Financial Answers "IN SIMPLE LANGUAGE"

Being in the financial services business for over thirty years, I have often heard that in order to have a secure retirement you would need to address three areas to insure that retirement. These areas were commonly referred to as legs, as in legs of a stool.  Before I get into these legs ask yourself which is a sturdier stool?  A stool with three legs or one with four legs?

 

The First Leg of Retirement

 

The first leg of retirement has to be your own personal savings.  How much can you put aside for tomorrow out of your current income?  How much can you put aside, not only for an emergency fund, but also for down the road.  This is the part of your retirement stool that includes interest bearing checking accounts, savings accounts, government savings bonds, and bank certificates of deposit. 

 

These are your “guaranteed” monies.  This part of retirement has the guarantee of the federal government in the case of government bonds or in the case of the checking and savings and certificates of deposit, they have the guarantee or insurance provided by the FDIC (Federal Deposit Insurance Corporation).  This leg is your responsibility, first and foremost.

 

The Second Leg of Retirement

 

This leg is your forced responsibility.  It is the part of your retirement that you have no choice in participating in.  It is the leg that says either you participate or the wraith of the government and the IRS will fall upon you.  You probably have figured it out….Social Security. 

 

By law, your employer, must withhold and match a certain percentage of your wages whether they want to or not.  Unless, of course, you are a congressional member.  See how that works?!  Do as we say not as we do.

 

If you are self-employed you must also pay into the social security system.  You don’t have a choice.  It’s forced on you and you must pay the social security tax, as a self employed individual, at least quarterly.  You must file form schedule SE when you do your own federal taxes by or before every April 15^th or you will get a nasty letter or visit from your “friendly” IRS.

 

So now we have two legs of the three legged stool in place.

 

The Third Leg of Retirement

 

This third leg of retirement is familiar to most of us.  It is our employer sponsored defined contribution plan better known as our 401(k) plan.  It is our non-profit employer sponsored defined contribution plan know as our 403b program.  Or if you work for a governmental employer it is a defined contribution plan known as a 457 plan.

 

And don’t forget our defined benefit programs-this is our parent’s programs beginning after World War II-of which there are not a lot of these around anymore.

 

If you are self employed then you can have a Keogh plan or an IRA (anyone can have an IRA if you qualify) or a variety of other choices.  So everyone has some kind of choice in this third leg.

 

Unfortunately, all three legs of this retirement planning scenario have been devastated by the recent “severe” recession or “mild” depression however you want to label it.  So what you should do from this point moving forward is adjust this three legged stool and make it a four legged stool.  A four legged stool, in my opinion and from practical everyday living, has always been stronger when I used it.

 

The Missing Fourth Leg of Retirement

 

This fourth leg that is currently missing and has always been missing is the financial planning leg of the stool.  Yes, we have our savings portion in place.  And yes our social security is forcibly being taken from our wages by our employer.  And yes we qualify for some type of defined contribution plan or maybe a defined benefit plan.  But so what! 

 

If you are not watching what is happening to these three legs what will be there for you when you retire.  This is exactly what has happened in the last 12 months.

 

Your pension plans have been devastated.  Social Security is constantly on the brink of bankruptcy.  And it is impossible to save in the first leg of retirement if you don’t have a job and or income and need to live off of what you have saved.

 

This fourth leg of retirement is critical as a lot of people have found out. It doesn’t matter what the other three legs of the stool have been doing if the fourth leg is not in place. 

 

Attach your fourth leg of retirement through financial education.  Accept the responsibility of educating yourself so you can understand and act upon any problems within any of the three other retirement legs.

 

It’s your money.  Your future.  Your retirement.  What are you going to do about it?

 

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