When it comes to retirement planning, most people know they need to save, but few understand how certain retirement investment strategies can impact the amount of income they’ll actually have.
In this article, we’ll explore four different retirement investment strategies and how each affects your ability to replace 70% of your pre-retirement income:
- 100% All Country World Index (ACWI ETF)
- 60% All Country World Index (ACWI ETF) and 40% US Aggregate Bond (AGG ETF)
- 20% All Country World Index (ACWI ETF) and 80% US Aggregate Bond (AGG ETF)
- 100% All Country World Index (ACWI) before retirement, switching to 60% ACWI / 40% AGG ETF at retirement
The MSCI ACWI (All Country World Index ) captures large and mid-cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 2,558 constituents, the index covers approximately 85% of the global investable equity opportunity set. For a complete description of the index methodology, please see Index methodology. For investment purposes, I use the iShares MSCI ACWI ETF which seeks to track the investment results.
The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P Aggregate™ Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs. It has 15,071 constituents. For investment purposes, I use the iShares Core U.S. Aggregate Bond ETF which seeks to track it.
Here’s the sample case we’ll follow:
- Age: 45
- Salary: $100,000
- Saving: 10% of salary
- Employer Match: 3%
- Current 401(k) Balance: $200,000
- Goal: Replace 70% of income at Full Retirement Age (67)
- Salary Growth: 2.5% per year
- Lifespan: Until age 100
We’ll also assume the client will qualify for Social Security benefits, which adjust with inflation.
Future salary and contribution growth
With salary increasing 2.5% per year:
Annual retirement contributions:
- 13% of salary (10% employee + 3% employer match).
Total future contributions: about $537,000 in future dollars.
Social Security estimate
Using the Social Security Benefits Estimator, this worker could expect about $40,000–$45,000/year starting at full retirement age.
Retirement income goal
Target annual retirement income:
70% of $184,475 = $129,133 (before taxes).
Income Sources:
- Social Security (~$43,000/year)
- Remaining ~$86,133/year must come from 401(k) savings.
Based on these assumed, but not guaranteed, average returns:
- ACWI (stocks): 7%
- AGG (bonds): 3%
Growth of different retirement investment strategies
Here’s what each retirement investment mix could grow to by retirement:
Note: In the new transition strategy,100% ACWI Pre/60/40 Post, the account grows 100% ACWI until retirement, then rebalances into 60/40 for safer withdrawals.
Retirement Income from 401(k) + Social Security
Using a 4% withdrawal* (source: Investopedia):
*Note: I am not advocating for 4% withdrawal. It is used here to illustrate the results with that assumption. I advocate working with a designated professional familiar with withdrawal strategies to personalize.
Shortfall vs. Goal ($129,133):
- 100% ACWI: ~$23,893 short
- 60/40 Mix: ~$38,213 short
- 20/80 Mix: ~$51,453 short
- Transition Strategy: ~$23,893 short (but safer in retirement)
How the retirement investment strategy strategy can help
The 100% ACWI pre-retirement / 60/40 post-retirement approach offers:
- Higher growth while working: Captures full market upside.
- Lower risk while retired: Protects principal from big market crashes during withdrawals.
This helps balance growth and safety, reducing the risk of running out of money later in life. In my Forbes article on maximizing Roth strategies, I discuss similar risk management ideas for building tax-smart, diversified retirement income streams.
Options to close the retirement incomegap
Even the most aggressive strategy leaves a shortfall. Here’s how to fix it:
1. Save More Each Year
Boost contributions percentage each year.
2. Delay Retirement
Waiting until 70 raises Social Security by about 8% annually.
3. Add Roth Accounts
Tax-free income from Roth IRAs and Roth 401(k)s can ease the burden. My article on Roth conversions explains how smart tax moves today can lower taxes later.
4. Adjust Lifestyle Expectations
Planning for a 5-10% lower spending target could make a huge difference in retirement security.
Key retirement investment and income takeaways
- All-stocks gives the highest growth but comes with higher risk of big losses — right when you may not have time to recover.
- Balanced portfolios reduce the ups and downs but may not grow enough alone.
- Transition strategies like starting aggressive and rebalancing at retirement give the best of both worlds.
Final thoughts on retirement investment strategies
Retirement investment strategy is a key component of creating future retirement income. Planning for retirement isn’t just about picking a number. It’s about building a living, breathing strategy that adapts to life’s changes.
Working with a designated and fiduciary financial planner, such as a Certified Financial Planner, can help you build a personalized plan that keeps growing while protecting what you’ve worked so hard to build.
By using smart retirement investment choices, increasing savings, and planning taxes wisely, you can make sure your retirement isn’t just comfortable — it’s secure.
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