The Wobbly Stool

The “three legged stool” has long been the approach to retirement planning. But most Americans don’t even have a stool, and for some who do, the stool is becoming a bit shaky.


The “three-legged stool” is considered the basic model of retirement savings. It’s a metaphor that has been used since the late-1940s as a way to describe saving for your future. No one is quite sure how the concept was started, but it’s one that stuck. While the legs of the stool were different in the past (they relied heavily on other types of retirement options), today those legs have grown and transformed into a completely different kind of stool.

The problem is: most Americans don’t even have a complete stool, let alone a steady one. This can be attributed to many factors. According to the 2006 Retirement Confidence Survey (RCS), released annually by the Employee Benefits Research Institute, 31 percent of current retirees believe that Social Security will be enough to sustain them for the rest of their lives. You don’t have to be a government expert to know that Social Security may not last forever. Even if Social Security lasts, most agree that for the system to survive there will have to be some sort of benefits cut for future retirees. Essentially, that
means one of the stool’s legs is a bit shorter and a bit weaker. Those who have only relied on the one leg of retirement planning their whole lives may find that the stool will become a bit difficult to depend on in their later years. But this can all be prevented. After all, there are still two legs left.

The second leg in the modern stool era is a company pension plan. Most companies today are switching to 401(k) plans, where the employer has the option to match a percentage of
the contributions to the plan. 401(k) plans are more secure than pension plans and they have more rollover options, but employer-sponsored retirement funds are simply one more option in a plan that should contain several strong legs. You should work with a financial professional to craft a specific 401(k) strategy, including rollover options, so that you’re confident the second leg can bear some retirement weight.

The final and increasingly popular leg of the stool is personal savings. Sadly, many people feel they have no major options for future retirement savings. In times of shaky employer-provided retirement funds and uncertainty over Social Security’s future, a real personal savings plan remains the strongest of the legs, but only if you plan for your future. You’ve probably heard of IRA’s before, but can you name all the different types and which one suits you best?  IRA’s are specific retirement funds set aside for you to save for the future. You can also fund your retirement by investing in mutual funds or any other form of
securities you wish. Depending on your current financial situation, you’ll want to consult with a financial expert to decide what plan is best.

There are a few simple steps you can take to start exploring your personal savings retirement options. The first is to contact an independent financial professional who can council you on more options and details regarding your retirement. The second is to calculate your post-retirement income. Calculating your post-retirement income is one quick and easy way to start preparing for retirement. According to the RCS, currently, 43 percent of workers have done the simple calculating needed to determine a sufficient post-retirement income. Calculating your post-retirement income is easy and very essential to planning for retirement. Oftentimes, people don’t believe they’ll need a whole lot of savings to retire on. Sometimes, seeing the results can light a fire underneath your retirement plan and cause you to re-think your savings strategy.

One of the biggest mistakes future retirees can make is planning their retirement alone. While something can be said for a “can-do” spirit, trusted financial professionals are more likely to find better ways to help you save money for retirement. When workers were asked about the most helpful tool for saving for retirement in the 2007 Retirement Confidence Survey, the largest percentage of workers surveyed (40 percent), said they believed advice from a financial professional was the most helpful. Aside from post-retirement income, it’s also important to have some sort of long-term care outlook, in case long-term medical care is needed after you retire.

While Congress debates the future of Social Security, there is always hope the program will be saved and improved. But there are never guarantees in life or politics. Only you can decide what kind of retirement plan you’ll have and how comfortably you’ll be able to live in the future. If you choose to rely solely on Social Security, you may find the going to get rough in the future, especially considering inflation and rising healthcare costs.