The New Three-Legged Retirement Stool: You, You, And You

There is a new three-legged retirement stool we should all be aware of. But first, let's review the old three-legged stool for retirement. It consisted of:

1) Pension (Company)

2) Social Security (Government)

3) Personal Savings (You)

The Old Three-Legged Retirement Stool Is No More

Given less than 15% of Americans have pensions or will receive pensions, no longer is having a pension part of most Americans retirement plan. Therefore, we can throw pensions out the window for future generations. For those of you with a pension, bless you. Your pension is perhaps more valuable than you realize.

Given our Social Security system is underfunded by ~25%, the government will either cut the average Social Security benefit by ~25% or raise the minimum age eligible for collecting Social Security by at least several years.

Social Security trust fund balance projected to run out by 2034

As a result, relying on a government that has perpetually mismanaged our finances is not a wise retirement strategy. Besides, the average monthly Social Security benefit for 62 – 70 year olds is only $1,827 in 2023 according to the Social Security Administration.

Personal Savings (You) is the only leg of the old three-legged stool that's able to provide support. Everybody who has the opportunity to contribute to a 401(k) plan should. According to the Bureau of Labor Statistics, only about 55% of the American workforce has access to a 401(k) and only about 38% of the total workforce participates.

Meanwhile, for those who do participate, the average 401(k) contribution was only about 6.5% of salary when employers didn’t contribute and 11% of salary when employers contribute. Only 18% of 401(k) participants save more than 10 percent of their salary for retirement.

401(k) Maximum Contribution Limit For 2023

For 2023, the new 401(k) maximum employee contribution stays at $22,500, up from $20,500 in 2022. For 2023, the employer maximum contribution limit is $43,500. Therefore, the total contribution limit is $66,000 for those under 50. If you are over 50, then the total contribution limit is $6,500 more, or $73,500.

Do not underestimate the power of working for a stable and highly profitable employer with a strong benefits program. 401(k) matching or profit sharing can significantly boost your retirement funds over time compared to working for a sexy startup that might not even have a 401(k) plan due to a lack of profitability.

When I left my day job in 2012, I forewent roughly $20,000 a year in profit sharing. But at least I got them to pay for my MBA and give me a severance. Now, I contribute as much as possible to a Solo 401(k), SEP IRA, and 529 plan.

Historical 401(k) contribution limits through 2023

The New Three-Legged Retirement Stool

Now that we understand the old three-legged retirement stool, let's look at the new three-legged retirement stool. It consists of:

1) Personal pre-tax savings (You)

2) Personal after-tax savings (You)

3) Personal hustle / X-Factor (You)

Everybody should figure out a way to contribute the maximum to their 401(k) savings each year, even without a company match. Your goal is to minimize your taxable income, allow your investments to compound tax-deferred for as long as possible. Then build a large enough after-tax portfolio to give yourself options to change jobs, take a break, be a stay at home parent, or retire before the age of 59.5.

After-Tax Investment Amounts By Age To Comfortably Retire Early

Clearly, in order to build this type of wealth, it will take a tremendous amount of discipline. You can’t go blowing your money on stupid things you don’t need. You need to continuously reinvest the large majority of your savings into risk-appropriate investments. Delay your gratification.

The third leg of the new retirement stool is earning money doing something you enjoy: your X factor.

One of the most dangerous things about post-work life is letting your mind and body atrophy. This is one of the reasons why I let my dad edit most of my posts. The more you can stay active post traditional work, the better your retirement lifestyle.

In my case, I stay active in post-work life by:

  1. Being a stay at home dad
  2. Coaching high school tennis for 3-4 months a year
  3. Recording the Financial Samurai podcast (Apple)
  4. Writing daily on Financial Samurai
  5. Working on the next great personal finance book (takes two years to produce)
  6. Consulting part-time

Most of these activities have a monetary component that enables me to better preserve my retirement nest egg. In retirement, you want to find something you're good at, that provides meaning, the world needs, and that can generate income. In other words, you want to find your ikigai for a more fulfilling retirement.

What you'll discover after leaving full-time work is that it becomes extremely difficult to spend down principal. After decades of accumulating wealth, it's hard to go in reverse.

Being stay at home parents allows us to save ~$3,000 a month on childcare. Coaching high school tennis brings in about $1,250 a month and allows me to build relationships with other members of the community.

Being a professional writer makes several thousand a year. While writing daily on Financial Samurai keeps my mind sharp and brings in some spare change to boot.

But most of all, these activities give me a sense of purpose and meaning.

Keep Building Your Three-Legged Retirement Stool

One of America's biggest retirement failures is allowing employees to decide how much they should save for retirement.

Given the choice between spending money on cheeseburgers, cars, fancy clothes, shoes, vacations, electronics, and more cheeseburgers or saving for a retirement that is decades away, obviously the majority of Americans are going to choose the former.

Thus, it is unsurprising that roughly 66% of Americans are overweight and the median retirement savings for all families is less than $10,000. Our lack of discipline is literally ruining our lives.

We should have adopted a forced retirement savings system where companies automatically deduct money from each employee's paycheck for retirement, much like how payroll taxes are automatically deducted. It's worked in countries like Australia and Singapore.

But it's already too late for change. Therefore, the only thing we can do is count on ourselves. If we can depend on our own hustle to survive in retirement, all other government benefits will simply be a nice bonus.

Finally, if you have the audacity to retire early, the new three-legged stool for retirement becomes even more important. Your chance of retiring for 40 or 50 years goes way up. Therefore, investing regularly and planning ahead is even more important.

Generate Retirement Income Through Real Estate

Given we need to depend more on ourselves in retirement, I believe the best way to generate income is through real estate. Real estate accounts for about $150,000 out of our ~$380,000 annual passive retirement income.

The combination of rising rents and rising capital values is a very powerful wealth-builder. In retirement, you income buyer power will continue to increase as a result.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $954,000 with real estate crowdfunding platforms. With real estate prices down, I'm dollar-cost averaging into real estate today.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore. 

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 


CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

Recommendation To Build Your Retirement

Sign up for Empower, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use Empower's Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. 

I’ve been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management. The new three-legged retirement stool is here to stay!

Empower Retirement Planner Tool

Related: Two Retirement Philosophies Will Determine Your Safe Withdrawal Rate

73 thoughts on “The New Three-Legged Retirement Stool: You, You, And You”

  1. Quick fix to SS, stop all foreign aid and limit federal gov. to protecting borders, Navy and tariffs. Standing army is not legal as per US constitution. Close all 800 foreign bases and bring the troops to America for FORTRESS AMERICA and AMERICANS FIRST. States rights first and stop all federal interference. USA is a REPUBLIC not democracy !

  2. In terms of real estate, what would you say is a better investment to generate rental income with moderate appreciation – to invest in a single family, multi family or condos? Also, are there opportunities in the Bay area or SoCal to achieve this given that real estate prices are high or is it better to look else where? Thanks in advance for sharing your thoughts.

    1. I’m working through the same questions right now and trying to decide between passive or active real estate. Would love to see responses here.

  3. Patrick M Croft

    We had a forced retirement savings plan in America. We called it social security. Unfortunately, the government spent it all.

    1. Not all. Social Security is “only” underfunded by about 25%. However, we will surely have a budget deficit with all this fiscal stimulus, which is necessary to help millions of Americans in this pandemic.

  4. Dear Sam,

    I love your last newsletter “One Rule for Them, One Rule for Us” and your point that if politicians were as vulnerable to the pandemic as the people were, they might make different policies. I had no idea mayors made this much money.

    I suspect you meant this but did not say this, but I would like to add perhaps the solution is not to focus on “you,” for no one thrives alone. What if we rephrased this to say the focus should be how we can lift up others and create value for them, which in turn creates value for us?

    I suspect this is what you meant but simply did not elaborate upon as it’s not the primary focus of your blog.

    Further fodder for those who love your idea: Simon Sinek’s YouTube video on “Why Leaders Eat Last.” When leaders choose to eat first, they betray the trust the people invested in them when we rewarded them in the first place. We are supposed to be giving leaders awesome stuff so they protect the tribe (i.e. us). As we take care of our own needs, perhaps we can try to change the system so we privilege a different type of leader. Maybe this seems pie-in-the-sky but we at least have to try!

    I am also listening to Simon Sinek’s A Little Bit of Optimism podcast, which has more ideas on this topic. In it, he says there’s a new book called _Survival of the Fittest_ in which the co-authors reveal Darwin did not mean humans are meant to privilege “survival of the strongest.” Rather, Darwin meant our best strategy is to privilege the “survival of those who best protect the tribe.”

    We need to fix our model of what a good leader is to thrive. Perhaps, if you like this idea, you could propose it to your following?

    I forwarded your latest newsletter to my private students as I want them to know what causes we have to champion so they can work on fixing this!

    Thank you for teaching me about finances. It’s really odd how learning about money is not part of a traditional education. Probably because we mistakenly think it’s a dirty word. In addition, I know you want to set up small businesses for your son as you know how Asian-American kids endure the toughest college admissions quotas.

    Possible solution: I teach kids how to communicate with power and eloquence + set up their own social impact endeavors based on their passions, so if you want my two cents, let me know. I’ve been running my teaching business for 22 years now by word-of-mouth alone. Sometimes kids learn more peacefully from non-parents. It’s just human nature.

    P.S. The Clinton Foundation just commissioned a kid-crafted collaborative children’s book from my students, so we have some pretty neat things going on. This honor is based on a kid-crafted charitable kid’s book library my students built over the past decade that has raised over $500,000 for charity with the books my students built with their own hands and hearts.

  5. Sam,

    There is much that I agree with in your article! The rules of retirement have changed, and it’s all on us (the investors) now. If you’ll permit, I would like to challenge the conventional wisdom that everybody should figure out a way to contribute the maximum to their 401(k) each year.

    In Blog #12 I compared the ROI of a typical 401(k) investment with that of a typical single-family rental, and the single-family rental is superior in the first year by almost 10% and by more than 15% in the successive years. I understand that real estate isn’t for everyone, but these numbers are compelling, and nobody talks about them. And, these numbers DO take into account the company match and the deferred taxes of the 401(k).

    The Prolific Investor

  6. I’ve got a retirement question. I have settled on a retirement date that is several months in the future. The date coincides with payment of my annual bonus. The bonus is dependent on employment and performance in good standing on the date of payment. While I currently have a satisfactory performance rating, my interest is seriously waning and leaking into my day-to-day work.

    Would it be wise to announce this future date to my employer? I feel like this would establish my intentions and protect my bonus payout. By alerting them of my retirement date, they cannot find some other reason to get rid of me or avoid the payout. I would simply complain that they were dumping me to avoid payment. Not sure how that would look to everyone but it is the only way to get something out of retirement from my company. And I’ve earned this bonus over the past year.


      1. I get the “unwise” recommendation and thanks for that. Can you explain the first base reference?

        1. Paper Tiger

          It means run as fast as you can and don’t slow down until you have passed first base. If you just try to stop at first base then you have to slow down before you get there.

  7. Keep to myself

    Recognize we are blessed in our circumstances, and genuinely seeking counsel, we are 35 and at a crossroads.

    Two incomes, ~$300,000 in corporate America and ~$90,000 as a public employee with an eventual pension (~$72K in 2018 dollars at 53) and good healthcare.

    Two kids, 6 and 3.

    Own our home, approx. $700K of equity, with $950K of mortgage on an ARM at a very low rate, good until 2023.

    $400K in pre-tax retirement accounts, with 401K max and a 6% match on the larger income annually (about $35K a year)

    $250K in liquid investments (cash, index funds, company stock)

    $300K or so in illiquid investments (stock in private cos, high interest corporate bridge notes)

    $40K toward college in 529s, which is and will be effectively doubled due to generosity of grandparents ($10K per year contributed).

    Calculators say if I do nothing but keep contributing, at 55, we will have $2.5M or so pre-tax plus the $72K pension + everything else. At 60, $3.4M + $72K pension + everything else.

    Obviously, an easy extra force will be to open a 403(b) or 457 (public equivalent of the 401k) and contribute an extra $19K.

    What other passive investments are recommended? We are too busy to do real estate, etc. (been there, done that, cleaned up the balance sheet). Is it just more index funds and keep socking it away?

    1. Cash value in life insurance policies may be an option and it is tax exempt seeing as you guys dont qualify for a Roth IRA. We have IULs in my family, including our kids.

  8. So I’ve got my own concerns. Hopefully someone can offer encouragement and recommend?

    I am 63 and plan to retire at 63 1/2 (March 2019). I have a net worth of just under $2M and am debt free excluding a monthly credit card bill, which I always pay in full. A large portion of my nest egg is in lifetime annuity products that essentially kick in at age 65. They are accessible now but accessing them before 65 reduces the interest I earn. I also have approximately $90K liquid available to use until age 65.

    The biggest concern is my (and spouse) healthcare. I will probably have COBRA available but it is very costly (~$17K/yr). I think I need to look elsewhere to provide adequate health insurance benefits. Any suggestions? ACA?

    My real question is this: Should I begin Social Security at 63 1/2 (~$2800/mo) to cover my mandatory costs and keep as much of my liquidity for additional costs? Or should I burn through my liquid assets first before signing up for SS? I will begin tapping my other assets as needed after 65.


      1. Not sure there will be negotiations when I leave. IT business is doing very well. My leaving will probably be like a hole in water.

        And what is the real advantage of waiting to collect? By not tapping my own resources, aren’t I saving them for later in life? A larger SS check would not be a really compelling reason to not collect now. A bird in the hand…?

        1. Adam and Jane


          Here’s an article on how long to break even with with Social Security if you delay payment. You just need to do the math with your payments if you choose to delay to see if it is worth it.

          I personally would not wait since it may/will take over 10 years to break even. I would collect asap and use the money now. A lot can change health wise in 10 years in your 70’s.

          Our company has a “maximize your retirement” class. There were two speakers for Social Security and Pensions at the class. Both of them said to NOT delay and to collect our SS and pension asap because it will take too long to break even.

          Health care is very expensive in the US. Since my aunt and uncle didn’t like the ACA coverage in NY, they stayed with United Healthcare and they pay 22K a year.

          If paying 17K for your cobra is a financial concern then you may want to work until 65 and go straight to Medicare. Before you retire, ensure that your retirement income that will cover a min of 3% inflation for expenses and 8% for medical increases yearly. My mom has the AARP 20% supplementary insurance and it INCREASES every year!

          For me, I feel more financially secure with my retirement passive income covering 2-3 times my current expenses since life always throws a curve ball.


  9. Dear Financial Samurai
    This is an excellent article and a great blog!
    I have one question though I wonder if you could endeavour to answer: would you ever consider selling stocks entirely and trying to avoid what seems like an inevitable sell off coming in the next 2-3 years?
    I read Martin Zweig’s Supermodel and believe that, although market timing doesn’t generally work, it has historically been a great way to avoid at least part of the larger bear markets by reducing equity exposure. Especially when PEs are so high, equity allocation is high, Fed raising rates, QT, etc. Zweigs long term Supermodel is flashing Sell now and suggests no more than 50% equity allocation.
    I am sitting at about that level however if the “Value Line Geometric Index” were to dip another 3-4% Id probably sell more and rotate into bonds and cash.
    The majority of the investments are in Vanguards 60/40 balanced growth fund and Fairfax Financial / Fairfax India / Fairfax Africa
    Thoughts welcome!

  10. Discipline is there key here. I try hard to discipline my spending habits more every month and year.

    For.example, the past 3 months I stopped buying the NYC $3-4 coffee every morning (and sometimes afternoon). I estimate savings of roughly $150 per month, therefore I increased my 401k deferall to 12%.

    Be disciplined and then take the money decisions out of your own hands on a daily basis.

    Next year I plan on tackling the house lawn care situation myself. It is essentially an added tax of about $2500/year which when compounded over time is a damn lot of money.

    1. Couldn’t agree more
      I make my coffee for work every morning using one of those massive Costco coffee tins and worked out that including milk powder and milk my “cost per coffee” is about 15 cents

      Making your own lunch for work is a huge saving too

      Depending on the layout of your yard perhaps a robot lawnmower might work? It takes ages to do the work but if you’re spending 2500/year you could afford 2 and still break even in year 1!!!

  11. Robert Graham

    I took your numbers for 401k savings from the table for above average savers and ran the $500 difference for ages 30, 40, and 50. I was curious what the difference would be.

    I assumed you would save until age 60, earn 6% (potentially aggressive for age 50), and use the $6,000 catch-up only if you were 50.

    If you were in the “average” above average category then the difference is relatively small and you are in pretty decent shape. Despite the unlikely (given national averages) event that many people are in this category — it will not make you notably rich or FIRE. It’s much closer to retiring with dignity (don’t forget inflation).

    Change in average case with the extra $500:
    Age 30 — $2.41M to $2.45M
    Age 40 — $2.32M to $2.34M
    Age 50 — $2.13M to $2.14M

    $2.41M at a 4% withdrawal rate is $94,000 in annual income.

    Change in low end case with the extra $500:
    Age 30 — $2.12M to $2.16M or $84k income to $86k
    Age 40 — $1.5M to $1.54M or $60k to $61k
    Age 50 — $1.41M to $1.42M or $56k to $56k

    My reaction is that $500 is not really in the ballpark of the change that should be offered for folks to be each leg of the stool. Moreover, get started maxing and finding other ways to save!

  12. I like that suggestion about forced retirement savings. The government or companies should put out a minimum contribution percentage every employee should put in onto their retirement. A good round number should be 10% minimum contribution. That will make every employee at least care a little of their retirement savings.

  13. Seems like the same situation as in The Netherlands. Most of our defined benefit pensions are being replaced by a 401k like system, although less flexible (can’t take out money before a certain age) and less input (depending on your yearly taxable salary and age you can put in a certain euro amount).

    The social security is still in place, but I wouldn’t count on it. That means I have to save for retirement in my pre-tax accounts (in which I cannot put a lot of money) and the rest should come out of post-tax investments and potentially rental real estate.

  14. I wonder if its better that its up to us to provide for ourselves to provide for our retirement. All these companies and governments seem to be running out of money.

    My plan is that SS will not be a factor. I think it will help.

  15. Natty Saver

    Hey Sam, I’m interested in your views on Deferred Compensation Plans as another way of investing pre-tax dollars for retirement.

    Assuming I max out all other pre- and after-tax options (401k, IRA, HSA); assuming the company sponsoring the DCP is stable and will be around for the next 50 years; assuming there is a good range of investments in the DCP; and assuming you WILL save the money regardless, does it make more sense to:

    1. Defer some compensation into a DCP. Pros: pre-tax savings; money is locked up. Cons: gets paid out over 10 years, starting when you leave the company (which might not be when you retire); money is locked up; you get taxed on the back end.

    2. Take the income now, pay the tax now, and invest in an after-tax account.

    What do you and your readers think?

    1. Would also love to hear more or see an article dedicated to non-qualified deferred compensation and how to incorporate into an overall strategy including:

      1) Non-qualified deferred compensation
      2) After tax savings
      3) Before tax savings

      How to invest, withdraw, maximize savings across all three types.

  16. Freedom + discipline + a rudimentary welfare state = a financially happy life. Freedom + hedonism + a rudimentary welfare state = a financially dreary life. If you have your financial act together, you really don’t need much government. The fact that so many Americans want more government is just a symptom of their floundering finances. And I can’t say I blame them. After all, if I were a single mom with three young children and no child support from the father(s), I wouldn’t give a crap about limited government, states rights, the Takings Clause, and the 10th Amendment. I’d want free healthcare and free college for my kids. Excellent post, my friend. It really is all on you, you, and you. But how many of our fellow Americans realize this? And how many of those who do are in a position to handle that responsibility? To quote an old rock-n-roller, “I see a bad moon rising.”

  17. I’m one of the lucky few who will get a pension when I retire. (And I don’t work for the government.). My wife does work for the government and she will get a pension too.

    That said, I like the you-you-you three pronged approach to retirement. We are maxing out all of our pre-tax accounts and beefing up our after tax accounts. Still working on the personal hustle aspect though.

    That’s cool that your dad edits your articles for you. He does a great job! Just curious, Do you pay him a salary for his work?

  18. You Social Security assumptions are overly pessimistic.

    “Given our Social Security system is underfunded by ~32%, the government will either cut the average Social Security benefit by ~32% or raise the minimum age eligible for collecting Social Security by at least several years.”

    No way in hell the benefits get cut by 32%…ever. The most likely action is to increase or eliminate the Maximum Taxable Earnings limit. Eliminating the limit will cure most of the underfunding. Raising the age eligibility by 2 years cures the rests. You can raise it like they did the last time: a) no increase in the age eligibility if you are currently older than a certain age, b) increase the age eligibility by one month per incremental birth year if you were born between certain years (i.e. phase-in), and c) increase it by 2 years if you are younger than a certain age.

    Raising the FICA tax is also quite possible.

    Those three (increase the max earnings limit, increase the age eligibility & raise FICA tax) will all happen before they cut the benefits. Depending on your age & salary, those may have limited to zero impact on you. I would expect even if they cut benefits, they won’t cut them for current recipients or people above a certain age (10 to 20 years from eligibility). If you are currently over 45, I doubt you will see any benefits cut.

      1. Because they are politicians. They never cast a difficult vote until they have to. No politician in their right mind will vote to cut benefits on the elderly off the bat. They will look for any solution to avoid cutting benefits to seniors because seniors vote in large numbers.

        There are so many things that could be fixed easily but it typically means eliminating a tax & regulatory system that has embedded winners & losers. Politicians won’t address any problem until it is at crisis stage.

      2. Another part of the solution that will probably get pushed through is to raise the COLA for existing retirees less than the inflation rate every year. This already happens for a lot of federal retirees.

        “For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent.”

        Keep increasing benefits in nominal terms, but lower them in real terms. Most people don’t realize what is happening, and politicians don’t have to answer voters questions about why they reduced benefits. Plus, the pain of the reduction in benefits takes place slowly over decades.

        It’s not a big secret that the FED will eventually have to monetize the federal debt load. I’m expecting these kind of solutions to get more popular in the next decade.

  19. interesting idea on the forced retirement savings Sam…BUT I have a question(s).

    1. Would the government control your retirement withdrawals for you? And would they be choosing where it is invested?

    2. After retirement when the checks start rolling in aren’t people who didn’t have the discipline to save in the first place just going to blow their money on cheeseburgers, cars, etc… and end up still having money/life fulfillment problems?

  20. Hi Sam. Was the $20k/year of profit-sharing which you gave up a tax-deferred profit-sharing plan? Curious if there’s some other tax-deferred plan out there which we haven’t been talking about. -DF

  21. I’m lucky in that my employer still provides a pension. 17 years of service so far and hoping to make it to 25. The pension will not be huge, but it will be significant.

    Social Security will be cut for sure. I’m maxing out all tax-deferred accounts, both 401k and HSA and hoping to get my blog into the black in the next year or so.

  22. Also, I have a friend who is a bartender most of his life. He is in his mid-40’s so he never had access to a 401k. I don’t even think he contributes to an IRA. I told me once his retirement is his two investments properties. I guess if you have enough cash flow like that then it may be enough, but hard to say.

  23. Your argument for self-sufficiency is all too real. I’m not even into my 30s and come to the conclusion I shouldn’t rely on any source of financial assistance outside of my own resources in retirement. I don’t allow myself to think a social safety net will be there for my wife and me in our golden years. Instead, we max out our retirement accounts, look to save money in after-tax investments, and build passive income streams.

    In all reality, I do feel social security and Medicare will be there for me in retirement, just dramatically stripped down or altered versions. I expect there to be painful changes like deferred retirement ages, tiers of benefits, and other methods of sorting by needs-testing.

    In my current role, I am blessed to be one of the 15% with a pension. I work for an electric and gas utility and just made it in before they did away with their pension eligibility. I vest in 2 months and am so excited by that. I’m grateful to be in the small percentage but still don’t include those income streams in my long-term plans because my company can still eliminate the existing program if costs get too out-of-hand.

    At the end of the day, it all comes down to you. We are the only ones who can work to guarantee ourselves a safe and secure retirement.

  24. I have mentioned previously that Social Security is like a Ponzi scheme whose magnitude puts Bernie Madoff and Charles Ponzi to shame. And unlike the other two, this is forced upon all workers.

    I do not count any social security benefits when I make my retirement calculations (if it is there it will be considered a bonus).

    I do have a very small pension which I was fortunate to get during my residency and staying on as faculty for 2 more years. I believe it works out to $13k/yr when I am 67. Not earth shattering but still it’s nice to have a pension to keep elevating my retirement income floor.

    I do feel social security it going to be there but these benefits will likely come at raising the social security income cap, reduced benefits, and delayed age.

  25. I’ve started contributing to my Healthcare Saving Account HSA as a quasi retirement account. I believe for 2019 its a $3500 max contribution. Instead of withdrawing funds for medical expenses as its designed to do, I’m maxing it out. Either through my pay check or directly (my company gives me $500 each year toward my HSA).

    I keep track of my medical expenses, so at anytime I can withdraw funds tax fee for that reason. At age 65, I can withdraw the funds for any reason, although you’ll have to pay tax if its not for medical expenses.

    So, it acts almost like a 401k/IRA, as long as you pay don’t draw on it for your medical expenses.


      I started a HSA because its mandatory for my BlueCross basic insurance ” Cheap” i always run to mexico for cheaper doctors, but with HSA, can you move it or how to manage once you are in the TOP.. i mean can it just grow and grow and be carry over, or at somepoin will it need to go to an IRA or just take it out and put in my 401?

      Also i made an IRA on my last job, took 1000 us, should i keep it and put money in there… right now contributing 4% to my 401K but planning to put 25% starting 2019, side hustle needs to recover the 25% to my personal cash flow, but dont know much about how HSA comes in play to be honest. i started a blog and now offering my IT services on Fiverr…

  26. While agreeing with most of that I suppose the main thing that I would query is the side hustle. Or, more specifically the idea that, for most people, the “side hustle” in retirement will be anything other than continuing to work. I’m just not convinced about how entrepreneurial most people are (present company clearly excepted).

    For most people the best case may be to go part time in the their current role – alternatively to take a part time lower paid role closer to home.

    I would also suggest that it is never too late to make the change in law to have forced retirement savings. We’ve done it here in the UK in the last five years or so and it’s kinda working. It may be on the late side but at least it’s started!

    1. Forced retirement savings would be political suicide, especially in the climate the US is in currently!

  27. Sam, I thought you can contribute to a Solo 401k or a SEP IRA, not both. Can you explain further? Also, triggered an article idea; would love to see your thoughts analysis on the best providers for small business owner looking to set up a 401k & profit sharing plan (I have been using a SEP to date). As you know it is not terribly straight forward, which fin tech entrants guideline and human interest are in part trying to fix.

      1. Hmm, I don’t see it mentioned in the article.. just a quick user comment about it. I think its a good point to mention again as you can choose to invest those funds in the market depending on where you have your HSA.

  28. I am very different and chronologically in a very different place than our Samurai friend.

    My wife and I are 75. Think about that! We are in good health – still regularly at the gym. We are worth about $6.8 million, roughly $4 million in retirement accounts, $1 million in the “bank,” and $1.8 million in real estate. No pension. I grew up very poor in a troubled family. No one I knew had anything, and I was never given nor inherited anything. At 21, I started working my way through college, and then on a full-time fellowship for graduate school — not the kind of degree that leads to big money.

    I entered the work-force at 29, with a wife who wisely stayed home to raise our children. It took another five years to start making progress. We were working to make ends meet until we were 40. We made it through and I have some advice.

    Make maximum retirement contributions. My biggest constraint was a late start. Save as much as you can, which is more than you think you can save. You are really going to need it.

    Have a budget. I never used Personal Capital. I have used Quicken from the beginning and it was transforming. Assign every expense to rather narrow budget categories – no exceptions.

    Don’t boom and bust. I know a lot of people who spent their money “early,” or made significant unforced errors. Life is relative and having a lot less than you are used to is true misery. It is particularly noticeable how many people should have more than we do but have much less, and how many smart people in their 60s and 70s are on the ropes. Believe the saying that there are highways into poverty and pathways out.

    Preserve your capital. Make sure you have something to show for the money you spend – whether it is material or emotional. Our best decisions were not to spend JUST because others had something.

    1. Hi Bob

      Thanks for sharing your experience. I’m also a late starter with a similar upbringing.

      May I ask you a few questions?
      At what age did you buy your house?
      Did holidays also factor into your financial plan?
      When did you retire?

  29. We’re not relying on Social Security, but I’m pretty sure it’ll be there when we retire. I heard that if they just remove the cap, Social Security will be fine. Not sure how true that is. Maybe you can write a post on it. :)
    However, we will be fine if our Social Security benefit is reduced by 35%. We have personal savings and side hustles to keep us going.
    I’d add another leg for people who are open to it – geoarbitrage. We can reduce cost significantly if we live in cheaper COL parts of the world. Even halftime would make a big difference, IMO.

  30. Stool:

    -Pensions (wife + mine)
    -403b (wife + mine)
    -side hustle (wife retired early and is starting a business, won’t start pension payments for a few years)

    I won’t hit the personal savings targets listed above after tax but I will retire at 50 and begin my FIRE lifestyle. I budget for SS to cover my gasoline costs in 22 years that’s about it.

  31. Agree, agree, agree. My husband is retiring in 2 years, after working for 32 years as a hospital based physician. He is extremely lucky because halfway through his career, he changed jobs and wound up working for a hospital that provides a pension. The $280,000 employee compensation limit for calculating his pension does limit what his annual pension will be (as he makes a lot more than the limit), but we are grateful he gets a pension (which is very rare for docs). The amount is fairly substantial even with the compensation limit.

    Trying to get my young adult son to contribute more to his 401(k) on the other hand, has been a battle. He does not quite get the importance, and would rather spend more on his present life. Hopefully as he matures, he’ll get it. I am sick of sounding like a broken record.

  32. I do think Social Security will still be around when I retire. However, as you mentioned Sam, the benefit will be reduced and the waiting period much longer. I’m 34 now.

    On your three pegs, I’ve started to focus more on the side hustle or side gig. I found I’ve enjoyed Personal Fitness just as much as personal finance. I started studying to qualify as a coach at one of my favorite gyms – Orangetheory Fitness.

    Thanks for the post. – Mike

  33. Adam and Jane

    We are very fortunate to have pensions. We know so many people that depend on SS and don’t save enough money for retirement. From day one, wife TOLD me that we needed to live on one income in case one of us loses our job. We paid off our 30 years 9.75% mortgage for our less than 1,000 SQ FT starter home in 11 years by 2002. Our current car is 20 years old. We practice stealth wealth.

    Although we hate our IT jobs, we stayed in the same company for our pensions. Wife wanted to leave many times but I convinced her to stay the course. After 30 years of service, my wife was laidoff along with 650-700 people in 2016 with 234K severance, 52K pension and 8K yearly for company medical. She is SO HAPPY being forced retired at age 51. I have less than 11 months to reach 55 in order to be eligible to retire with a 72K pension and 8K for medical yearly for life.

    Our 4 legged stool is:
    1. Pensions-140K combined includes 8K each for retire medical
    2. Muni bonds-89K tax free
    3. 104Ks – 80K interest combined (in 4.3% fixed dollar acct in company). Should generate 100K by age 60
    4. SS-38K at age 62 combined

    At age 54, our pasive income is 149K (Wife’s pension+munis)
    At age 55, our passive income will be 229K (pensions+munis)
    At age 60, our passive income will be 309K to 329K (pensions+munis+401Ks)
    At age 62, our passive income will be 347K to 367K (pensions+munis+401Ks+SS)

    -Our current expenses is 70K a year.
    -Since we have pensions and munis, we prefer to be more financially conservative and have zero money in the stock market so that we can sleep at nights.
    -The fixed interest in our company 401K changes every year so we hope it will be 4% or above going forward. Therefore, I estimate 401K interest to be 80K-100K a year.
    -With our munis, it will cover 1.25x expenses. Pension and SS will be gravy.


    1. If you have pensions, seems like you ought to be more risk-taking elsewhere, and put your money in more aggressive investments. why not?

      1. Adam and Jane

        Hi jimjam,

        If I was younger then I may take more risk BUT that is not within my nature. Ever since my 401K lost money during the 2000 days, I don’t have any money in the stock market anymore. In hindsight, it was just a paper lost and I should have just left it alone to recover. I just don’t have the stomach for it. I work in IT. I provide 24×7 support for online systems for the last 30 years and it is very stressful to always be on call. I rather not have to worry about losing money in riskier investments. I have seen my co-worker lose 100K on Qualcomm. My father lost over 20K and 3 other family members lost over 80K each with stocks. They should have just purchased Vanguard’s S&P 500 index fund.

        I am quite happy with my tax free municipal bonds. Being 54 and about to retire, we want to preserve our financial nut. Having passive income 3x current expenses is enough without taking more risk.

        Although, we only invest in municipal bonds, I enjoy learning how Sam and his readers generate passive income. Please share your passive income streams and investments.


      2. I would’ve thought that they could be more risky too, but it doesn’t really matter either way; they’ll have enough money. It really just comes down to risk tolerance.

    2. Hi Adam,

      I just wanted to let you know that your comments on muni bonds have been my go to resource as I have began a muni bond ladder. Very helpful! Congratulations on your financial success.


      1. Adam and Jane

        Hi Bill,

        Thank you and I am very glad you found my muni bond comments helpful! A good family friend introduced municipal bonds to us. Since we are risk averse and didn’t want to pay more taxes, we purchased them to help us become financially independent just in time for layoffs in our company. We are indebted to our family friend and we are very happy to share our munis bond experiences with Sam’s readers.


    3. Hi Adam – new member here; can you provide any details on the fixed-interest account in your 401K is it a money-market type fund? Also would you be so kind as to direct me to your posts on learning more about muni funds?

      Thank you!

      1. Adam and Jane

        Hi Gautam,

        The 4.3% fixed dollar investment option is specific for employees of our company. It is like a savings account and not a money market fund in our 401Ks. Years ago it was over 6% and gradually reduced each year. Since We are risk averse, we choose this safe and guarantee option. I suspect the company invest in munis and corporate bonds in order to give us 4.3% interest rate.

        My comments for my muni bonds buying criterias are in the post below. Search the post for comments by “Adam and Jane”.


  34. Yep, it was always about me the whole time. I knew it :)

    I will get a pension so I’m lucky there, and since it’s Fed Government it’s simple to calculate and I doubt they’ll change it, but thy are trying to lessen the pension system for new Fed employees coming in.

    I expect zero from social security, anything is a bonus to me.

    And my side hustles now make about $400 a month, but my per-hour rate sucks. It’s fun though, I just have to keep plugging away.

    1. So you think you’ll be getting a Federal pension?

      Have you seen the supply of treasuries on deck?

      Federal government finances fast approaching emerging market standards.

      1. The USGOV will just print more money so pension is probably there in nominal terms but maybe not in real terms.

    2. I’m glad to hear your pension is essentially locked in and you don’t feel it is in jeopardy. I hope for your case, and the millions of other federal government employees, that is the case. I fear painful cuts lie ahead and don’t know where they’ll look to extract savings.

      My work closed our pension plan to new employees within a few months of me working. I’m fortunate to have both a defined benefit and defined contribution plan available to me. The defined contribution plan matches 100% of my first 3% and 70% of my next 3%. In effect, if you put in at least 6%, you receive a 4.2% match.

      The newer employees see the pension as a burden because it takes 5 years to vest, essentially locking you into your role. But what new employees get instead hardly makes up for the lack of a pension in my opinion.

      They get matched 100% on their first 6%. It seems like a poor trade: an additional 1.8% match for NO defined benefit plan. Smart on the company’s part because it saves them a lot of money and liability going forward.

      I’ll make it to 5 years and will vest at the beginning of 2019 and am a bit relieved to know the money will be mine soon. I’m in no rush to leave, so I guess the 5-year vesting period never bothered me. I’ll take the job security (and a good job) and defined benefit plan over the immediate vesting of the 1.8% incremental match any day.

    3. Hi Dave

      400$/mo is a great start…and validation that you are doing a good job with your hustle.

      Regarding the pension I am glad to hear it’s kind of secure….not so often nowadays.

      Anyhow the whole point is NEVER TRUST ANYONE and keep saving considering that you will get ZERO pension…

      Only in this way you will be prepared for the worst case…that unfortunately is not so unlikely…

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