Final answer:
The 'three-legged stool' of retirement income includes Social Security, pensions, and 401(k) or other retirement savings. These sources provide a comprehensive approach to retirement planning, ensuring that individuals can have a stable income during their retirement years. Option 4 is the correct answer.
Step-by-step explanation:
The 'three-legged stool' of retirement income traditionally includes Social Security, pensions, and 401(k) plans or other retirement savings. When planning for retirement, individuals should consider all three sources to effectively support their financial needs in their later years. Social Security is a government-provided program that offers a foundational income for retired workers, which is derived from employees' contributions during their working years. However, one should not solely rely on it due to uncertainty about its long-term solvency.
Pension plans are another key component of retirement income and have historically been provided by employers, offering a fixed annual payment to retirees. Unfortunately, traditional pension plans are increasingly being replaced by defined contribution plans like 401(k)s, where both employers and employees contribute money that is invested in various vehicles. These contributions grow over time and the funds are generally tax-deferred until withdrawn in retirement.
Finally, personal retirement savings such as investment in 401(k)s, IRAs (Individual Retirement Accounts), and other savings vehicles are vital. The portability and potential for growth make these defined contribution plans an integral part of the 'three-legged stool' for retirement.
Conclusively, the 'three-legged stool' of retirement income includes all of the above options, Social Security, pensions, and 401(k) or other retirement savings, to ensure a balanced and secure financial future for retirees.