Thursday, September 26, 2013

Retirement Planning Is a Three-Legged Stool

Shortly before my recent retirement from my long-time job for a local school district, I attended a retirement seminar that was designed to help employees make sure they are financially prepared to stop working.  One of the things the speaker told us was that retirement is a three-legged stool, with Social Security as only one of the legs.  Here is how he explained it:

As mentioned above, the first leg of your retirement stool is Social Security.  This national pension program was never intended to be the only way that retirees supported themselves during their senior years.  Since recipients only receive a median benefit of about $1200 a month, this is not enough for anyone to fully support themselves.  If you had a stool with only one leg, you might be able to balance on it for a short while, but eventually you would fall over.

The second leg of the stool is a pension, annuity or fund.  At one time, many private companies provided their employees with a pension.  Today, only a few private companies still provide this perk, although some public employees, such as non-certificated school employees, still receive a pension.  Pensions are complicated.  For example, I had a job in which I paid into both the state pension plan as well as Social Security.  Therefore, I am able to collect both.  However, many people (such as California teachers) are only able to collect one or the other, in most circumstances.  If you do not have a pension, you may wish to take a portion of the money you have saved in your 401K or IRA and use it to invest in an annuity or investment fund in order to provide additional income.  This is the second leg of your stool.  At this point you have income from Social Security and income from a second source ... a pension, annuity or mutual fund.

The third leg of the stool, as suggested by the speaker at the retirement seminar, is your savings.  This is money that is accessible and not tied up in an investment.  It is money you can use in an emergency.  Everyone should have an emergency fund.  The size should depend on your available assets and your income.

The retirement consultant did not discuss the fact that the majority of Baby Boomers do not have enough savings to invest in an annuity or fund, let alone have enough put aside for emergencies.

However, if he had talked about it, he would probably have suggested that Baby Boomers find a way to earn a little extra money after retirement, as well.  As you will see in the Money section of this blog, I have written several blog posts over the years about ways that retirees can continue to earn money after they retire in order to supplement their income.  (We might think of a retirement job as the fourth leg of your stool.)

I have also written posts about how to save money, including cheap places to retire in both the United States as well as overseas.

In addition, you may want to consider downsizing.  Many people who have a lot of equity in their homes decide to sell the house, downsize and use the money they now have to put in savings and invest in various ways.  This is how they get the other two legs of their "stool."  Some people choose to get a reverse mortgage.  However, as I have mentioned in the past, this can be a dangerous decision and should only be reserved for people who are quite elderly.

If you are hoping to retire and you haven't saved enough money, you may want to check out some of the posts listed in the index articles listed below:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement

You are reading from the blog: http://baby-boomer-retirement.blogspot.com

Public domain photo of money is courtesy of www.morguefile.com




3 comments:

  1. As I was reading I was thinking earning money after retirement might be a fourth leg...and there it was! Maybe I'm doing something right! Excellent information and suggestions. Thanks for sharing with us.

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  2. The earlier you can start, the better. But just because you may have put it off doesn't mean you can't get started now. You may find http://www.mutualfundstore.com/planning-and-retirement to be useful in making some plans. Because planning is what will make the future that much easier when you do retire.

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