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 means of support 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. Over the years the three-legged stool approach was modified a bit as a result of:

  • The disappearance of defined benefit pension plans (only 7% of workers currently have access to such a plan);
  • An increase in the age required to collect a full Social Security benefit; and
  • The expectation that many potential retirees have of not reducing their standard of living when they retire. In other words, many retirees are expecting 100% income replacement in retirement.

In order to meet the 100% income replacement requirement, experts believed that 25% of retiree living expenses would 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 stool: part-time employment in retirement.
Surprisingly, a recent study indicated that 69% of baby boomers say they would enjoy working in retirement. That 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.

Contributing Editor Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. Mr. Lawton has over 25 years of experience working with corporations on their retirement plans and is a Chartered Retirement Plan Specialist (CRPS) and Accredited Investment Fiduciary (AIF). Mr. Lawton may be contacted at or 414.828.4015.

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