Individuals with well designed retirement plans and solid portfolio performance may still face an income shortfall.

Most traditional financial plans are inherently flawed because they focus on returns instead of dollars. Although, over time, actual returns can be expected to converge towards expected values, spendable dollars will diverge significantly from expected values. Since investors retire on dollars, not rates of return, this divergence may be disastrous. The article illustrates the various factors driving the wealth divergence, and borrows an accounting concept that used for corporate pension plans to suggest a methodology for monitoring progress towards goals that will mitigate the impact of the divergence experienced by the investor.

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This article originally appeared as a two part series in the February 1997 and April 1997 issues of Journal of Financial Planning.