July 12, 2016
Retirement plans and the retooling of the “three-legged stool.”
Let’s face it. Most workers will not receive a pension when they retire, and will need to rely on their 401(k)s, Social Security as well as their personal savings.
Decades ago, the traditional ‘pension,’ a term almost removed from our lexicon today, was one of the three components in what financial planners referred to as the “three-legged stool.” Back then, retirees were on a much surer footing than today. They could count on reliable sources of income that included their company pension, Social Security, plus their own savings.
That ‘three-legged stool’ was used by a middle class that belonged to a more solid community of workers. As such, they worked hard so they could one day own their home, and they put money away to help send their kids to college. More importantly, they could do all of this, and still look forward to a financially secure retirement.
What defines our ‘middle class’ today?
“Middle class”? Unfortunately, the term did not evolve from any agreed-upon metric, or “empirical” data. According to the White House ‘Middle Class Task Force’ report, the middle class is a vague category that is defined “more by their aspirations than their income.”
In fact, back in the ‘50s, Winston Churchill paid tribute to America’s middle class status by noting that we were “stand(ing) at the summit of the world:” the economy was booming, consumers were buying houses and automobiles.
Pew Research Center weighs-in on the disintegrating ‘middle class.’
Today, according to the Pew Research Center, the waning middle class has reached that point where only 44% of us feel we belong to it. Surprisingly, back in 2008, 54% of us felt we were in that category.
What’s more, in January of last year the Pew study revealed that 40% of us identified with the “lower-middle class.” More startling, was the fact that among those 40% many not only felt they belonged to the “lower-middle class,” but also the “lower middle class.”
“The New York Times” tries its hand at defining our middle class.
For sure, there are many articles referencing the disintegration of the middle class, including an overview in The New York Times suggesting that the middle class might well be defined as households earning “between $35,000 and $100,000 a year.” Still, the reporters admit to a lack of a standard “definition of the middle class.” Simply put, then, that category has been on the skids for the past 50 years or so because “income has fallen”
Indeed, those bygone days of “prosperity” were the source of considerable “stability and contentment,” just as the economic debacle of 2008 will always be remembered as the source of financial devastation and future angst about retirement savings.
The new “three-legged stool” of Retirement Planning
Retirement plans today are still, for the most part, created around that proverbial three-legged stool. More commonly, though, the pension is being replaced by the 401(k), or IRAs, along with a reliance on Social Security and, yes, personal savings.
‘Fortune’ calls 2015 the year for longevity annuities.
Most recently, the Treasury Department announced their new rulings affecting longevity annuities, which are certain to become, as the Treasury Department notes, a more “flexible” source of income for families “to plan for retirement and protect themselves from outliving their savings.”
The July 2014 ruling drills-down on four areas that could help provide a source of “lifetime income:”
- Increasing the maximum permitted investment.
- Allowing “return of premium” death benefit.
- Protecting individuals against accidental payment of longevity annuity premiums exceeding the limits.
- Providing more flexibility in issuing longevity annuities.
To discuss your retirement options, contact us. We’d be glad to assess your current situation, from your Medicare, or Medicaid, options to what effect delaying Social Security might have on your retirement situation.