What Return Rate Should I Use in My Retirement Calculator?

The return rate you enter into a retirement calculator is the single most sensitive input in the entire projection. Change it by 1% and the final balance can shift by $200,000 or more over a 30-year horizon. Enter 10% when 7% is more realistic and you will significantly overestimate what you will have — and potentially under-save as a result.

Most people enter whatever the calculator defaults to or round to a number that feels right. Neither approach is grounded in what the data actually supports. Here is what you should know before setting this number.

What the Historical Data Says

The US stock market — measured by the S&P 500 or total market index — has returned approximately 10% to 10.5% annually in nominal terms over the long run, going back to the early 20th century. That is the gross return before inflation and before fund expenses.

Adjusting for inflation — typically 2% to 3% historically — reduces the real return to roughly 7% to 8%. Adjusting for fund expenses — a low-cost index fund might charge 0.03% to 0.05% annually — barely changes the number. Adjusting for a typical investor's behavior, including the tendency to buy high and sell low during volatility, reduces it further, but if you are holding a diversified index portfolio and not trading, the expense-adjusted real return is the relevant figure. For how inflation affects the retirement number more broadly, see how inflation affects your retirement number.

So the historically grounded answer for a diversified equity portfolio is a real return of approximately 7% per year. This is the figure Vanguard, Bogleheads, and most serious financial planners use as the long-run equity expectation. It is not a guarantee, and there are extended periods where markets underperform this average, but it is the best single-number estimate based on available data.

Nominal vs Real Return — The Most Common Confusion

This is where most people go wrong, and it is important to get right.

A nominal return is the raw percentage your portfolio earns — 10% per year historically for US equities. A real return adjusts for inflation — 7% after subtracting 3% inflation. Both numbers are correct; they measure different things.

If your retirement calculator shows results in today's dollars — accounting for inflation — it is using real returns and you should enter the real return. Use 7% for an all-equity portfolio.

If your retirement calculator shows results in future dollars — not inflation-adjusted — it is using nominal returns and you should enter the nominal return. Use 10% for an all-equity portfolio, and understand that the $2,000,000 it projects at age 65 is worth considerably less in today's purchasing power.

NumberToRetire.com shows results in real dollars by default — today's purchasing power — and uses 7% as the default return rate. This is the more conservative and more useful presentation because it tells you what your retirement balance will actually buy, not just what the nominal balance will be. The real vs nominal toggle is available if you want to see both.

What Rate to Use for Different Asset Allocations

The 7% figure assumes a mostly equity portfolio — 80% to 100% stocks. Most people approaching or in retirement hold some bonds or other conservative assets to reduce volatility. Adding bonds reduces both risk and expected return.

A 60% stock / 40% bond portfolio — the classic balanced allocation — has historically returned roughly 5% to 6% in real terms. A 40% stock / 60% bond portfolio has returned roughly 4% to 5%. A 100% bond portfolio has returned roughly 2% to 3% in real terms historically, though current yields affect this figure more than for equities.

Appropriate rates by allocation, in real terms: 100% equity: 7%. 80% equity / 20% bonds: 6% to 6.5%. 60% equity / 40% bonds: 5% to 5.5%. 40% equity / 60% bonds: 4% to 4.5%. 100% bonds or cash: 2% to 3%.

These are rough guidelines, not precise predictions. The point is that the return rate should reflect your actual allocation, not an optimistic equity return applied to a conservative portfolio.

The Case for Using a Conservative Rate

Some financial planners argue for using a rate below the historical average — 5% or 6% instead of 7% — as a conservative buffer against the possibility that future returns are lower than historical returns. The logic: valuations are higher than historical averages in many periods, demographic trends may slow growth, and using a lower rate builds in a margin of safety.

The argument has merit. A projection that uses 7% and is wrong in the direction of lower returns leaves you short. A projection that uses 5% and actual returns come in at 7% leaves you pleasantly ahead. The asymmetry of outcomes — being wrong in the pessimistic direction is better than being wrong in the optimistic direction — favors conservative assumptions.

For most people, using 7% for a well-diversified equity portfolio is appropriate. Using 6% is defensible and adds a buffer. Using 5% is very conservative but not unreasonable if you are close to retirement and sequence-of-returns risk is elevated. Using 10% or above for long-term projections is overconfident and likely to produce savings targets that are too low.

The Biggest Mistake: Using 10% Without Subtracting Inflation

The most common return rate error is entering 10% — the historical nominal equity return — into a calculator that shows results in today's dollars. This double-counts the inflation adjustment: the calculator is already stripping inflation out of the results, and you are inputting a rate that has not had inflation removed. The projection looks 3% per year more optimistic than reality over a long horizon.

Over 30 years, 10% nominal vs 7% real produces a roughly 2.4x difference in the final balance estimate. A 30-year-old who models their retirement using 10% real return instead of 7% will project arriving at 65 with roughly $3,200,000 when the actual real-dollar figure is closer to $1,300,000. That is not a rounding error — it is a plan that will fail.

Before entering a return rate, check whether the calculator displays results in nominal or real (inflation-adjusted) dollars. If it is real dollars, use 7% for equity. If it is nominal, use 10%. If you are not sure, use 7% — the conservative choice is always safer when the stakes are your retirement.

Per-Account Return Rate Overrides

Not all accounts earn the same return. A cash or HYSA account earns the current interest rate — 4% to 5% in 2026 — not an equity return. A pension cash balance account earns the plan's interest credit rate — often 4% to 5%. A conservatively invested brokerage account may hold a mix of equities and bonds with a different expected return than a fully invested 401k. For context on contribution limits across accounts, see the history of IRA and HSA contribution limit increases — the growing limits compound alongside the return rate in long projections.

Using a single return rate for every account in the projection ignores these real differences. A cash account growing at 4.5% and a 401k growing at 7% are meaningfully different over 20 years, and modeling both at 7% overstates the cash account's contribution to the final balance.

At NumberToRetire.com, every account has an optional return rate override. The 401k, IRA, HSA, brokerage, and HYSA each have their own return rate that defaults to the global setting but can be changed independently. This means you can model your cash account at its actual interest rate, your 401k at 7%, and your pension cash balance at the plan's credit rate — and get a projection that reflects how your money is actually invested rather than a uniform assumption across all accounts.