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 retirement – 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 a 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 2016 annual report issued by the Social Security and Medicare Trustees, the Social Security trust fund will run dry by 2034 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.

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