Reasonable Rate of Return: What to Expect
Everyone has heard 'the stock market returns 10% a year'. The number is true. The reason your retirement plan should not use it is where most amateur plans quietly fall over.
From the headline 10% to what you actually keep
Plan around the conservative number. If markets are generous, you finish early.
Key takeaways
The S&P 500 has returned roughly 10% per year since 1926 in nominal terms. After inflation, the real return is closer to 6.5-7%.
UK investors in global tracker funds should plan around 4-5% real returns after fees, inflation, and currency drag.
The 10% number is a useful benchmark, but it is a long-run average. In any given decade, actual returns can be dramatically higher or lower.
Using a conservative estimate in your financial plan is not pessimism. It is the difference between a plan that survives and one that does not.