How to have substantially more money when you retire without saving even one additional dollar

It might sound too good to be true, but if you’re saving for retirement, you may be able to substantially boost your portfolio without saving more money.

In a recent article, I showed that your financial options in retirement are vastly better if you have saved 1.5 times as much as you really need to cover your cost of living.

Doing this can be easier than you think. And it’s really, really worth doing.

There are many ways you can safely increase your retirement income by 50% or more — saving more, retiring later, working part time or moving to a lower-cost area.

Today I’ll show you how you might achieve that “1.5 times” goal without doing any of those things. The key is how you allocate your retirement assets — in other words, what you invest in.

For this comparison, I’ll use a simple four-fund strategy that I’ve recommended for years.

Two Identical Investors, One Critical Difference

Let’s compare two investors born in 1940. Each starts saving in 1970 at age 30 and plans to retire in 2005 at age 65.

Both investors:

• Start by contributing $1,000 per year
• Increase contributions by 3% annually
• Invest 100% in equities for 25 years
• Shift to a 60/40 equity/bond mix in 1995

The only difference between them is the equity strategy they choose.

• Investor 1: Invests entirely in the S&P 500
• Investor 2: Uses the U.S. Four-Fund Combo (25% each in large-cap blend, large-cap value, small-cap blend and small-cap value)

Table 1: Comparison of Two Investors

These two investors saved exactly the same amounts and took the same overall level of risk. The only difference was the makeup of their equity portfolios.

For Investor 1 to match Investor 2’s first-year retirement income, she would have to withdraw 6.1% — a risky rate that significantly increases the chance of running out of money.

Is There a Catch?

Yes — but none of them are deal-breakers.

Catch 1: We know the past, not the future

True. But small-cap, value and small-cap value stocks have outperformed the S&P 500 over long periods going back to 1928. The reasons for this outperformance are well understood.

Catch 2: Different start dates produce different results

Always true. Yet this period included recessions, an energy crisis, market crashes and major bear markets. The four-fund strategy performed well across a wide range of conditions.

Catch 3: Value and small-cap stocks are riskier

Statistically, yes. But in real-world terms, risk usually means losing money. From 1970–2020, both strategies had 10 losing years. The worst year for the S&P 500 was a 37% loss; the four-fund combo lost 41%.

If you can tolerate a 37% loss, you can likely tolerate a 41% loss — especially when the four-fund combo lost far less during the brutal 2000–2002 bear market.

Catch 4: Rebalancing is required

Annual rebalancing keeps risk under control and takes less than an hour a year. In my view, the payoff is well worth the effort.

There are countless ways to build an equity portfolio, but as this real-world comparison shows, simply improving the quality of your equity allocation can dramatically improve retirement outcomes.

For more on how to earn higher returns from your retirement investments, check out my related articles and tools.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of We’re Talking Millions! 12 Simple Ways To Supercharge Your Retirement.