\"Rethinking Retirement: The Cracks in the 3-Legged Stool Model”

You may never have heard of the the "3-Legged Stool" Model of Retirement Planning. It has been a Traditional Model for Retirement Income and it was built on 3 Income Legs; Social Security, Employer Pensions, and your Personal Saving. These 3 Income Legs have been the foundation of Financial Security for Retirees for decades. But, as time has passed, one or more of these Legs have cracked.


As Societal and Economic shifts transform the Retirement landscape, the Traditional Model is showing its age. Employer Pensions have largely been replaced by 401(k) Plans, Social Security faces long-term funding challenges, and rising costs make Personal Savings harder to maintain.


In this issue of The Good News-Letter, we’ll explore why the 3-Legged Stool is no longer a reliable Model for Retirement Planning and discuss alternative approaches that better address today’s realities.


As you read the following, you will begin to understand the new Retirement reality. Let’s take a look at the 3 Legs of the 3 Legged Retirement Stool first.


The 3 Legs Of the Retirement Stool:


Employer Pension

Personal Savings

Social Security


“Employer Pension”.

In the past, many companies offered Defined Benefit (DB) Pension Plans, which Guaranteed Employees a specific monthly payment in Retirement, typically based on salary and years of service. Over recent decades, these Plans have largely been replaced by Defined Contribution (DC) Plans, such as 401(k)s, where Employees contribute to Individual Accounts and bear the Investment Risk.


Timeline of Changes:

  • The decline of DB Plans began in the 1980s, accelerating in the 2000s as Companies Froze or Terminated these Plans.
  • By 2022, 41% of Private-Sector DB Plans were Closed to New Employees, with many transitioning to DC Plans.


Reasons for the Transition:

Cost and Risk: DB Plans were expensive for Employers to fund and manage, with unpredictable liabilities due to market fluctuations and longevity risks.


Profitability: Switching to DC Plans reduced Long-Term Financial Obligations, improving Company Profitability.


Workforce Changes: Increased Employee Mobility made Portable DC Plans more attractive.


The reality is that this shift has fundamentally changed Retirement Planning, transferring responsibility from Employers to Employees. Employers aren’t required to offer any type of Retirement Plan to their Employees and when they offer 401(k) DC Plans, they don’t have to offer a Match in your Contributions. Let’s look at this situation further.


What Replaced DB Plans?

Defined Benefit (DB) Plans were largely replaced by Defined Contribution (DC) Plans, such as 401(k) Plans in the U.S. Unlike DB Plans, which provide a Guaranteed Pension based on salary and years of service, DC Plans shift the investment risk to Employees, who contribute to their own retirement accounts, often with Employer matching.


This shift happened because DC Plans are less costly and less risky for Employers, as they don’t require long-term pension commitments. However, they require Individuals to take more responsibility for saving and investing wisely for Retirement. “Yah. Okay?” (Sarcasm intended)


“Personal Savings”

As of December 2024, the Personal Saving Rate in the United States was 3.8%, indicating that Americans saved 3.8% of their Disposable Personal Income a month.

When it comes to Retirement, determining the Median Retirement Account balance for Americans retiring between ages 62 and 67 can be challenging due to varying data sources and methodologies. However, available data provides some insights:


  • Ages 55 to 64: The median household retirement savings is approximately $185,000.
  • Ages 65 to 74: The median household retirement savings is around $200,000.


Common investment vehicles for Retirement Savings in the U.S. include Employer-Sponsored Plans like 401(k)s and 403(b)s, Individual Retirement Accounts (IRAs), and Taxable Investment Accounts.


We know that ONLY 45% of Non-Retirees believe they will have sufficient funds for a Comfortable Retirement. This disparity suggests that many Individuals may underestimate their financial readiness for Retirement.


A study by Northwestern Mutual in 2024 revealed that U.S. adults believe they need $1.46 Million to retire comfortably. However, the same study reported that the average Retirement Savings was $88,400, indicating a significant gap between expectations and actual savings. “This is a very sad state of affairs!” (Tone of Disbelief intended.)


“Social Security”

First, a brief history of Social Security.

Social Security was established in 1935 as part of President Franklin D. Roosevelt’s New Deal during the Great Depression. The Social Security Act created a system to provide Financial Support to Retired Workers aged 65 and Older. Over the years, the program expanded to include benefits for Disabled Workers (1956), Survivors of Deceased Workers, and Medicare (1965). It is funded through Payroll Taxes under the Federal Insurance Contributions Act (FICA).


Here’s the rub, the average Life Expectancy back in the 1930’s was 58 Years of Age for Men and 60 Years of Age for Women. So, it goes without saying that not too many people were going to be around to collect their Social Security checks at age 65. The current average Life Expectancy as of 2022 is 74 Years of Age for Men and 80 Years of Age for Women.


What is the state of Social Security Now?

Financial Challenges: Social Security is facing funding shortfalls due to an aging population and a declining worker-to-beneficiary ratio. The Trust Fund is projected to be depleted by the mid-2030s, after which benefits may need to be reduced unless Congress intervenes.


Increasing Beneficiaries: More Retirees are collecting benefits as Baby Boomers age, putting pressure on the system.


Potential Reforms: Policymakers are debating different solutions, including raising the Retirement Age Increasing Payroll Taxes, Adjusting Benefit Formulas, or Privatization.


Cost-of-Living Adjustments (COLA): Benefits are adjusted annually for inflation, but rising Living Costs and Healthcare expenses still pose challenges for Retirees.


So needless to say, the Social Security System needs some work. The question is, who is willing to do the work and who will update the current system so that you, the Taxpayer, receives the SS Benefits that you paid for?


Now that we know the issues with the 3 Legged Stool Retirement Model, what can you do NOW to prepare for your own Comfortable Retirement?


So, we know that the Traditional 3-Legged Stool Retirement Model (Social Security, Employer Pensions, and Personal Savings) is shaky at best, so if you have read this far and you’re feeling a little uncomfortable about your own Retirement situation, what can you do now to take control of your financial future.


Here’s some suggestions that you can take action with in order to secure a Comfortable Retirement, whether you’re 30 or 50.


Step 1: Define Your Retirement Goal


A Comfortable Retirement means different things to different people, but let’s assume you want:


  • $60,000 - $100,000 per year in Retirement Income (adjust based on your lifestyle).
  • Retirement at Age 67 (or earlier if aggressive savings allow).
  • No reliance on Social Security or pensions (treat them as Bonuses).


How Much Do You Need?

Using the 4% Rule, which suggests withdrawing 4% of your portfolio per year, you’ll need:


  • $1.5M for a $60,000/year retirement
  • $2.5M for a $100,000/year retirement


Remember the amount that the average person has a Retirement of $88,400. “Yah, BIG Problem right?” (Serious tone intended)


Step 2: Protect Your Wealth


  • Get Proper Insurance (Disability, Life, Long-Term Care)
  • Estate Planning (Wills, Trusts, Power of Attorney, Health Directives)
  • Tax Optimization (Roth Conversions, HSA, Smart Withdrawal Strategies)


Step 3: Reduce Expenses & Optimize Savings


  • Eliminate High-Interest Debt (Credit Cards, Personal Loans)
  • Live on 60-70% of Your Income and Invest the rest
  • Use Windfalls Wisely (Bonuses, Tax Refunds, Inheritance - Invest it!)
  • House Hacking or Downsizing (Renting a Room, Buying a Duplex, or moving to a Lower-Cost area)


Step 4: Save and Invest Strategically


The key is starting early and investing wisely.

The later you start, the more aggressively you need to save.


Savings Estimates below use stated Ages & Monthly Amounts at a hypothetical 5% Rate of Return. The amounts calculated were produced using a Financial Calculator with the following inputs: FV (Future Value) = PMT ($300, $400, $500), i (Interest) 5%/12 months, n (Number of years) (37, 27, 17 * 12 month). All amounts are hypothetical. No taxes, inflation, economic conditions, market performance has been considered or applied.


Beginning Age - # of Months - $300 $400 $500

30 444 $384,150 $512,200 $640,250

40 324 $204,956 $273,275 $341,594

50 204 $96,157 $128,209 $160,262


Where to Invest?


  • Max Out Tax-Advantaged Accounts401(k) / 403(b) (if offered, contribute up to Employer Match at minimum)
    IRA (Roth or Traditional) ($7,000/year for 2024, $8,000 if 50+)
  • Invest in Taxable Brokerage AccountsIndex Funds (S&P 500, Total Market ETFs, Growth ETFs, etc.)
    Dividend Stocks for Passive Income
    Real Estate (Rental Properties, REITs)

PLEASE NOTE: If you consider investing in any of the Investment Products listed above, please consult with a Licensed, Experienced and Ethical Financial Consultant before investing any money in order to understand how these Investments work and any Risks involved in owning them.


Step 5: Diversify Income Streams

  • Side Hustles & Passive Income (Freelancing, Online Business, Content Creation)
  • Rental Properties (Own at least one Property before Retirement)
  • Dividend Portfolio (Aim for $500-$1,000/month in Dividends by Retirement)


Take Action Today!

Retirement won’t magically happen. You have to build it. The earlier you start, the easier it is. If you’re behind, increase your contributions, build passive income, and cut unnecessary expenses.


"The Future of Retirement demands a fresh perspective. Don’t let outdated Models jeopardize your Financial Future. Take Charge Today—Evaluate your Retirement Plan, Explore Modern Strategies, and Secure a Foundation that truly supports your Goals.”


Start Now. Stay Consistent. Retire Comfortably.


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