Stop Chasing the Magic Number: The Question That Really Matters in Investing for Retirement

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• Betting on Bloodshed: Polymarket’s Geopolitical Surge
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When it comes to retirement planning, one of the most common questions that gets asked is: How much money do I need for retirement?

And you can take your pick for how you could answer this.

According to Northwestern Mutual, in 2025, Americans believed they needed around $1.26 million to retire comfortably.

That number is, however, simply how much Americans think they need for retirement. For something more concrete, Fidelity suggests saving at least 15% of your annual income, including employer contribution, which means you should aim to save one times your salary by age 30, three times your salary by 40, six times by 50, eight times by 60, and ten times by 67.

You may have also heard of the 4% rule, which suggests that you can live off around 4% of your nest egg every year without running out of money. Created in the 90s by financial planner William Bengen, the rule assumes a 50/50 stock and bond asset mix. It’s also far from constant; in recent years, Bengen has bumped that number up to around 5.25-5.5%.

You can also find countless retirement calculators online, which calculate how much you’ll need to save based on your income and your estimated budget.

If retirement planning were simply a math problem, we could all just plug the numbers in and call it a day (leaving aside little details, like the fact that someone earning $20 working and someone earning $2,000 an hour would necessarily look at the math somewhat differently).

But of course, the real answer is more complicated than a magic number or formula, which doesn’t account for the many things that can arise– whether it’s macroeconomic events (like a recession or higher-than-expected inflation) or life events (such as your kids heading off to college or a major health issue).

Fixating on a single number is an oversimplification that misses the full picture.

And honestly, it isn’t working: a large portion of Americans aren’t on track to save what they think they need for retirement.

Among the generation of Americans approaching retirement age, Northwestern Mutual found that 52% have three times their current annual income or less saved, and 54% believe they will not be financially prepared for retirement when the time comes. About half of Americans surveyed also think it’s somewhat or very likely that they will outlive their savings. And again, even if someone has 10 times their annual income saved, there is a huge difference between someone earning $50,000 a year and someone earning $500,000 a year.

Simply put, the current outlook and strategies on investing for retirement just aren’t cutting it.

So, it’s time to take a closer look at how retirement planning is best done. Beyond simple numbers or equations, what is actually the best way to invest for retirement?

There is no one-size-fits-all investment strategy.

Rather than chase a magic number, you should ask yourself a more fundamental question:

What exactly do you want your retirement investment strategy to do?

Broadly speaking, investing tends to fall into three approaches:

• Investing for growth
• Investing for income
• Investing for outcomes

Each approach here uses different investment strategies to answer that key question.

Investing for Growth

This is your classic accumulation model, where the focus is on growing your investment portfolio and building the biggest possible nest egg by the time you retire.

This typically means allocating more of your assets to equities, reinvesting dividends, and letting compounding do the heavy lifting.

Growth investing is about maximizing long-term appreciation while using diversification to spread exposure across sectors, industries, geographies, and asset classes, so as to manage the inevitable market mood swings.

Beyond buying stocks, investing for growth may also include real estate exposure, or even alternative investments such as private equity. (On that note, we’ve explored in the past how alternative assets have been introduced to retirement plans. The opportunity brings with it more complexity and challenges, and investors should think carefully before diving in.).

A growth-oriented approach makes the most sense when retirement is still decades away, as you’re taking on higher risk for higher reward. A longer time horizon allows investors to tolerate short-term fluctuations in pursuit of long-term growth.

What’s important to note here is that growth alone does not determine how retirement will ultimately be funded. A large portfolio doesn’t automatically translate into sustainable income. Which brings us to the next investment approach…

Investing for Income

This approach shifts the focus from accumulation to distribution. Instead of growing your portfolio as aggressively as possible, you align your investments with your anticipated living expenses.

This approach takes a more practical view of retirement. After all, having a high net worth doesn’t pay your bills. What’s more important here is your cash flow.

For investors with this mindset, buying growth stocks may not make sense. Rather, you’d be better off focusing on dividend-paying stocks, bonds, rental properties, or other income-producing assets. Diversification is still important here, but for the primary purposes of stabilizing cash flow and managing any income concentration risk.

Timing also matters for this approach. Emphasizing income too early comes with the risk of stunting your long-term growth. Think of investing for income like a fine one– it gets much more relevant the closer you get to retirement age.

Investing for Outcomes

This is a goals-based investment approach that anchors your investment strategy around a clear outcome.

That doesn’t mean simply saying: “I want $5 million to retire.” Instead of picking an arbitrary number, you’re looking at the amount you need to achieve specific financial goals.

This approach takes on another layer of practicality by assuming that retirement is not your only financial goal. You may also want to save for rent every month, or for a holiday once a year, or for your kids to go to college.

Each goal has its own timeline, and your strategy should adapt. If you need money in three to five years, then high-volatility assets may be a bad idea. If your goals have a 30 or 40-year timeline, then you can afford to take some risks and lean more heavily into growth.

And on that note…

Consider your investment horizon and risk tolerance.

Your investment strategy is ultimately dictated by how your investment horizon and risk tolerance intersect.

Investment Horizon

Your investment horizon is the amount of time you have to pursue your investment goals before you actually need to start withdrawing your money.

If you have 30 years until retirement, then your investment horizon is longer than someone who has five years left. This helps to determine how aggressively you may want to invest and how long your retirement savings need to last.

Speaking of which, the average life expectancy in America in 2024 was 79 years of age, according to the latest findings from the National Center for Health Statistics. The good news here is that we’re living longer. The (slightly less) good news is that a longer portion of our lives is likely to be spent in retirement, which requires a more careful investment strategy across your investment horizon.

Whatever you do, don’t underestimate how long your retirement will be, because your retirement certainly won’t look like your parents’ or your grandparents’.

Risk Tolerance

Risk tolerance is often seen as a function of your investment horizon, but it is also shaped by your life circumstances. Children, health, and financial obligations can all compress your effective risk capacity, regardless of your age.

A 40-year horizon looks very different for someone with three kids and a mortgage, compared to someone whose only dependents are the houseplants and a Netflix subscription.

For an investor with several competing obligations, taking a goals-based approach to investing may be most suitable. This is where you accept that retirement is not your only financial objective. You also have other, multiple milestones, each with its own clock.

Your investment strategy is ultimately shaped by why you want to invest.

The approa

ches we’ve explained above are not mutually exclusive. In fact, you may very well go from prioritizing growing your portfolio early on, to focusing on income and goals as your needs evolve and your life stages change.

So, instead of asking, “How much do I need?” perhaps the more strategic question is: “What do I need my investments to accomplish?”

That shift in thinking transforms retirement planning from a guessing game into a deliberate design of your financial future.