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The Three Legged Stool: Version 2.0


Here’s an ancient rhubarb that we once learned about our ultimate retirement funding.

The three legged stool.

For those of you too young to remember, the three legs of the stool were:

a.  Social Security

b.  Your defined benefit pension payment, from your thirty plus years of employment with the same benevolent employer.

c  Your personal Savings.

The idea was simplicity itself.  You never had to worry about Social Security or your pension.  The money was taken out upstream, as a payroll deduction…or perhaps as a hidden benefit.   There was absolutely no effort on your part.

All you had to do was to take care of the third leg…the savings component.  Maybe by a payroll deduction into a passbook savings account that paid 5%…or perhaps a one to five year maturity certificate of deposit that paid 8%.

All of these tools were once at our disposal…back in the day.

Fast forward to the present.

1.  There is still something called Social Security.  But look closely, and you can see how it is being hollowed out from within, due to a very sneaky clawback known as means testing.  It started when legislation was passed that cast a wide net of taxation over social security income, despite the oft repeated promise that this income would never be taxable, since it was all taken in the form of non-deductible, after tax confiscations….uh, I mean contributions.

Not only is there a two tiered tax that brings in anywhere from 50% to 85% of your social security income as regular taxed income, but the real genius behind this tax is that it is not indexed for inflation, with the effect that it will one day encompass the vast majority of working class and middle class retirees.

The only sure fire way to avoid the tax is to have absolutely no other source of income…and that is shaky ground indeed.

As to the second leg–the defined benefit pension plan, well yes..maybe…if you are a member of congress perhaps, as they have one of the juiciest such plans every devised.

But for the rest of us poor working stiffs, every corporation has now perfected the shuffle, whereby they have sloughed off the responsibility for employee guaranteed retirement income (and medical care, for that matter, as well).  In it’s place is the pathetic 401-K, which was designed primarily to enrich the toll gate collectors of the retirement investment complex.  This inferior vehicle is larded with poor account selections, excessive fees, and complacent account holders who don’t have even a clue.

Be sure to catch Scott Burn’s syndicated column on this very topic, that was published this past week.  As always , he is right on the money.  These plans are so corrupted that you would often be better off without an employer match and saving by yourself in a plan that offered ultra low fee index exchange traded funds.

The third leg has always been there, the idea of personal savings.  But our culture is enraptured with consumption, and not savings. Even with both parents working, the idea of savings is defeated by the necessity just to tread water to keep from drowning in debt.

Try sitting on such a stool with one shaky leg…and you can begin to understand the magnitude of the problem we face.

This is ugly as it stands now…and it stands to get a good deal worse.






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