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Whatever happened to the 'three-legged stool' of retirement?

Have you ever heard of the "three-legged stool" of retirement? If you have, it probably was a while ago. Once considered the ideal retirement model, the three-legged stool has fallen out of favor because one of the legs-defined benefit pensions-is not as stable as it once was, and the future of Social Security is often wound up in political maneuvering in Washington. Consider the following: 

  • According to the Bureau of Labor Statistics, just 51% of private sector employers offer defined contribution or defined benefit pension plans, and only 8% offer traditional defined benefit plans,1 thereby eliminating a guaranteed source of lifetime income.
  • Social Security benefits replace about 40% of the average worker's salary.(2) What's more, the Social Security trust fund is expected to deplete its reserves by 2034 and will be able to fund approximately 77% of benefits after that.(3) 

Fortunately, there are ways to reinforce the third leg of the stool-retirement savings and other personal assets-so that you can still enjoy a long and fulfilling retirement. While each person's financial circumstances are different, here are two proven funding sources you may want to consider if you need to compensate for any shortcomings: 

  • With people living longer than ever, it's important to make sure the money you have set aside will last the rest of your life. While Social Security provides a lifetime supply of income, it may not be enough to support your desired lifestyle. If you think you'll need additional income and do not have a pension, a lifetime income annuity can be an excellent way to make up the difference.
  • Although the primary purpose of life insurance is to deliver death benefit protection, many permanent life policies accumulate cash value. If your need for protection decreases over time, you can borrow against this cash value-tax-free in most cases­and use the money to supplement your retirement lifestyle. (Loans against your policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest.)

While the three-legged stool of retirement may be a bit wobbly, the good news is that a secure future is still within reach. The main difference these days is that you will most likely have to build it yourself. 

This educational third-party article is provided as a courtesy by Aaron Rask and David Manley, Agents, New York Life Insurance Company. To learn more about the information or topics discussed, please contact Aaron Rask at 720-628-2835 or David Manley at 303-817-8763. 

1 "Employee Benefits Survey: Retirement Benefits," Bureau of Labor Statistics, March 2019.

2 "Retirement Planner: Learn About Social Security Programs," Social Security. 

3 "Status of the Social Security and Medicare Programs: A Summary of the 2019 Annual Reports." U.S. Department of the Treasury.

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