I used to think that everyone was a bona fide money geek and that, like me, the more information and data the better. Turns out I haven’t met one yet. The first plan I wrote for some friends had pages and pages of text, tables, and figures. “How could someone not be interested in all this?”, I asked myself. Their eyes glazed over as they flipped through it. I now realize nearly everyone just wants a simple plan that distills everything down to a single page. Something that gives them one or two clear actions and lets them get on with their lives. So I’d like to provide an example of a plan that is built around this post. Yes, it’s somewhat simplistic, but for most of us it’s all we’ll need. It’s certainly a good starting point. Life is unpredictable, and the best we can do is make a simple plan and then adjust it as life unfolds.

Here’s an example of a typical couple, age 38 and 42 (average of 40), with a combined gross income of $100,000.

• Target Net Worth = [(Age – 27) * Annual Gross Income] / 5 = $260,000
• Retirement Investments = $100,000
• Cash/Savings = $20,000
• Home Equity = $40,000
• Gross Income = $100,000/year
• Ordinary Living Expenses = $75,000/year
• Income/FICA Taxes = $15,000/year
• Rainy Day Fund Needed = $18,750 (at least 3 months ordinary living expenses)
• Cash Flow (gross income minus expenses including taxes) = positive cash flow of $10,000/year
• Social Security (at age 67) = $40,000/year combined (adjusted for inflation)
• Pension = $0
• Annual Expenses in Retirement = $70,000/year (includes income taxes)
• Short Fall = $70,000 – $40,000 (Social Security) = $30,000/year
• Short Fall x 25 = $750,000 (already have $100,000 in retirement savings)
• Monthly Savings needed at 4% Real Return = (amount needed to accrue an additional $650,000 in today’s dollars by age 67) = $800/month = $9,600/year.

Everything is adjusted to today’s dollars, so we can assume the inflation doesn’t exist. A few things to point out:

• Their net worth (retirement savings, cash/savings, home equity) is $100,000 less than their target net worth of $260,000;
• Cash/savings of $15,000 could support about 2.4 months of living expenses;
• Decent positive cash flow of $10,000/year;
• They’ll need to save and invest nearly all that positive cash flow to build a nest egg large enough to throw off $30,000/year in retirement;
• Moving forward, they can just focus on a single number: the $800/month savings goal.

Again, this is simplistic, but still helpful. They need to shore up their rainy day fund (to a total of $19,000) and focus on growing their net worth by saving and investing their positive cash flow. Their annual expenses will likely change over the years as pre-school and college costs come and go, in addition to paying off their mortgage near retirement. This simple plan also illustrates the power of reducing ordinary living expenses. For a given income, lower living expenses means more positive cash flow to save and invest during your career, and less investment income needed to fund retirement. Your earning potential is also important – a decent income coupled with modest living expenses equals a positive and growing cash flow. Read this post for more.

And what about investments? Again, let’s keep things dead simple. Based on how much you can tolerate the ups and downs of the stock and bond markets, invest in one of these three Vanguard funds:

• Life Strategy Growth (80% stocks/20% bonds);
• Life Strategy Moderate Growth (60% stocks/40% bonds); or
• Life Strategy Conservative Growth (40% stocks/60% bonds).

Each of the above funds invest in a mix of:

• Total U.S. Stock Market Index;
• Total International Stock Market Index;
• Total U.S. Bond Market Index; and
• Total International Bond Market Index.

So you’ll be part owner of every publicly-traded company in the world, and loaning your money to all of the governments and corporations in the world. Not bad for one simple fund, and the costs are reasonable, with expense ratios ranging from 0.12% to 0.14%. For your 401K, just invest in a single target retirement fund so long as the expense ratio is, say, 0.2% or less.

So there you have it. In this example, it all boils down to this: save $800/month, stash it in a Vanguard Life Strategy fund, then put your head down and stay the course. Pretty simple.