There is no doubt that these components remain an integral part of funding retirement. However, the three-legged stool analogy does not do justice to the variety of resources needed, and strategies available, to produce a financially independent retirement. It’s time to replace the retirement income stool with the retirement income ladder.
The base of the retirement ladder starts with Social Security. Two statistics clearly demonstrate the importance of Social Security benefits: first, around 90% of all individuals aged 65 and older report Social Security benefits as a source of income, and second, Social Security represents more than 34% of total income for this group. Thinking from the “stool era” focused on taking benefits as early as possible. However, today’s experts believe delaying to age 70 to increase monthly benefits may be the most desirable strategy. In addition, two other parts of the three legged stool, company sponsored retirement plans and personal savings, also carryover as an important foundation for a secure retirement. In today’s world, however, the most crucial rung on the ladder of retirement security just may be the intersection of these basics — better known as the 401(k) salary deferral contribution (also called an elective contribution)
