Is the second leg the next one to go?

Some years ago when thinking about retirement planning the concept was that of a “three legged stool”.

They were:

First leg - Social Security.

Second leg - whatever you could save on your own.

Third leg - a pension from your employer.

If you had social security, a little savings and a pension most people could retire comfortably. 

Well the third leg (the pension) has been chipped away at for some years now. Many companies have discontinued their pensions all together. Although long term employees may still have a pension benefit its growth may be limited or eliminated. Due to the financial meltdown in 07/08 most company pensions became underfunded. Instead of nursing them back to good health companies shifted the burden to the employee’s by turning off the pension spigot for younger and new employees. Most of these companies compensated for shutting this off by enhancing their match to the 401(k). So with no, or at most a reduce pension, people are required to save more on their own. Some do and some didn’t. This alone is a big area of concern.

I heard on the TV that under the proposed tax legislation being worked on in Washington they are considering limiting the tax deductibility of 401(k) contributions. Today an individual under age 50 can contribute up to $18,000 (projected to go to $18,500) in 2018. And if you are over 50 an individual can contribute up to $24,000 (projected to go to $24,500) in 2018. Not everyone can contribute these maximum amounts but almost everyone we know contributes at least an amount that will maximize the company contribution. If you are about to retire and have socked away lots of money already this may not be a large concern. But for young people who (with few exceptions) spend everything they earn it is or should be a big deal. This is a work in progress but one commentator indicated the deductible amount might go all the way down the $2,400 per year. The president quickly debunked this in a tweet so we’ll see. All of this is fluid so stay tuned. Keeping on top of this type of thing is a priority for us at Wells Financial Partners.