A:

The "three-legged stool" is an old phrase that many financial planners used to describe the three most common sources of retirement income: 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 it still exists, but the legs have changed. In place of pensions, costly defined-benefit plans, which were funded solely by the company, most employers have moved towards 401(k) and other defined-contribution plans, which require workers to defer a portion of their own paychecks into the retirement-plan account. Some employers will match the employee contribution up to a certain percentage, but many are even eliminating contributing to that degree. (Learn more in The 4-1-1 On 401(k)s.)

As for Social Security, the 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, warned the Social Security trust fund will run dry in 17 years, at the current rate of output: "Projected OASDI cost will exceed total income by increasing amounts, and the dollar level of the hypothetical combined trust fund reserves declines until reserves become depleted in 2034."

Of course, the emphasis is on the "hypothetical"; the projection doesn't take into account changes to the system (like later retirement ages), which are already being implemented, and it's unlikely that the U.S. government will let a meltdown happen. But it's a date that still causes concern. Workers in the U.S. can go online and review their Social Security accounts, to see how much in benefits they receive at early retirement, full retirement, and age 70.

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.

And take a look at Five Retirement Questions Everyone Must Answer for more info on planning the post-workday life.

This question was answered by Steven Merkel.

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