Three-legged Stool approach to Retirement savings is not enough

Three-legged Stool approach to Retirement savings is not enough:

Similar to the change of the traditional career path (the idea of working for a company for 30 years and then retiring) the idea of retirement has also changed for many millennials

The idea of traveling regularly, utilizing a mid career sabbatical, or month off for mid career vacations is growing as a trend.

But for those of you still looking to save a lump sum and then retire, consider the possibility the three legged stool approach to retirement savings is not enough.


Three-legged Stool approach

For those of you unaware, there was an approach referred to as the Three-legged stool approach to retirement.  This approach highlighted the fact that individuals cannot rely on only one source, such as social security to fully fund retirement needs.

  1. Social Security Benefits
  2. Pension or Retirement plans
  3. Personal savings

When planning for retirement, individuals must taken advantage of Employer sponsored plans (401ks) or establish traditional or Roth IRAs, as well as build personal savings accounts (CDs, money market, mutual funds).

The idea was that a healthy mix of these three sources can establish sufficient funds to meet retirement income needs and maintain a desired standard of living.

While the three legged approach must still be done, it may not be enough (depending on your desired standard of living).


Why it’s not enough

This may have been the way of the past, but it is not enough for the future.   There are many reasons why but here are a few:

  • Social security has been at risk for quite some time (many are to blame)
  • Many companies no longer offer pension plans
  • Personal savings rates have been low since the recession
  • People are living longer lives and haven’t funded enough
  • Healthcare and medical inflation are rising
  • Home prices and the Great Recession have shown people may not be able to count on equity in homes

It will be mighty difficult to get a job at the age of 75 if the money runs dry, as your skills may not be relevant anymore.  It will also be something not very appealing.


Spider-legged approach

Millennials should prepare for 8 or more legs to the stool, hence the Spider legged approach.   In addition to the Social security benefits, 401k, and personal savings accounts, the following should be considered:

  1. Stock Dividends or capital gains
  2. Rental income
  3. Short term renting a guest house or room via Airbnb
  4. Owning website in personal area of expertise or area of interest
  5. Freelance writing
  6. Renting a car or another asset
  7. Bank interest
  8. Peer to Peer lending
  9. Freelance income
  10. Extra shifts at a local store around the holidays
  11. A business you start on the side: consulting, teaching, tutoring, etc.

These approaches can also be used to increase your revenue during your working years, adding more to your personal savings account.

Anything that can be automated, including savings rate, should be automated.



There are many who don’t start thinking about retirement until it’s too late.  Advice, start and plan early.  Although the idea of retirement and career planning has changed, it’s nice to have a plan.

Consider that there are many approaches to prepare, and many ways to make money even while during retirement.

Utilize tools like Personal Capital to stress and estimate your retirement assumptions.

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The Millennial Shark

The Millennial Shark

The Millennial Shark is a contributor to InsuranceShark, focused on topics that include Millennials in Insurance, personal finance, insurance topics, risk, the future of underwriting. He currently works in the industry and will be a regular contributor on various topics.

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