Broker Check

The Wobbly Stool

March 11, 2016

The Wobbly Stool

The “three legged stool” has long been the approach to retirement planning. But many 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: many Americans don’t even have a complete stool, let alone a steady one. This can be attributed to many factors. Some don’t expect Social Security to be around for them when it comes time to retire. One thing’s for certain, Congress will need to make changes to the scheduled benefits and revenue sources to keep the program solvent. That’s something for future retirees to keep in mind as they plan for retirement. Essentially, that means one of the stool’s legs could end up a bit shorter. While Social Security was never intended to be the sole source of retirement income, some have come to rely on this one leg of retirement planning more than they should. Consequently, they 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 building a personal retirement nest egg. In times of changing employer-provided retirement funds and uncertainty over Social Security’s future, a real personal investment plan remains the strongest of the legs, but only if you plan for your future. You’ve probably heard of IRAs before, but can you name all the different types and which one best suits you? IRAs are specific retirement funds set aside for you to invest for the future. You can also fund your retirement by investing in any form of securities you wish. Depending on your current financial situation, you’ll want to consult with a financial professional 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 counsel 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. 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 savings strategy.

While Congress debates the future of Social Security, 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.

Securities offered through Securities America, Inc. Member FINRA/SIPC.  Jose R. Rodriguez, Financial Consultant. Advisory Services offered through Securities America Advisors, Inc. An SEC Registered Investment Advisor, Jose R. Rodriguez, Investment Advisor Representative. Rodriguez Financial Strategies LLC and the Securities America companies are unaffiliated.   Written by Securities America for distribution by Jose “Rafi” Rodriguez, Retirement Income Certified Professional®.  SAI 1390271.1