A:

The "three-legged stool" was a retirement terminology from the past that many financial planners used to describe the three most common sources of retirement income for a retiree during retireme - Social Security, employee pensions, and personal savings.

Times have changed though and so has the three-legged stool. For younger workers, one could say that there still is a three-legged stool, but the legs have changed. In place of costly pension plans, most employers have moved towards 401(k) plans which require workers to defer a portion of their own paycheck into the 401(k) retirement account. Some employers will match the employee contribution up to certain percentage, but now some employers are even eliminating the matching program. (Learn more about 401(k)s in our article: The 4-1-1 On 401(k)s.)

According to the 2008 annual report issued by the Social Security and Medicare Trustees, they estimate that the Social Security trust fund will run dry by 2041 if changes are not made to the system. It's unlikely that the U.S. Government will let this happen, but it's a date in the future that's been talked about for several years now. Each year, workers in the U.S. receive an annual Social Security statement- review this to see how much you may receive at early retirement, full retirement, and age 70. This will help you determine when you can retire.

Personal savings rates have been extremely low for U.S. workers over the last decade. Individuals will need to start saving a larger portion of their income and continue to utilize retirement based tools such as IRAs, annuities and other brokerage accounts to build their retirement nest eggs.

If you're planning your retirement, take a look at Five Retirement Questions Everyone Must Answer to get on the right track.

This question was answered by Steven Merkel.

RELATED FAQS
  1. What does a sample plan using the 4% retirement rule look like?

    Discover how the 4% retirement rule can work as part of a plan to achieve increasing retirement income if investments perform ... Read Answer >>
Related Articles
  1. Retirement

    A Social Security Reality Check

    Recessions and depleted Social Security funds could derail your post-work plans. Find out how to stay on track.
  2. Retirement

    Don't Retire Poor: Avoid These 4 Mistakes

    If you don't want to retire poor, be sure to avoid these four mistakes.
  3. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  4. Retirement

    7 Steps to Create a 10 Year Retirement Plan

    Workers who are only 10 years away from retirement need to do a number of things to ensure that a comfortable retirement can be achieved.
  5. Retirement

    Retiring Without A 401(k)? Here's What To Do

    While you are a disadvantage, it doesn't mean you can't make your retirement budget work without a company-sponsored plan.
  6. Financial Advisor

    Retirement Savings: How Much is Enough?

    Sure, you can never save too much for retirement, but just how much is enough?
  7. Retirement

    What Will Social Security Look Like When You Retire?

    Many workers are not confident that Social Security will be around during their retirement. Here's what you need to know about its future.
  8. Retirement

    Why Saving 10% Won't Get You Through Retirement

    Retirement experts often tout the 10% rule: To have a good retirement, you must save 10% of your income. The truth is, most people need to save far more.
  9. Financial Advisor

    Overhaul Social Security to Fix Retirement Shortfall

    There are several theories and ideas about how we can make up for the $6.6 trillion retirement savings shortfall in America. Adjustments to Social Security and our retirement savings plans are ...
  10. Financial Advisor

    Retirement's Evolution: How to Be Prepared

    For many, retirement might not be the full stoppage of work and living a life of leisure but rather one of slowly phasing out of the workforce.
RELATED TERMS
  1. Forced Retirement

    The involuntary ending of one's career because of a layoff, health ...
  2. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
  3. Retirement Planner

    A practicing professional who helps individuals prepare a retirement ...
  4. Retirement Planning

    The process of determining retirement income goals and the actions ...
  5. Replacement Rate

    The percentage of a worker's pre-retirement income that is paid ...
  6. Outside Earnings

    Income that temporarily reduces a retired individual's Social ...
Hot Definitions
  1. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  2. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
  3. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  4. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  5. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center