Revisiting The "Three Legs" of Retirement
Take a look at the camera tripod to the left.
It requires three sturdy legs, all working together, in order to remain upright. If any one leg is missing, the tripod collapses.
For many years, retirement planners used this illustration to describe those elements necessary for a secure retirement (we actually referred to it as a "three-legged stool," but I didn't have that graphic available). The three legs represent (1) Social Security, (2) savings and (3) company-provided pensions.
Until the 1980s, many workers could rely on pensions, called defined-benefit plans, to suppliment the Social Security payouts that they would enjoy at either 62 or 65. They would then need to save a portion of their income to round out a successful retirement plan.
But in the last three decades, company pensions have been rapidly declining, replaced by 401k and other defined-contribution plans that are funded by employees and often matched by the employers. Retirees that have been unable to save substantial amounts (or saw those amounts decimated by recent declines in the stock market) now face a financial future relying mainly on Social Security.
The First Two Legs: Get An Early Start
For those of us with a few years left until we bow out of the work force, we need to take a fresh look at the three-leg concept. Assuming that Social Security will muddle through and be available in the future, you need to be addressing the other two legs. Contributing as much as possible to your 401K and other qualified savings plans will be big factor in how comfortable you are in your remaining years. But unless you get an early start, it's difficult to save enough to fund a long retirement depending on just investments and Social Security.
Rethinking The Third Leg
So, with no company pensions, how do we make the tripod stand up? For most, it's going to be starting a small business or holding some kind of part-time job well into your golden years. Begin now by maintaining your work skills or developing new ones. The world is changing and you can quickly be by-passed by a younger, more skilled workforce.
Keep up with trends, always be willing to learn new technologies and make new contacts with people in your field.
Retirement can be challenging and if you think you don't need to be making some careful preparations in your personal finances, well....you don't have a leg to stand on.
Image credit: Keerati/Freedigitalphotos.net
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