Mon. Dec 4th, 2023

It might sound too good to be true, but if you’re saving for retirement, you may be able to substantially boost your portfolios 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. 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’ll show you how you might achieve the “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 the present 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 that date because it works with readily available data.)

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

Each one starts by contributing $1,000 the first year. Every year after that, each increases her contribution by 3%. Each one invests entirely in equities for the first 25 years, switching to a more balanced 60/40 equity/bond split in 1995.

The only difference between them is their choice of equities.

Investor 1 chooses the S&P 500

for her equities, keeping that choice until (and after) she retires.

Investor 2’s equities follow what I have described as the U.S. Four-Fund Combo: 25% each in large-cap blend stocks (the S&P 500), large-cap value stocks, small-cap blend stocks and small-cap value stocks.

The table below summarizes these choices and the results they produced.

Table 1: Comparison of two investors

Investor 1

Investor 2

Savings per year



Total savings 1970-2004



Equity allocation 1970-1989



Equity allocation 1990-2004



Equity portion of portfolio

S&P 500

U.S. Four-Fund Combo

Portfolio value end of 2004



Withdrawal in 2005 at 4%



The first four lines of the table show that these two investors saved the same amounts and allocated the same percentages to equities.

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

For Investor 1 to have as much as Investor 2 to spend in her first year of retirement, she would have to withdraw 6.1% of her portfolio. That is aggressive and would subject her to the very real risk that she could run out of money. 

Again, the big difference in portfolio values resulted from only one thing: the makeup of three-quarters of the equity portfolio.

I’m not suggesting that you can fund a robust retirement with savings of only $1,000 a year. The point is the comparison: Without saving any additional money, Investor 2 retired with a large cushion (at least relative to Investor 1) that she could spend on travel or philanthropy or anything else.

Now I know what you’re thinking: There’s got to be “a catch.” And you’re right.

I can identify at least four “catches” to this, none of which is anywhere close to fatal in my estimation.

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

However, that is always the case. It’s impossible to know the results of any investment plan in advance. And yet the difference made by changing three-quarters of the equity portfolio over a 35-year period could have been predicted (in general terms) back in 1970.

Small-cap stocks, value stocks, and small-cap value stocks have track records going back to 1928, and over long periods they have always outperformed the S&P 500. The reasons for this are understood, and there’s no cause to believe the long-term pattern will be different in the future.

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

Again, this will always be the case. However, the period in this comparison study included recessions, an energy crisis, a jaw-dropping one-day market meltdown, a strong bull market and two severe bear markets. Throughout, the U.S. Four-Fund Combo held up through a wide variety of conditions.

Catch 3: There’s more statistical risk when you invest in value stocks and small-cap stocks than if you stick to the S&P 500.

True, if you’re a statistician. But in the real world, most investors equate risk with losing money. From 1970 through 2020, each of these equity strategies had 10 losing years. The worst calendar year for the S&P 500 was a loss of 37%. The U.S. Four-Fund Combo’s worst year was 41%.

Here’s what I think: If you can persevere through a loss of 37%, you’re not likely to bail out if you lose 41%.

A more important question is how these two equity strategies compared in the worst of times, the awful bear market of 2000-2002. In those three years, the S&P 500 was down 37.6%, while the U.S. Four-Fund Combo lost only 14.6%.

Catch 4: The U.S. Four-Fund Combo requires rebalancing, preferably every year, to keep the level of risk under control. However, with only four funds, that should require less than an hour of attention every year.

To my mind, the payoff for this shift in three-quarters of the equity makeup of a portfolio far outweighs any drawbacks.

There are hundreds of combinations of equities you can put into a retirement portfolio. And investors have widely different patterns of accumulating their savings.

At the Merriman Financial Education Foundation, we’re developing a calculator that will allow you to run scenarios like this with many variables. Later this year, it should be ready for a public rollout.

In the meantime, as you can see based on 35 years of actual market returns, you can wind up with a lot more money simply by adjusting the equities in your portfolio.

For more on how to get higher returns from your retirement investments, check out this article.

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.

By senior