'three-legged Stool' Is Wobbly

By Tom Margenau

May 21, 2018 6 min read

I'm sure most people reading this column have heard the term, "the three-legged stool." That refers to the platform upon which your retirement portfolio is to be built. One of those legs represents your Social Security benefit. The second leg is savings and investments. And the third leg propping you up in retirement is a company pension.

Well, over the years, that stool has gotten a little wobbly, primarily because the company pension leg keeps getting whittled away. Earning a guaranteed monthly retirement pension from your employer is now about as common as getting your company CEO to offer you the use of his private jet and his vacation home in Maui.

But a fourth leg has been added to that retirement stool. It used to be a little stubby thing. But it keeps growing bigger and bigger. I'm talking about the leg that represents earnings from a job.

Yup, senior citizens find themselves, either out of necessity or just plain restlessness, working and earning money well into what were supposed to be their "retirement" years.

I've been tracking this development for years. And something just happened in the last year or two that is rather surprising. The earnings leg of the retirement stool is now the biggest and fattest leg of them all, surpassing Social Security!

I give Social Security talks around the country, usually as part of a larger retirement seminar. One of the slides in my presentation displays the aggregate income (by source) of senior citizens. For many of the years I was using this pie chart slide, the three biggest pieces of the economic pie of older folks were Social Security benefits, asset income and pensions -- with Social Security always being the biggest piece. But let me move away from this pie metaphor and get back to that stool. Social Security was always the biggest and fattest and sturdiest leg on that retirement stool. Job earnings was there, but as a little spindly fourth leg. Yet it kept growing and growing. And now it's gotten so big that it has finally surpassed the Social Security leg.

According to the Social Security Administration's Office of Research, Statistics, and Policy Analysis, here is a breakdown of the aggregate income of all senior citizens in this country:

--Earnings: 34 percent.

--Social Security: 33 percent.

--Private pensions: 12 percent.

--Savings and investments: 9 percent.

--Government employee pensions: 8 percent.

--Other income: 4 percent.

In other words, for the country as a whole, the senior citizen retirement stool actually has six legs. Two of them -- Social Security and earnings -- are big and stout. The other four have morphed into little appendages. So it's a wobbly stool indeed.

Another way to look at that data is to determine the most common sources of income for the typical retiree (as opposed to the nationwide aggregate income illustrated above). When SSA's research office does this, here is what they find.

--84 percent of seniors get a monthly Social Security check.

--63 percent of seniors have asset income.

--37 percent of seniors get a monthly private pension.

--29 percent of seniors work and have earnings from their job.

--16 percent of seniors get a government employee retirement pension.

What that second set of statistics tells us (when compared to the first set) is that although only about a third of seniors are working, for those who do, the money they make represents a substantial part of their income.

All of the information I am presenting here comes from a little SSA booklet called "Fast Facts and Figures." It's a wonderful source of information filled with fascinating charts and statistics. You can find it at www.socialsecurity.gov. At the top of the homepage, pull down the Menu icon. And then near the bottom of the page that pops up, click on Research, Statistics and Policy Analysis. You will find the "Fast Facts" booklet under the Publications list.

One very interesting chart in that booklet shows the relative importance of Social Security to the well-being of senior citizens in this country. It shows that for 34 percent of all senior citizens in the U.S., their Social Security check represents 90 percent or more of their income. And for 62 percent, Social Security is at least half of all their retirement income. Another number I've seen before, though couldn't find in this year's "Fast Facts" booklet, is that about 20 percent of elderly Americans are living on their Social Security check -- and nothing else.

Those are shocking numbers. From the very beginning of the program, people have been told that Social Security should be just one egg in their retirement basket. And they certainly should not expect to live on their Social Security checks. Obviously, and sadly, lots of people either didn't get that message, or economic or family circumstances forced them into relying too heavily on their monthly Social Security checks.

I don't have the numbers in front of me, but I'm sure the statistics would show that most of the people who are overdependent on Social Security are the very old -- those in their 80s and above. I think younger senior citizens, especially those retiring now, have gotten the message that you simply cannot depend on the government to support you in your old age. I hear from these folks all the time. Many tell me about their various sources of income and their six- or seven-figure retirement portfolios. For millions of seniors like me and my wife, our Social Security checks are the meat and potatoes on our retirement plate. But for a growing number of younger seniors, their Social Security check is just the gravy.

Tom Margenau's weekly column, "Social Security and You," can be found at creators.com.

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