It’s a truism of retirement planning:
Social Security was always meant to be one leg of a three-legged stool supporting retirees. Those legs include Social Security benefits, private pensions and savings and investment.
The word “always” there implies that Social Security’s architects envisioned the program as part of the broader retirement security system. But is the truism true?
When Social Security was signed into law in 1935, private-sector pensions were rare, and there was no national system promoting retirement savings. And there’s no evidence in the historical record that President Franklin Roosevelt viewed the program in this way. The phrase “three-legged stool” seems to have been first used in 1949 by an insurance company executive whose company sold annuities that could supplement Social Security; and it caught on.
There is little doubt that Social Security benefits did not provide sufficient income to fund all of a retiree’s income needs - neither then nor now. Setting aside the history, this much is clear today: if we do have a three-legged stool, a couple of the legs are wobbling.
Defined benefit pensions largely have been phased out of the private sector. Only about half of private sector workers have access to retirement benefits of any kind, according to Federal Reserve data . In 2019, the median 401(k)/IRA balance for working households getting close to retirement (55-64) was $144,000. That median figure includes only the households who had a plan, and it obscures the much lower figure among lower-income households, people of color and women.
Joining us for this discussion on The Multi-Leg Stool is Markeith Gentry who is the station’s Production Assistant and makes sure Mastering Your Money is available to our listeners. Welcome back to Mastering Your Money, Markeith Gentry