What ever happened to the 3-legged stool of retirement?

Claire Damgaard, of Dubuque, is a financial services professional with New York Life. She also is writing articles for HER magazine. PHOTO CREDIT: JESSICA REILLY

Have you ever heard of the three-legged stool of retirement? If you have, it probably was a while ago.

Once considered the ideal retirement model, the three-legged stool has fallen out of favor because one of the legs — defined benefit pensions — is not as stable as it once was, and the future of Social Security often is wound up in political maneuvering in Washington.

Consider the following:

• According to the Bureau of Labor Statistics, just 48% of private sector employers offer defined contribution or defined benefit pension plans, and only 8% offer traditional defined benefit plans, thereby eliminating a guaranteed source of lifetime income.

• Social Security benefits replace about 40% of the average worker’s salary. What’s more, the Social Security trust fund is expected to deplete its reserves by 2034 and will be able to fund approximately 75% of benefits after that.

Fortunately, there are ways to reinforce the third leg of the stool — retirement savings and other personal assets — so that you can enjoy a long and fulfilling retirement.

Here are two proven funding sources you might want to consider if you need to compensate for any shortcomings:

• With people living longer than ever, it’s important to make sure the money you have set aside will last the rest of your life. While Social Security provides a lifetime supply of income, it might not be enough to support your desired lifestyle. If you think you’ll need additional income and do not have a pension, a lifetime income annuity can be an excellent way to make up the difference.

• Although the primary purpose of life insurance is to deliver death benefit protection, many permanent life policies accumulate cash value. If your need for protection decreases in time, you can borrow against this cash value — tax-free, in most cases — and use the money to supplement your retirement lifestyle. (Loans against your policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest.)

While the three-legged stool of retirement might be a bit wobbly, the good news is that a secure future is within reach. The difference is that you will most likely have to build it yourself.

Claire Damgaard is an agent for New York Life Insurance Co. in Dubuque.

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