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
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.
If you choose to plan carefully with a financial professional, you have a personal say over your future,
instead of leaving your future financial security in the hands of elected officials or employer-sponsored
plans. If your retirement is filled with less worry and financial strain, you’ll have more opportunities to live
out your days actively, rather than just passing time, sitting on your wobbly stool.
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