Not too long ago, the three legged stool of retirement planning was the metaphor of choice for financial planners and aspiring retirees alike. The idea was that a combination of the following funding sources could nearly ensure a comfortable retirement:
3. Personal Savings
Sadly, many people today cannot count on significant help from all three sources. Most commonly, a defined benefit pension is a throwback for most private sector workers, particularly for the younger generations. While still frequently available for government and some union employees, pension benefits for all but the oldest workers have been reduced-in many cases dramatically.
Social Security is still available for most, but the solvency of the system is frequently questioned and the amount of potential payment is limited, particularly in comparison to the salaries earned by those with higher incomes. Furthermore, the normal retirement age continues to increase and future legislation will likely raise it further.
This leaves personal savings. You've certainly heard of the nation's paltry savings rate. Still, for the most motivated around us, opportunities abound. If you're ready to save, consider some or all of the following:
- A regular IRA
- A Roth IRA
- A 401(k) plan
- Self-employed retirement plans, such as a SEP-IRA or Keogh plan
No matter how you go about increasing your savings, you'll be glad you did not rely solely on the first two legs of the stool.