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. It was expected that those three sources of income would combine to provide secure retirement income. None of the three was expected to support most Americans in retirement on its own.
Times have changed, though, and so has the three-legged stool. For younger workers, the place of pensions, also called defined-benefit plans, which were funded by a combination of company and employee contributions, have been replaced by 401(k) and other defined-contribution plans, also known as retirement savings accounts. 401(k)s and other retirement savings plans were never meant to serve as a pension, however, but rather as a supplementary savings account. Some employers will match the employee contribution up to a certain percentage, but many are even eliminating contributing to that degree.
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 could 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 does not take into account changes to the system (like later retirement ages), which are already being implemented, and it is unlikely that the U.S. government will let a meltdown happen without stepping in. The projections also do not account for rising interest rates, increased revenue or several other factors. But it is a date that still causes concern. Workers in the United States 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. Financial advisors recommend investing up to 20% of your paycheck in a retirement savings account regularly. The earlier you start, the better to take advantage of compounding investment returns. At the very least, advisors recommend contributing enough to your 401(k) to max out the employer match, if your employer offers one.
The government has debated possible solutions, including hybrid pension plans, creating national or state-level retirement savings plans for people who do not have one offered through their work and even opening up the Federal Thrift Savings Plan to all Americans. Retirement issues are tricky to fund, however, since the problem can is generally in the future, making it easier to kick the can down the road than enact costly repairs.