Opinion: Tips on how to retire with more cash — even if you happen to don’t save extra

It may sound too good to be true, but saving for retirement could potentially improve your portfolios significantly without saving more money.

In one current articleI’ve shown that when you’ve saved 1.5 times what you really need to cover your living expenses, your financial options in retirement are vastly better.

This can be easier than you think. And it’s really worth it.

There are many ways you can safely increase your retirement income by 50% or more. You can save more money. You can plan to postpone your retirement. You can plan to work part-time in retirement. You can move to a place with a lower cost of living.

Today I’m going to show you how to get 1.5x goal without doing any of these things. The key is how you allocate your retirement savings. In other words, what you invest in.

For this comparison, I’ve turned to a fairly simple four-fund strategy that I’ve been describing and recommending for years.

Let’s compare two investors who we’ll say were born in 1940. (I chose this date because it works with readily available dates.)

These two investors have identical goals and savings habits. (Perhaps we can think of them as twin sisters.) Each begins saving at age 30 in 1970 and plans to retire at 65 in 2005.

Each starts with a contribution of $ 1,000 in the first year. Each year thereafter, each increases its contribution by 3%. Everyone invests fully in stocks for the first 25 years and switches to a more balanced 60/40 stock split in 1995.

The only difference between them is the choice of stocks.

Investor 1 chooses the S&P 500
SPX, -0.29%
for her shares, to keep that choice until (and after) she retires.

Investor 2’s shares follow what I have described As a US four-fund combo: 25% each in large-cap blend stocks (S & P 500), large-cap value stocks, small-cap blend stocks and small-cap value stocks.

The following table summarizes these selection options and the resulting results.

Table 1: Comparison of two investors

Investor 1

Investor 2

Savings per year

$ 1,000

$ 1,000

Total savings 1970-2004

$ 57,045

$ 57,045

Equity allocation 1970-1989



Equity allocation 1990-2004



Equity portion of the portfolio

S&P 500

US four-fund combo

Portfolio value at the end of 2004

552,502 USD

$ 842,136

Withdrawal in 2005 at 4%.

$ 22,100

$ 33,685

The first four rows of the table show that these two investors saved the same amounts and assigned the same percentages to stocks.

The fifth line shows what they did differently and the last two lines show the result in their first year of retirement.

In order for Investor 1 to spend as much as Investor 2 in her first year of retirement, she would have to withdraw 6.1% of her portfolio. This is aggressive and would expose her to the very real risk of running out of money.

The big difference in portfolio values ​​resulted from only one thing: the composition of three-quarters of the equity portfolio.

I’m not suggesting that you can finance a solid retirement with savings of just $ 1,000 a year. The point is the comparison: without saving any extra money, Investor 2 retired with a large pillow (at least compared to Investor 1) to spend on travel, philanthropy, or anything else.

Now I know what you’re thinking: there has to be a “catch”. And you are right.

I can identify at least four “catches”, none of which I believe are anywhere near fatal.

Catch 1: We know what happened from 1970 to 2020. It could have turned out differently.

However, this is always the case. It is impossible to know the results of an investment plan in advance. However, the difference made by changing three-quarters of the stock portfolio over a 35-year period could have been (broadly) predicted as early as 1970.

Small-cap stocks, value stocks, and small-cap value stocks have a track record that dates back to 1928, and for long periods of time they have consistently outperformed the S&P 500. The reasons for this are known, and there is no reason to believe that the long-cap stocks maturity pattern will be any different in the future.

Catch 2: If these investors had started another year, the numbers would have been different.

This will always be the case too. However, the period in this comparative study included recessions, an energy crisis, a staggering one-day market collapse, a strong bull market, and two severe bear markets. The US four-fund combo held out under a variety of conditions throughout.

Catch 3: Investing in value stocks and small-cap stocks puts you at greater statistical risk than sticking to the S&P 500.

True if you are a statistician. In the real world, however, most investors equate risk with losing money. From 1970 to 2020, each of these equity strategies had 10 years of losses. The worst calendar year for the S&P 500 was a 37% loss. The worst year for the US four-fund combo was 41%.

Here’s what I think: if you can survive a 37% loss, if you lose 41% you probably won’t get out.

A more important question is how these two equity strategies, in the worst case scenario, compared the dire 2000-2002 bear market. Over those three years, the S&P 500 was down 37.6% while the US Four-Fund Combo was only down 14.6%.

Catch 4: The US four-fund combo requires realignment, preferably every year, to keep risk under control. However, with only four funds, this should require less than an hour of attention per year.

In my opinion, the payoff for this three-quarters shift in a portfolio’s stock structure far outweighs any cons.

There are hundreds of combinations of stocks you can include in a retirement portfolio. And investors have very different patterns of accumulating their savings.

At the Merriman Financial Education Foundation we are developing a calculator that you can use to run such scenarios with many variables. It should be ready for a public rollout later this year.

In the meantime, as you can see from real market returns over 35 years, you can make a lot more money simply by adjusting the stocks in your portfolio.

For more information on how to get higher returns on your retirement investments, please visit this article.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of We’re talking about millions! 12 easy ways to improve your retirement.