As we promised last week, we’re continuing our series about the book What Color Is Your Parachute? For Retirement by John E. Nelson and Richard N. Bolles. For our purposes, we are going to skip discussion on chapters two (The Retirement You’ve Always Wanted but Forgot About) and three (The Life You Can Live (Right Now)). They are both important chapters, especially chapter three which has some helpful evaluation tools, so please don’t skip them while you’re reading the book!

Today we’ll concentrate on chapters four (Retirement Economics Is More Than Personal Finance) and five (A New Approach to Retirement Security), the two chapters of the book most concentrated on finances.

“The Three-Legged Stool”

Just like the idea of “old-fashioned” retirement, there is an idea of the old-fashioned way to fund retirement—“the three-legged stool.” Each leg represents what used to be an important pillar of retirement income, but for a number of different reasons, each leg has lost some of its stability, and according to Nelson and Bolles, “we can’t depend on the three-legged stool like we could in the past” (83).

Leg 1 – Social Security

Many people know about the problems of Social Security, so we won’t go into the details here. However, though wobbly, Social Security is still an important source of income for all retirees.

Leg 2 – Employer Pension

If you still have an employer pension as a benefit at your work, you are very lucky. This was once a major staple in a retiree’s income. Spend you entire working career dedicated to a company, and they would help to take care of you when you retired with a steady stream of monthly income.

Unfortunately, pensions are dwindling. Nelson and Bolles say this is due to two trends—one on the employee side, the other on the employer side.

Employer pensions tend to be based on longevity. If an employee moves from company to company over the course of his career, he would likely not receive pension benefits, even if his employer offers them. Pensions are meant to reward loyal service, so it usually takes many years to build up benefits.

Also, many employers stopped providing these types of benefits simply because it cost too much. While not the only reason, cost is a major factor leading to many companies, especially smaller ones, discontinuing pensions.

Leg 3 – Personal Savings

Personal savings are often neglected by workers, especially those who can count on the first two legs. Many people “pay themselves last”—meaning after taxes, bills, etc, they often don’t get around to saving at all. It’s hard to put money aside for the future when it often means a sacrifice now.

“The New Retirement Economics: Autopilot”

Nelson and Bolles recommend a new way at looking at retirement income. “The three-legged stool” no longer makes the cut, so changes have to be made in your way of thinking. Their “Retirement Autopilot” has four elements:

  • “Sources of Income” – You have to rethink where your retirement income will be coming from.
  • “Financial Education” – The more you understand about finances, spending, and saving the better off you’ll be.
  • “Automatic Systems” – Making your finances automatic will help make your retirement income more secure.
  • “Fiduciary Advice” – Finding someone to help you through your decision making can have a positive impact.


The only “Retirement Autopilot” element listed above we’ll go into detail about is “Sources of Income.” According to Nelson and Bolles, “the three-legged stool” has become the more stable five pillars of income called “PERKS.

  • P = Personal Savings – Personal savings will likely always be an important aspect of retirement income. You must make the choice to make some sacrifices now for your future retirement. When you make that choice, “you can take the initiative to set up automatic savings programs” (104). Making savings automatic means you no longer have to think about it, which will help you succeed.
  • E = Employer Plan – Replacing the pension leg for the many workers who no longer have that option, the employer plan has become an important staple in retirement income. While these plans come in many forms, the most recognized likely being the 401(K), it’s become much more common in the workplace. Not all employers offer plans, and even less offer a company match (free money to you), however, if you do have access, it’s truly a “pay yourself first” way to save for your future.
  • R = Real Estate – This may or may not be a pillar for your retirement income. Depending on your situation, it may make sense to tap your home equity (often through downsizing) to help fund your retirement. Of course, this pillar works best if you have paid your mortgage down significantly or off completely before entering retirement.
  • K = Keep Working – This doesn’t have to mean staying in your current career. Staying productive and finding work doing something you love can be a great way to enjoy your retirement and still make some money.
  • S = Social Security – Social Security is well known and accepted. Make sure you understand all the ins and outs of your benefits options so that you file at the right time in the right way.

Not All About Income

While this post is about retirement income, planning your retirement is much more in depth. It’s not all about your finances; though being able to afford retirement is a very important factor. No one wants to have to scrape by, and unfortunately far too many people end up in that position. So, as important as finances are to your future, don’t let things get in the way of making sure your retirement income is secure.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.