Financial planners used to talk about funding your senior years by using the metaphor of a three-legged stool.

It consisted of Social Security, a pension and personal savings.

With fewer companies offering pensions these days, that retirement stool is now more like a bicycle.

And if you consider the strain on Social Security and the uncertainty of how to fix future shortfalls, a great deal of the money you’ll need in retirement will have to come from savings and, most importantly, your investments.

For most folks, investing means putting money in a mutual fund either on your own or, more likely, as part of an employer-sponsored retirement plan, like a 401(k) or 403(b).

But do you really understand how mutual funds work? Do you know what you’re paying in fees – and how those fees impact your nest egg?

I’m not asking these questions to make you feel dumb. I’m asking because not knowing how your 401(k) works could be detrimental to your financial health.

We hear all the time that information is power. But it’s really the right information that is powerful. So this month, the Color of Money Book Club pick is “Empire of the Fund: The Way We Save Now” by William Birdthistle, a professor at Chicago-Kent College of Law.

I belong to another book club – we call it “Color Me Read” – and Birdthistle’s book was a recent selection. His explanation of mutual funds was a hit with the group because it made us all confront the reality that we don’t know as much as we should.

I’d like to share comments from two of my book-club members:

“This book is an eye-opener and an exhortation not to be complacent about our retirement savings. There are actions that we can take now that will make a difference.”

 “I’m one of the lucky ones. I’ll get a pension from two different companies, as modest as they may be. But this book, and the 2008 crash, just reinforces just how tenuous 401(k)s are. Things are great now, but who’s to say that when I retire the economy won’t be in the dumps and the money I saved in some mutual fund I’ve paid little attention to evaporates?”

Birdthistle does a masterful job of explaining mutual funds by using a number of metaphors from cars to baseball to balloons. And he’s funny. Several times I laughed out loud. Mostly however, I was scared.

The book opens with this terrifying analysis: “Over the past 30 years, America has embarked on a grand experiment – perhaps the richest and riskiest in our financial history – to change the way we save money. The hypothesis of our experiment is that millions of ordinary, untrained and busy citizens can successfully manage trillions of dollars in a financial system dominated by wealthy, skilled and powerful investment firms – firms that on many occasions have treated investors shabbily.”

Just one paragraph in and you might want to throw up your hands in defeat. But don’t.

You can’t afford to just say the system is rigged and bow out. Your protection is understanding the “structural vulnerabilities” of mutual funds.

Birdthistle makes some bold recommendations. He advocates universal access to the federal government’s version of a 401(k), which is called the “Thrift Savings Plan.”

“The plan is modest, prudent and incredibly cheap,” he writes.

And because we are amateur investors, Birdthistle says we really should test people before they’re allowed to invest in tax-advantaged retirement accounts.

Think of it in terms of learning to drive, he says. To get behind the wheel, you first need a license. To get that license, you have to be tested.

“Licenses act as implicit warnings: What you are about to do is dangerous,” he writes.

I’m not sure about the testing part, but I agree that financial literacy is frighteningly lacking among investors. As Birdthistle concludes, “The way we save now is almost certainly going to ensure we will not have enough in the future. We must as individuals financially educate ourselves.”

As a society, if a lot of people get investing for their retirement wrong, it becomes a huge and expensive public problem.

The holiday season is here, and I know that recommending a book about mutual funds isn’t going to go over too well. You’d probably rather be shopping. Yet make the time. It’s vital that you become informed about a financial product that you’ll have to ride throughout your retirement.

I’ll be hosting a chat about “Empire of the Fund” at noon on Dec. 8 at washingtonpost.com/discussions. Birdthistle will join me to answer your mutual-fund questions. Even if you don’t read the book, join the discussion. No question will be too basic.

Michelle Singletary can be contacted at:

[email protected]

Twitter: SingletaryM