Average Rate of Return for Retirement Planning: What to Use

Most people pick a rate of return for their retirement projections and wonder if they got it right. It’s one of the most consequential numbers in your plan, shaping how much you need to save, when you can retire, and whether your portfolio can withstand market pressure.

Take a 60-year-old with $800,000 invested who withdraws $50,000 a year. At 5% annual returns, that portfolio lasts about 27 years. Push the rate to 7% and it goes past 35. Get to 9% and it’s still growing after 40.

The goal is to choose a reasonable long-run average to plan around, knowing actual returns will swing above and below it. A year of 2% returns doesn’t mean the assumption is wrong.

A Realistic Rate of Return for Most Retirement Portfolios Falls Between 5% and 8%

For most retirement portfolios, a reasonable nominal planning rate sits between 5% and 8%. Where you land within that range depends on your asset allocation, your time horizon, and whether you’re still saving or already drawing down.

A stock-heavy portfolio with a 20-plus-year runway can often justify using 7–9%, while a conservative allocation with significant bond exposure belongs closer to 4–6%. Based on long-term capital market assumptions from firms like BlackRock and Vanguard, diversified stock/bond portfolios tend to cluster in the mid-single- to high-single-digit range, which is consistent with this 5–8% planning band.

If you’re drawing down accounts in retirement, the lower end of that range deserves more weight because bad timing hurts more when you’re spending than when you’re saving. A 65-year-old in retirement has far less time to recover from a rough stretch than someone in their 40s.

Before you drill into your specific holdings, it can help to think in rough bands by portfolio type (all nominal):

• Heavy equities, 20+ years to retirement: 7–9%
• Balanced (around 60/40): 6–7%
• Conservative (more bonds, shorter horizon): 4–6%
• Very conservative (bonds and cash): 3–5%

These are retirement planning inputs. Actual results will vary by year.

Should You Use a Nominal or Real Rate of Return?

Use a nominal rate. Most retirement planning tools, including the Boldin Planner, take nominal return inputs and account for inflation on the cost side. Entering a real return instead will make your projected balance look lower than it should, because the tool is already inflating your future expenses.

Your nominal rate is what your investments returned before inflation. Your real rate subtracts inflation to show purchasing power growth. The Boldin Planner works in future dollars, building inflation into projected costs as it goes, so you want to match that framework with nominal inputs for your accounts.

If you prefer to think in real terms, you can still do so — for example, by subtracting a 2–3% inflation assumption from your nominal rate — but keep the actual inputs nominal so your projections align correctly.

What Do Current Market Assumptions Project for Future Returns?

The BlackRock Investment Institute publishes capital market assumptions twice a year, estimating future returns across asset classes and scenarios over 5, 10, 15, 20, and 30-year periods. These estimates aren’t guarantees, but they provide a useful benchmark for long-run planning.

Here are their February 2026 estimates in a standard scenario:

Asset Class	5-Year	10-Year	20-Year
US large cap equities	7.8%	7.7%	7.9%
Global large cap equities	7.9%	7.8%	7.9%
Global 60/40 portfolio	6.8%	6.7%	6.8%
US aggregate bonds	4.1%	3.9%	3.9%
US high yield bonds	5.7%	5.5%	5.3%
US cash	3.6%	3.4%	3.3%

Notice how close the 10- and 20-year equity assumptions are, reflecting confidence in stock returns over the long term. The bond and cash rates are lower, which is important if your portfolio leans conservative.

BlackRock also models boom and bust scenarios. If AI productivity were to surge, it estimates U.S. large caps could return around 18.8% over five years, while an overvaluation scenario drops the same 5-year return to about 2.3%. The central estimate sits between those extremes and is the better anchor for planning.

What Is the Average 401(k) Rate of Return?

Most diversified 401(k) portfolios with about 60–70% in equities and 30–40% in bonds have returned between 5% and 8% per year over long-term stretches. That range reflects real variability across market cycles and fund choices, but it’s a useful baseline for planning.

The return on a 401(k) that’s 90% allocated to stock index funds will be different from one split evenly between stocks and bonds. The mix of stocks, bonds, and cash in your portfolio determines your return, not the account label. U.S. large-cap stocks have returned about 10% per year including dividends over many decades, per Damodaran historical return data, while broad bond indexes have returned less.

To apply the BlackRock estimates to your own portfolio, weigh them by your allocation. If 70% of your account is in U.S. large-cap equities and 30% in U.S. aggregate bonds, and you have a 20-year time horizon, you’d blend a 7.9% equity return with a 3.9% bond return for a weighted figure of about 6.7%. That weighted-average approach works for any mix of stock, bond, and cash holdings.

Sequence of Returns Risk Changes the Math in Retirement

Sequence-of-returns risk is the danger that poor market returns in the early years of retirement, when your balance is largest and you’re drawing from it, can permanently damage a portfolio even if long-term average returns are solid. Two retirees with identical 30-year average returns can end up in very different places depending on when the losses occurred.

A market slide in your first few years of retirement, when every withdrawal cuts deeper, does far more damage than the same downturn 15 years later. Morningstar’s safe withdrawal rate research, building on Bill Bengen’s 1994 work and the subsequent Trinity Study analysis behind the 4% rule of thumb, shows how early-period losses can shorten a portfolio’s life even when average returns look similar on paper.

That’s why a more conservative rate assumption often makes sense for the early withdrawal years in retirement, even if your long-term allocation leans toward stocks. During retirement, especially in the first decade, using a rate at the lower end of your planning range (around 5–6% for a balanced portfolio) gives your plan more room to absorb a bad run of early years.

Linear Projections Show One Future; Monte Carlo Shows a Thousand

Once you’ve settled on an assumed rate of return, there are two main ways to use it in your planning.

Linear projections apply a single fixed rate to every future year, so your portfolio grows at 7% in year one, year two, and on down the line. That’s easy to follow and can be useful for understanding how your plan behaves, but markets don’t work that way. They can go up 22% one year and down 18% the next, and a linear model can’t show you what happens if a downturn follows your retirement.

Monte Carlo analysis captures that by running hundreds or thousands of different return sequences and mapping the full spread of outcomes. The Boldin Planner’s Monte Carlo analysis runs 1,000 simulations. If your plan holds up in most of them, that’s a strong signal it’s built to withstand market volatility, not just a smooth 7% line. A single projected line at 7% gives you one outcome, and one outcome isn’t a plan.

The Boldin Planner supports both approaches. You can toggle between optimistic, pessimistic, and average rate of return and inflation assumptions to see how different conditions affect your plan’s outlook.

How to Choose and Test Your Rate of Return

Your Asset Allocation Is the First Input

Start with your asset allocation. Look at your holdings across your accounts. The split between equities, bonds, and cash is the primary input for any return assumption. A portfolio that’s 80% in stock funds and 20% in bonds can reasonably use a higher assumed rate than one that’s 40% stocks and 60% bonds.

You don’t need to be precise down to the last decimal. Group similar investments together (U.S. stocks, international stocks, bonds, cash) and estimate what percentage of your total each represents. That high-level picture is enough for a first-pass rate.

Match Your Rate to Each Account’s Time Horizon

For each account, the right rate depends on when you’ll need the money. Money you won’t touch for a decade or more can bear a higher assumption because it has time to ride out volatility. Money you’ll need within a few years should carry a lower assumed rate, or even 0–2% if it’s sitting mostly in cash or short-term bonds. Think early retirement spending, a home purchase, or near-term college costs.

Model accounts separately rather than averaging everything into one rate. That will give you a clearer picture of how each bucket is expected to grow and when you can spend from it.

Use Nominal Rates So Your Projections Match How Tools Handle Inflation

Enter a nominal rate for each account in the Boldin Planner. The Planner works in future dollars, building inflation into projected costs over time. If you enter a real return instead of a nominal one, your projected balance will appear lower than it should, because the model is already inflating your expenses.

If your long-term nominal assumption is 6% and you assume 2.5% inflation, that implies a real return of about 3.5%. Keep the 6% as your input and let the Planner handle the inflation math in the background.

Review and Adjust Your Assumptions Over Time

Your asset allocation drifts over time as some investments grow faster than others, and your time horizon shrinks as you move closer to retirement. Review your return assumptions at least once a year, or whenever you make a major allocation change, to make sure they still match your actual mix of stocks, bonds, and cash.

Adjusting a 7% assumption down to 5–6% as you shift into a more conservative portfolio near retirement is a normal part of the process. The key is to be deliberate rather than let your plan run on assumptions that no longer fit your risk level.

In the Boldin Planner, you can set a nominal rate of return at the account level, choose optimistic, pessimistic, and average assumptions, and model future shifts to a more conservative allocation as you approach or move through retirement. That makes it easy to test how different rates affect your Chance of Success without rebuilding your plan from scratch.

These Rate-of-Return Assumptions Can Quietly Derail Your Plan

Anchoring to recent strong returns.
After a few great years, it’s tempting to assume those returns will continue, but long-term averages are much lower and more volatile. Basing your plan on the last three years risks over-promising what your portfolio can deliver.

Using the S&P 500’s historical average as your personal benchmark.
The S&P 500 is close to 100% large-cap U.S. stocks, and has averaged a 9.9% yearly return since 1928, per Damodaran historical return data. But forward-looking capital market assumptions are significantly lower. Most retirement portfolios also blend stocks with bonds and cash, which lowers expected return and downside volatility. That’s a worthwhile trade-off near and in retirement.

Ignoring sequence-of-returns risk in retirement.
Using the same aggressive rate for accumulation and decumulation years can overstate how long your money lasts. During withdrawals, sequence risk matters more than averages. A lower, more conservative assumption for the first decade of retirement is often safer, even if your overall allocation still includes plenty of stocks. Morningstar’s safe withdrawal rate research addresses this in detail.

Never revisiting your assumptions.
Life changes, markets change, and your allocation changes. If you never revisit your assumed rate of return, your plan can drift without notice. A brief annual check-in is enough to keep things aligned.

Because these moving parts are hard to track by hand, using the Boldin Planner to adjust your rates and allocations over time can help keep your assumptions solid and your plan grounded.

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FAQs: Average Rate of Return for Retirement Planning