio, including an IRA. The more traditional IRAs – based on a portfolio made of stocks, bonds, or mutual funds – is subject to market fluctuations and can lead to potential losses over time. Having said that, IRAs are long-term investments (even over decades), and markets tend to rise beyond short-term corrections. Still, every investor should consider their risk tolerance and choose a portfolio that suits it. Stocks tend to be more volatile than bonds, and assets available in certain self-directed IRAs, such as precious metals or cryptocurrencies, can face extremely high volatility. Diversifying your IRA investments across asset classes, sectors and geographic regions is one way to protect it against market fluctuations that could threaten its health.
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