You probably have heard about the three legged stool approach to retirement planning. Historically financial planners had advised that retirees could expect to derive their retirement income from three sources: Social Security, corporate retirement plans and personal savings.
It was generally understood that each source of funds was responsible for providing 1/3 of the total living expenses required in retirement. Hence the three legged stool concept. Over the years the three legged stool approach was modified a bit as a result of:
- The disappearance of defined benefit pension plans (only 18% of workers currently have access to such a plan);
- An increase in the age required to collect a full Social Security benefit;
- The soaring costs of health care; and
- The expectation that many pre-retirees have of not reducing their standard of living when they retire. In other words, many workers are expecting 100% income replacement in retirement.
In order to meet the 100% income replacement requirement, experts estimate that 25% of retiree living expenses will need to come from corporate retirement plans, 25% from Social Security and 50% from personal savings. However, it is becoming evident that most baby boomers have not and will not save nearly enough to fund the retirement they expect. As a result, it may become necessary to add a fourth leg to the three legged stool: part-time employment in retirement. This new approach assumes that income will flow in 25% increments from each source.
Surprisingly, nearly 75% of pre-retirees over the age of 50 in a recent study say they have a desire to work while retired. This is probably a good thing, since most will have to. Lack of corporate retiree health care, lifestyle expectations and a much lower savings rate than required will force most baby boomers to continue working.
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.