Retirement Reality – The 3 Legged Stool

Retirement Reality – The 3 Legged Stool


Pensions (defined benefit plans) were once the most common retirement plan in the private and public sector. Workers knew that if they worked for a company for 20 or 30 years, they would be able to retire with a reliable and secure pension. At one time, 88% of private sector workers had a pension.

So what happened? Many employers had to abandon pensions in favor of 401(k) plans, shifting the risk and most of the expense to employees.

Nowadays, private pensions are almost extinct, except for workers in the public sector (school employees, city and county workers, police, fire, federal employment). And even with public pensions, there is a “looming pension tsunami” because of unfunded liabilities, as Forbes described in an article in 2017.

Social Security

Social Security was never designed to be the “go to retirement plan” for Americans. It was intended to supplement pensions.

  • When Social Security began (1935), life expectancy was 62 years old. SS started to pay out at age 65, 3 years after people were expected to die.Today, more people are taking money out social security, and fewer people are paying into it.
  • Almost 70% of Retirees currently consider Social Security as their main source of income
  • The average Social Security benefit being paid out in 2018 to a retired worker is about $1,372 per month, or $16,464 per year. The maximum benefit a retiree could receive at full retirement age, would be $2,788 per month, or $33,456 per year. Social Security can replace up to 40% of the typical worker’s previous income. Most seniors, however, need a good 80% of their former earnings to cover their retirement costs. (USA TODAY, Published Dec. 4, 2017)

The Social Security annual statement provides an estimate of how much you’ll receive depending on whether you file for benefits at age 62, full retirement age or age 70. Most people however miss the fine print that cautions, “your estimated benefits are based on current law. The law governing benefit amounts may change.

In 2016, the Social Security’s Board of Trustees said if nothing changes, Federal Old-Age and Survivors Insurance reserves would be depleted by 2034, which means that there’s a chance the monthly payments will not be as expected. According to the Board of Trustees’ 2016 annual report, if nothing changes to mitigate the shortfall, benefits would have to be reduced by 21%.

If you plan on heavily depending on social security for your retirement income, you really should have a backup plan — just as you would have for any threat to your retirement.

Personal Savings (401(k), 403(b) plans, IRAs, CDs etc.)

According to this survey by the Transamerica Center for Retirement Studies, the median retirement savings by age in the U.S. is:

  • Americans in their 20s: $16,000
  • Americans in their 30s: $45,000
  • Americans in their 40s: $63,000
  • Americans in their 50s: $117,000
  • Americans in their 60s: $172,000

And over 50% of Americans have saved LESS than $10,000 for retirement!

Start Improving Your Finances Today!

The rules for a retiring generation of baby boomers have changed. Learn how those changes affect you as you prepare to live a prosperous retirement.