SMART MOVE: The Three Legs Toward Retirement

Is the three-legged stool approach to retirement planning still a viable way to approach retirement planning? What is the three-legged stool approach? Retirement planners often describe the underpinnings for providing income after retirement as a “three-legged” stool. Typically, the first leg is Social Security. The second leg is a pension plan provided by the employer, and the third leg is savings managed by the worker. These savings may take the form of an employer-sponsored, tax-deferred plan (401K for private sector or 457B for public sector employees), an Individual Retirement Account, or simply private savings. The three-legged stool should be viewed as a “best-practice” ideal; unfortunately relatively few retirees receive income from all three sources.

Since most municipal employees do not participate in Social Security, one leg of the stool is missing. Does that mean their retirement is in jeopardy? Not likely; however to continue to plan for and prepare for a generous income at retirement, one needs to put that missing leg back on the stool. Fortunately most municipal employees have two strong legs — the pension and the availability of a quality deferred comp plan (the 457 plan).

The missing leg can be reattached by adding additional personal savings. To make it more convenient and systematic it should be available through payroll deduction. The Club’s partner, CBLife, offers a great option with the additional benefit of self-completing elements to personal savings. Their Security Builder plan offers a three-part product that provides a death benefit to pay up the savings portion for a surviving spouse, a disability benefit that continues to fund the personal savings if the employee becomes disabled and a guaranteed cash accumulation option that can be set up as a ROTH IRA for tax-free growth. The plan is available through payroll deduction for convenience and systematic contributions.

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