Graphic by Mike Forbush

Graphic by Mike Forbush

For many investors, building a retirement portfolio has evolved into an attempt to accumulate enough money to reach some elusive number. And now the financial media have entered the fray by asking, “What’s Your Number?” as if there were a magical amount you need to hit to live happily ever after.

Saving and investing for retirement isn’t about reaching one specific number. It is about creating a cash flow for yourself throughout retirement that supplements Social Security and any other pension streams to sustain your lifestyle during your golden years.

Getting from here to the point at which you expect to retire can be a daunting challenge. This is especially true when you focus on what Wall Street encourages you to focus on — quarterly earnings reports, industry cycles, economic trends — instead of paying attention to what actually matters: the components to building wealth that are found in your financial plan.

Saving for a rainy day is really all about establishing your own financial plan, a document that creates an awareness of how today’s savings correlate with your spending expectations throughout retirement. In carrying out this financial-planning exercise, you might find that your savings amount today doesn’t come close to funding the lifestyle you hope to live in retirement. That is OK, because at least you know where you stand. It is a beginning. What matters is that your newfound savings target is present in the countless financial choices you make in life.


Most of the larger financial institutions, including Vanguard, Charles Schwab, and Fidelity, offer simple online planning tools to help you create a financial plan. When carrying out this exercise, keep in mind that most financial-planning software either provides you with a portfolio growth figure or allows you to enter your expected rate-of-return number. The higher this number is, the more likely you won’t reach your financial goals. I suggest using a portfolio growth number of no more than 4 or 5 percent. If your portfolio does capture a higher growth rate over time, you can retire earlier or increase your monthly burn rate (expenses) throughout your retirement years.

Financial planning software also allows you to enter an inflation number that impacts the increase of your future expenses in relation to today’s dollars. Play around with this input and notice the amazing impact that 2, 3, or 4 percent inflation has on your future expenses, and ultimately the sustainability of your portfolio’s cash flow. Remember that, although the Bureau of Labor Statistics might report the economy’s annual inflation in the form of a Consumer Price Index (CPI), you need to establish your own personal CPI, the rate at which your expenses go up each year. Again, this gets back to the countless choices you make every day.

When creating a financial plan to fund a retirement that might be 20, 30, or 40 years away, many of the plan’s components you enter today won’t reflect the reality that unfolds in the years to come. For instance, what happens if you peg a 5 percent portfolio growth rate, and that number turns out to be 8 percent? Or 2 percent? How can you anticipate a major medical bill 10 years out or temporary unemployment five years out? You can’t. But that shouldn’t be an excuse for not creating your financial road map today.

Establishing a financial plan is analogous to airline pilots building a flight plan to some faraway destination. They realize they might need to make adjustments along the way based on weather or traffic delays at the arriving airport. You should do something similar: Make yearly adjustments in your financial plan to address the unexpected that life throws your way.