The Three Legged Stool of Retirement Planning and the Recession
The three legged stool was a phrase first coined by for the insurance industry in the USA but for many years has been used as retirement planning terminology describing the three most common sources of income for retirees in the US.
The three legs have traditionally referred to Social Security benefits, employer sponsored pensions and personal savings.
The metaphor was intended to suggest that all three approaches were needed to provide a stable income and security in retirement.
But how has the stool been affected by the recession? The Congressional Budget Office told The New York Times that for the first time the trust fund is going to pay out more than it is bringing in from payroll taxes in 2010.
Political analysts knew that one day there would be more retirees than workers and more cash would be required but it was predicted to be at least 2016 before this occurred.
The recession changed that with more people out of work and not paying taxes.
Over the 75 years that Social Security has been in place more has been collected than paid out and in the past the federal government has borrowed from the fund.
This debt could be called upon but would no doubt require an increase in taxes to repay.
Because the money coming in is less than that being paid out does not mean there are no funds available.
Barbara Kennelly the President of the Committee to Preserve Social Security and Medicare advises there is more than enough to cover any short-term financial hit.
The three legged stool of retirement perhaps now only has one true leg for many as people's personal savings have been decimated in the recession.
Many people are now out of work and many companies do not provide company pensions.
Employers are changing to the less costly 401k plans.
While some employers match employee contributions up to a certain percentage, some are even eliminating the matching program.
In New Zealand the three legged stool has traditionally related more to insurances but similarly there is the New Zealand Superannuation for those over 65 and the more recent KiwiSaver schemes - two legs of the retirement stool.
The third leg, as in the US, is personal savings which traditionally New Zealanders have not been good at doing.
The recession has also made this more difficult.
Wherever you live in the world, planning for your retirement is an essential part of your financial planning.
You need to take the view that there won't be any help from the government and plan how to reach your own retirement goals.
You can no longer rely on three legs of the stool for your retirement planning, recession or no recession.
The three legs have traditionally referred to Social Security benefits, employer sponsored pensions and personal savings.
The metaphor was intended to suggest that all three approaches were needed to provide a stable income and security in retirement.
But how has the stool been affected by the recession? The Congressional Budget Office told The New York Times that for the first time the trust fund is going to pay out more than it is bringing in from payroll taxes in 2010.
Political analysts knew that one day there would be more retirees than workers and more cash would be required but it was predicted to be at least 2016 before this occurred.
The recession changed that with more people out of work and not paying taxes.
Over the 75 years that Social Security has been in place more has been collected than paid out and in the past the federal government has borrowed from the fund.
This debt could be called upon but would no doubt require an increase in taxes to repay.
Because the money coming in is less than that being paid out does not mean there are no funds available.
Barbara Kennelly the President of the Committee to Preserve Social Security and Medicare advises there is more than enough to cover any short-term financial hit.
The three legged stool of retirement perhaps now only has one true leg for many as people's personal savings have been decimated in the recession.
Many people are now out of work and many companies do not provide company pensions.
Employers are changing to the less costly 401k plans.
While some employers match employee contributions up to a certain percentage, some are even eliminating the matching program.
In New Zealand the three legged stool has traditionally related more to insurances but similarly there is the New Zealand Superannuation for those over 65 and the more recent KiwiSaver schemes - two legs of the retirement stool.
The third leg, as in the US, is personal savings which traditionally New Zealanders have not been good at doing.
The recession has also made this more difficult.
Wherever you live in the world, planning for your retirement is an essential part of your financial planning.
You need to take the view that there won't be any help from the government and plan how to reach your own retirement goals.
You can no longer rely on three legs of the stool for your retirement planning, recession or no recession.
Source...