Final answer:
The "three-legged stool" for retirement planning consists of Social Security, personal savings, and employer-sponsored retirement plans.
Step-by-step explanation:
The "three-legged stool" that is typically used to plan for retirement consists of three main sources of income: Social Security, personal savings, and employer-sponsored retirement plans.
Social Security is a government program that provides a monthly income to individuals who have paid into the system through payroll taxes during their working years. It is important to note that the future availability and sustainability of Social Security benefits is a topic of concern, so it is recommended to save in other ways as well.
Personal savings can be done through various methods such as saving money in a bank account, investing in stocks and bonds, or purchasing annuities. Many financial advisers suggest saving around 70% of your pre-retirement income to maintain a comfortable lifestyle in retirement.
Employer-sponsored retirement plans, such as 401(k)s, are another common source of retirement income. These plans allow employees to contribute a portion of their paycheck into an investment account, typically with some matching contribution from the employer. The funds in the account can be invested in a variety of options, such as stocks, bonds, or mutual funds. These plans have tax advantages, as contributions are often made with pre-tax dollars.