The missing leg of retirement’s three-legged stool

A history page from the Social Security Administration website states that, “Social Security benefits were said to be one leg of a three-legged stool consisting of Social Security, private pension and savings and investments.”

But perhaps a better way to think about the three-legged stool is forced contributions to Social Security and Medicare through payroll taxes, all voluntary efforts to increase retirement wealth, and answering the question of, “Then what?” after reaching retirement age.

The Social Security Act was signed into law in 1935. Medicare payroll taxes were added in 1965. Between Social Security and Medicare, employees contribute 7.65% of every paycheck to fund these two programs. Employers match and add 7.65% for every employee. Between the employee and employer, a total tax of 15.3% is tagged for that worker’s benefit at the time of retirement.

Paychecks were different before these forced contributions. Employees could keep an additional 7.65% of their paycheck. Employers weren’t matching 7.65% for every employee either and were free to use that money in ways that benefited the business—perhaps even providing raises with it.

Before 1935, the first leg of the three-legged stool was to voluntarily create your own nest egg—by spending less and saving and investing more. That’s how our ancestors did it.

The second leg of the three-legged stool is now Social Security income and Medicare insurance.

The Committee for a Responsible Federal Budget estimates that Social Security and Medicare will become insolvent in about 10 years. If Social Security is still around when you’re ready to retire, though, there are decisions to make.

The longer you put off retirement, the higher the monthly Social Security payment becomes. You may also have a job that you enjoy and is helping you build that alternative retirement account.

On the other hand, you can’t get something from nothing. If Social Security funds are dwindling quickly, you might want to consider drawing earlier rather than later—even if it means the monthly payment will be lower.

This option is only possible, though, if you’ve done a good job with the first leg of your retirement plan—creating wealth that is sufficient and independent of Social Security.

Total income taxes are another consideration. Run the numbers to see what makes the most sense.

And now we’ve arrived at the missing third leg of the three-legged stool.

When Social Security was created, it made work a nasty, four-letter word. It created a society that just couldn’t wait to retire and do nothing.

As we age, we might not have the stamina, physical health, or even desire to continue knocking out a 40-hour work week.

But it’s important to remain a productive member of society. Everyone has something to offer.

Acclaimed journalist, Morley Safer, worked in broadcast journalism right up to his death at 84. He slowed down and did less. But he still did something. His last story aired on 60 Minutes, just two months before his death.

He lived a life of productivity.

The Bible speaks to taking a day of rest every week. But nowhere in the Bible does it talk about doing nothing fruitful during your golden years. There’s no 11th commandment that states you shall have the right to play golf for the last 20 years of your life. King David was a warrior to the end.    

If your health allows it, the missing leg of retirement’s three-legged stool is to not fully retire.

Before retirement age, work, save and invest. If Social Security is still around when you hit your 60s, wisely consider your options. And at post-retirement age, find a way to continue to be a productive member of society.   

Do more. Need less.

If the federal government knew how to do this—work hard and spend less than it takes in, consider options wisely to keep programs afloat, and remain continuously productive—there would be no need for the Social Security talk.