Broker Check

Are you sitting on solid ground?

December 06, 2022

Have you ever heard about the three-legged stool? In the planning world it generally has meant that you would have three parts to your retirement: social security payments, private pensions and/or annuity income, and investments. Let’s examine these pieces of the retirement perch.


Social Security

There is little doubt that Social Security benefits do not provide sufficient income to fund all of a retiree’s income needs. Consider the recent announcement of an historic 8.7% cost-of-living adjustment in 2023 (which is only a confirmation of the massive inflation that is hurting those on fixed income). This sounds great, but Social Security replaces only about 40% of preretirement income, on average. Most retirees will need to replace 70% or more to maintain their standard of living in retirement. If you “only” consider housing, food, transportation, and healthcare, then social security does cover about 68% based on the Elder Index analysis for a single renter. “What we see is that the typical Social Security benefit falls short by about $1,000 a month of what a senior really needs to achieve basic economic security,” says Ramsey Alwin, CEO of the National Council on Aging. For those who earned less during their working years, the shortfall is greater. The chances of more being provided is rather slim given what we know about Social Security’s financial condition.


Pensions and annuity income

The private sector has largely phased out defined benefit pensions, so not many of your neighbors who are not public employees will have this benefit. Although annuity products have become much more consumer-friendly, to utilize these one must begin to invest early in your career and/or have saved enough to purchase an annuity that will sufficiently complement your other sources of income.



Many people have some level of savings and investments to meet basic expenses; but may be caught short if they need to cover a major, unexpected financial expense, such as a large medical bill, a long-term care need, or a major home repair. Savings many times consist of a combination of retirement accounts and non-retirement accounts. According to Federal Reserve data, only about half of all workers have any kind of retirement benefit, such as 401k plans; and for those with a plan, the median 401(k)/IRA balance in 2019 for households getting close to retirement (55-64) was $144,000. If you didn’t have a retirement plan or job, then of course the number is much lower.


How can I secure my seat?

If you are younger (or older) than 55 and haven’t started to save, then start now if possible! If you are already retired, then focus on how to pay for necessities first, and then if you have the assets, consider how to create your own “pension” through dividend paying stocks, annuities, bonds, and/or CD’s. If you are living in a house that is really too big for your needs, then take a look at how you can leverage that to provide a new place to rent or buy, and maybe even a place that provides healthcare when needed.