Retire sooner using the ‘Fill The Gap’ strategy

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How much money do you need to retire?

To hear Wall Street tell it, you need to amass between $1 million and $2.5 million in retirement savings if you want to live comfortably when you quit the 9-to-5. That’s a huge spread. And big numbers like these can strike fear in the heart of even the most prudent would-be retiree.

Map your unique road to retirement

Before we buy into the scare tactics, we should note that these estimates actually raise more questions than they claim to answer.  Like, “Is this an accurate range for everyone?”  And, “Is it realistic for most folks to have this level of savings?” My answer to both of these questions is no.

Sure, it’s great to have a large nest egg for retirement, but that’s not the only road to a happy, financially secure retirement. Instead of focusing on hitting an arbitrary big, round number in your investment portfolio, another approach to retirement planning is using my Fill the Gap (FTG) strategy.  Using this strategy, you create a financial formula that fits your individual retirement needs.

Before we delve into my FTG approach, let’s run through Wall Street’s recommendations and what’s behind them. It’s important to consider the source of the information. 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 is a mutual fund company. Clearly, this information benefits their business.

The same goes for reports issued by Wall Street firms. Remember, Wall Street’s viability relies on investors. Because most of Wall Street is publicly traded, they need an ever increasing stream of investor assets for their share prices to rise. So, it has skin in the game.  And 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. Using FTG, will show you, on paper, that retirement could be well within reach.

So how exactly does the FTG strategy work? In essence, it 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 a specific formula that first identifies your actual needs and lets you work backward from there.

To apply the FTG strategy to your specific financial picture, start by calculating your monthly retirement income. Add all your guaranteed and semi-guaranteed income streams — like pension payouts, Social Security benefits, veteran’s benefits, rental income, and part time work — together.  This number is your initial monthly income excluding your investment income from liquid assets (401ks, 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.

Say, for example, that your initial retirement income each month will be $3,500. Your monthly expenses tally to $5,000. Here, 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 real-time retirement numbers, it’s time to plan for 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% and 4.5% yield each year over time. Again, this is just the income piece of the equation.

Let’s turn to growth now. 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% to 4% growth each year.

When we combine the numbers from growth and income, we get a range of between 5.5% and 8.5%.

With this in mind, we can work backwards 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% 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%) 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.

Of course, there are concerns that the stock market won’t continue to do well over time, and that these averages won’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% 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!

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

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