The Three-Legged Stool: that’s what they taught us in our finance college courses. They were wrong. For the vast majority of the United States population, the three-legged stool does not exist. What is the three-legged stool? The stool consists of savings, a pension, and Social Security. These legs are meant to maintain your retirement income.
Savings has always been somewhat of a bugaboo because that requires people to actually have to save money, which the vast majority of the United States does not. Even though there are plans that are automatically set up through their employer like 401Ks, Roths & IRAs, 4O3Bs, and 457s. These options exist, but people will either not utilize them or they will start one and then once they leave their employer, they take the money out and go on a trip, a cruise, or Disneyland, or the money is spent on home remodeling projects never to be seen again.
Then there are pensions. Pensions are great! My father has a pension. My father is 90 years of age; he has received a pension longer than the duration of his career with his employer. He has been rocking the whole pension game, but the problem is unless you are a governmental employee or one of the lucky union employees, pensions no longer exist in the private sector. They have been switched over to 401K plans so all the responsibility, all the risk is on the employees. Remember that I said that the other stool leg was savings. If we get rid of pensions, we’ve gone from a three-legged stool to two legs.
Let me go into more detail about the pension problem; why are companies no longer doing pensions? Pensions made companies responsible for money management and hiring people to handle the pension funds so that money would be available to pay out to their retirees. Here’s the problem: when the market went down, the company that had sponsored the pension plan now had to make up the difference. There were shortfalls that created a risk to the company. The companies couldn’t handle this, so they put it on each employee to create retirement funds on their own. If these big, multi-national companies could not handle their own pensions, do you really think that you can handle it on your own? Now if there’s a shortfall in retirement, it’s no longer their problem. It’s your problem, and most people don’t have an understanding of actuarial tables or planning how long they might live. I’m sure my father laughs every time that he receives his pension payment because at the age of 90, they have to keep on paying year after year because that was the terms of the pension agreement when he retired.
So, we know that savings is not working and pensions pretty much no longer exists anymore. What do people do with Social Security? They usually take it way too early. The vast majority of people receive the smallest benefit available because they take it at age 62 when they should be taking it at their full retirement age. There are also people that should be waiting longer, until they reach the age of 70, which would give them the highest payout possible, but they are fearful that the government is going to run out of money. Here’s the thing folks: the government is not going to run out of money. They own the printing presses! They will just print more.
Let’s recap. Social Security: make the proper choices and delay as long as possible if you’re healthy and can do this. Pension: if you actually have one, you really need to be thankful because you’re a lucky one. Savings: the third leg of a three-legged stool is meant to be 1/3 of your retirement plan. What are you doing right now to accomplish this?
If you would like more information or a one-on-one conversation about what you specifically can do to fix this problem, reach out to us today. It's time to schedule your Financialoscopy®.
