Can We Count on the Three-Legged Stool?

You might have heard of the “three-legged stool” during your financial explorations. What is this stool, exactly?

It has been said that there are three major sources of income that we will need in our retirement years: Social Security, employee pensions, and personal savings. Together, these sources make the three-legged stool.

Whether you are about to retire, you’re getting close to it, or you have a career to build first, it’s important to realize that the three-legged stool is not as sturdy as it once was! Without proper preparation, many people will find themselves with only one source of income when they retire—or, worse, with no source of income at all.

 Let’s examine the three legs of the stool: 

  1. The first leg or source of income is Social Security, which was first introduced in the United States in 1935 ( It was traditionally designed as a retirement plan, meant to provide individuals with a financial supplement once they reached the age of 65. But according to a 2008 annual report issued by Social Security Trustees, the Social Security trust fund is estimated to run dry by 2041 if changes are not made to the system. There is a chance that most people will pay taxes into the program and not receive a benefit. I encourage you to read your Social Security benefits statement carefully.
  2. The second source of income is employee pensions. A pension is an account that your employer or the government pays into on your behalf; you can access your pension upon retiring. Not everyone has a pension plan, however. According to the Bureau of Labor Statistics, about 22% of full-time private industry workers recently received a defined pension benefit, 70% of union members have pensions, and just 14% of non-union employees have pensions. Talk to your Human Resources department about your available benefits or programs and get a pension started today.
  3. The third source of income in the three-legged stool is personal savings. Although people are more aware now that they need to start saving more money for retirement (thanks in part to me, I like to think), inflation and the cost of living often hinder the possibility of saving enough money to make a real difference. According to the Federal Reserve, US Census Bureau, and the Internal Revenue Service, only 18% of families felt very confident about having enough money for retirement. The average American family’s savings account balance was $3,800—hardly enough to see you through your golden years.

What are we to do with all this information? Can we rely on the three-legged stool? The Social Security issue isn’t one that we ourselves can directly control, nor do we all have the possibility of an employee pension plan. But we do have the power to control our personal savings: If we focus on cutting back on unnecessary spending and increasing the amount that we contribute to our savings, we’ll be in better shape when it comes to retirement.

I recommend taking the proper steps today to ensure that you meet your retirement goals. When it’s time for me to retire, I don’t want to be worrying about money—not when there are so many tennis balls to chase.

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