Wes Moss: Ignore Wall Street’s retirement numbers and create your own

Fear is a powerful marketing tool. Yes, sex sells, but striking doubt or terror into the public’s heart can be even more effective.

Need proof? Ask yourself how much you need to retire without eating cat food for dinner or greeting Wal-Mart shoppers at age 87.

To hear Wall Street tell it (or sell it), you need to amass between $1 million and $2.5 million in retirement savings if you want an even remotely comfortable post-career life. Big numbers like these can terrorize even the most rational person.

But don’t let them cause panic or paralysis. As the old saying goes, figures don’t lie, but liars figure.

Yes, building a huge retirement nest egg is a great thing. I highly recommend it. But that’s not the only road to a happy, secure retirement. Another approach to retirement planning is my Fill the Gap (FTG) strategy, in which you create a financial formula that fits your individual retirement needs.

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Before we get into the specifics of the FTG approach, let’s talk about Wall Street’s recommendations and motivations. It’s important to consider the source of the information. Remember, Wall Street’s viability relies on investors accumulating money. Because most of Wall Street is publicly traded, they need an ever-increasing stream of investor assets for their share prices to rise. The more you invest, the more Wall Street makes.

This explains every retirement planning study ever issued by Wall Street. As an example, news reports on a Legg Mason survey indicated that investors believe they need $2.5 million in retirement to enjoy their same quality of life. Legg Mason sells mutual funds. Clearly, this contention benefits their business.

So, if you base how much money you need for retirement on Wall Street’s numbers, you may never feel you have enough.

Now that we’ve dispensed with Wall Street’s one-size-fits-all, huge nest egg approach to retirement, we can turn to the highly workable, highly individualized FTG strategy.

FTG focuses on covering expenses that your Social Security benefit, pension and any other income streams won’t cover during retirement, i.e., “filling the gap.” The FTG strategy is based on a formula that first identifies your actual needs and lets you work backward from there.

Start by calculating your monthly retirement income. Add all of your guaranteed and semi-guaranteed income streams — Social Security benefits, pension payments, veterans benefits, rental income and part-time work — together. This number is your initial monthly income excluding your investment income from liquid assets (401(k)s, IRAs, brokerage accounts, etc.). Next, create a budget of your expenses to determine your monthly spending need. Once you’ve calculated all your expenses, subtract this number from this initial monthly income figure. This is your gap.

So, for example, if your initial retirement income each month will be $3,500, and your monthly expenses tally to $5,000, your gap is $1,500 per month. This is the perpetual gap that you’ll need to fill each month.

Now that you have a sense of your actual retirement numbers, you can plan on how to fill the gap. Here’s where your retirement savings portfolio comes into play. I go into more detail on this in my book, “You Can Retire Sooner Than You Think,” but just remember: With investing, there are the two prongs of wealth building.

Total Return = Growth + Income.

With income, we garner cash flow in the form of stock dividends, bond interest, and distributions that come from other areas of the market like REITs and pipeline companies. Conservative estimates say we can expect between 2.5 percent and 4.5 percent yield each year over time. Again, this is just the income piece of the equation.

Now let’s talk growth. Estimating overall growth is far less predictable than income, as it relies heavily on how well the stock market and economy fare in any given year. Again, let’s be conservative and aim for 3 percent to 4 percent growth each year. When we combine the numbers from growth and income, we get a range of between 5.5 percent and 8.5 percent.

Using those figures, we can work backward to find how much money we need to have invested to create a total return that will “fill the gap” in our monthly retirement income. Let’s use a 4.0 percent withdrawal rate to keep these numbers conservative. If you need $1,500 to fill your retirement gap, that’s equal to $18,000 per year. Divide that number 0.04 (4.0 percent) and you get $450,000.

$1,500 x 12 = $18,000

$18,000/0.04 = $450,000

That number is less than half of what Wall Street told us we need to have in liquid savings to retire! The best part is that with proper planning and strategy, you should be able to create this total return without dipping into your savings.

But what if the market slips and these averages don’t come to fruition? We all remember the havoc the market experienced during 2001-2002 and 2008-2009. But looking at historic averages, since 1926 the S&P 500 has come in close to 10 percent per annum. Feeling more optimistic? Good.


Using the FTG strategy, retirement planning may seem more doable. Remember, we get to our sweet spot using a balanced portfolio of stocks, bonds and other income-producing investments. The key is to let our wealth grow slowly and steadily over time, while enjoying the additional income it produces on a monthly or annual basis.

My research on happy retirees shows that the happiest folks make their money work for them, not the other way around. Try using the FTG strategy to map your unique road to retirement. Who knows? You may be able to get there sooner than you think!

Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.

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