The three-legged stool analogy for retirement planning is in need of termite-reinforcement now more than ever. This theory of retirement planning has long held that people should think of retirement funding as the balance provided by a three-legged stool: Leg one being Social Security; leg two as employer-sponsored pensions; and leg three consisting of personal savings. Over the last 10 to 20 years the message from government and business could not be clearer. Most responsibility for retirement funding has been shifted to us. Social Security is a broken system, and higher income people are increasingly penalized. Most companies have phased-out the more traditional defined contribution/pension plans. So we are left with trying to balance on one leg...
The good news is that there are better and better methods being introduced to help. The option of partnering with an insurance company can allow individuals to leverage their savings by helping to guarantee future streams of income. People should be careful in building these "personal pensions," as annuities can be highly complex and varied. If not planned properly, you could be subject to higher insurance fees, or lose complete control of your asset.
Annuities can replace that disappearing leg of the stool and reinforce some guaranteed income for retirement. Balancing guaranteed income with personal retirement savings from managed retirement accounts is the constant challenge for people as they approach & cross into retirement. These income plans can provide a great hedge against variable investment returns, but need careful implementation and monitoring.
