Bring Back the Three-Legged Stool!

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.
• Shoring up Social Security will require raising the salary upon which taxes are paid, or mandating that wealthy wage earners pay their FICA all year long. It also could require raising the retirement age and paying illegal immigrants a living wage to bring them into the system as taxpayers. More than one and possibly all of these things will need to happen.
• Savings--a quantum leap is needed to educate the populace that debt is a dirty word and will wreak havoc on their lives. The culture of spending must change dramatically in the years to come. If they are not reined in, government debt, corporate debt and individual debt will eat this country alive.
• There are no quick solutions to deal with this dilemma, and right now we are not talking about them nearly as much as we should. With an historic election upon us, there's no time like the present.

Comments

[joebaggadonuts]

Your first idea, getting back to defined benefit plans is ridiculous. In the current environment, a company can go bankrupt and not pay those benefits. The only way to get there is to force companies to pay into INDEPENDENT plans from which they can't jigger the numbers and which are highly regulated entities. With 40-50% following the "conservative" dogma, not a chance in Heck this idea will get a moment in the political sunshine.

[WIpatriot]

I got a 3-legged chair in the garage...it keeps tipping over.

[Sundialsvc4]

If the United States Government can "borrow from itself" $1 million a minute, 24/7/365, and spend billions on (I kid you not...) "brain wave binoculars," then let the Government support me through my old age. It will take a mere 320 minutes to pay every single person in America $1.00 at that paltry rate. If we can "borrow" $1 million a minute from "the eternal cup," we can borrow $100 million a minute just as easily... and now we're giving every person in the country a very nice daily income stream that nobody in the country actually has to work for.

Fair's fair... the "defense industry" isn't working for the money now, and it's literally "money for nothing," so I Want Mine.

[dadw5boys]

What many people miss is the effect of some Mutual Funds with Political Agendas.

Some Mutual Funds would move into a Company with so much stock the nearly became a partner.

These Funds then demanded short term profits over any long term plans for growth.

How else could the company show an increase in short term profits every quarter without putting jobs on the chopping block.

[biwee]

Great article. Having completed a 1 year university course in financial planning after my retirement from the US military, I am amazed that so few in this country realize that the "3-leg" stool for retirement planning is so important. Is it that we have "dumbed down", or maybe it is just that most of us, not all, have fallen for the magic allure of the stock market and rising home values and high personal debt??
Last time I checked, the stock market as measured by the S&P 500 was far below the 2000 peak adjusted for inflation. House values in most areas are poor. Personal debt is a serious problem. Is there hope for coming generations?? Well, young people seem to want it all, and they want it NOW. And, they will put it on plastic.

[JBS]

It would help if there were actually some good paying jobs left in the good ol' USofA

[larry278]

Good thinking, but I wonder how long so called illegal, non-documented workers would willingly pay into social security even if you gave each one a green card in an amnisty deal with no fines. Non-documented workers aren't stupid.

[Cathexis]

Sound advice, Mr Mackell.

I especially like the bullet about changes to the Corporate Culture. I was in management back in the early 90s, when the white-collar downsizing craze was just starting and I remember *begging* upper management not to take drastic actions for short-term convenience that would impose huge and largely unforeseen long-term costs/problems.

Needless to say, they ignored me.

But when the pendulum shifts so there isn't an excess of applicable Labour, people will be conditioned to know there is no Company Loyalty and will act correspondingly. Incidents of that already play out, in pockets. (I had a company President berate me in '96 for giving notice at a job in IL to take one in NC -- he actually had the cajones to complain about 'Company Loyalty.' All I could do was laugh. Where was your 'loyalty' to employees, six years ago? It's either "both ways" or "no way.")

[WIpatriot]

Same here, Cathexis. I even created cost models because I had experience in the "unforseen" problems. The decision was already made, and they did not want to be confused by the facts.