It was not that long ago that the old adage of the "three-legged stool" was THE rule in preparing for a financially successful and rewarding retirement. Although that approach is still the best formula for retirement income security, it is rarely discussed, nor is it widely well-known by Americans under 40 years of age.
I recently addressed 300 union members and asked for a show of hands as to how many had heard about the three-legged stool of retirement. Twelve hands went up!
This was a jolt to me. Historically, benefit managers at companies, when counseling their soon-to-be-retiring employees, would always refer to the three legs that would support their retirement: Social Security benefits, a plan-sponsored pension and an individual's or family's personal savings.
Today, all three of these legs are fractured and cannot sustain the weight of a robust retirement. Why?
1. The pension plan is no longer a defined benefit plan but is now a defined contribution or 401(k) plan, which on average has approximately $65,000 in assets.
2. The Social Security system is in need of serious shoring up in order to "be there" for the younger generation.
3. Personal savings is a thing of the past, with Americans drowning in a sea of debt.
While it has not been sighted in quite some time, the three-legged stool has not yet gone the way of the dinosaur. It is possible to bring back this endangered species, but doing so will take a monumental effort by private citizens, business and government.
With the country so far down the path to relying solely on market-driven instruments such as 401(k)s for retirement, changing hearts and minds will be akin to turning around a supertanker. It will take many hours and miles, but the effort will be critical to securing a comfortable future for older Americans.
Here's how to start:
- Getting back to defined benefit plans requires revisiting the corporate culture of "slash and burn" that has become de rigeur under the guise of global competition. This could very well be a public-private initiative driven by those who view people as an investment rather than an expense.