A Wobbly Three-Legged Stool

Experts sometimes talk about the three-legged retirement stool, consisting of Social Security, traditional defined benefit pension plans and personal savings. The latter includes money stashed in 401(k) plans, individual retirement accounts and regular taxable accounts.

Cutting Social Security is a constant topic of conversation in political circles, though lately there’s also been talk of increasing benefits. Even without any changes, benefits are getting scaled back. The age at which retirees can claim full Social Security retirement benefits is gradually climbing. The full Social Security retirement age is 66 for those born between 1943 and 1954. It rises for those born in subsequent years, eventually hitting age 67 for those born in 1960 or later.

Meanwhile, traditional defined benefit pensions continue to disappear. These pensions, which pay eligible employees income every month throughout retirement, remain relatively common among public sector workers, despite recent cutbacks. Instead, the big falloff has occurred in the private sector. According to a Bureau of Labor Statistics study, just 22% of fulltime private-sector workers had pensions as of 2011, down from 42% two decades earlier.

What about personal savings, the third leg of the retirement stool? Given the cutbacks elsewhere, this needs to be the strongest leg of the stool. But it also looks extremely wobbly, as we saw from the data in the previous section.

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