For retirement planning, use a real (after-inflation) return rather than the headline 10%. The S&P 500 returned about 10.0% a year compounded from 1928 through 2025 with dividends reinvested, or about 6.8% a year after inflation. Many planners project 5% to 6% real for an all-stock portfolio, and less for a mix with bonds, to build in a margin. Use 7% real only if you’re comfortable with an optimistic case.
Below are the actual numbers, why the headline average overstates what you’ll have, and how to choose a rate for your own projections.
What has the S&P 500 actually returned? #
Using NYU Stern’s S&P 500 return data (total return, dividends reinvested) and annual CPI from the Minneapolis Fed:
| Period | Arithmetic average | Compound (geometric) average | Compound, after inflation |
|---|---|---|---|
| 1928 to 2025 | 11.9% | 10.0% | 6.8% |
| 1957 to 2025 (500-stock era) | 11.9% | 10.6% | 6.7% |
| 2000 to 2025 | 9.6% | 8.0% | about 5.3% |
Inflation averaged about 3.0% a year from 1928 through 2025.
Arithmetic vs. compound averages #
The number you’ll often see quoted, around 12%, is the arithmetic average: add up each year’s return and divide by the number of years. Your money grows at the compound (geometric) rate, which is lower whenever returns bounce around.
A simple example: $100 falls 50% to $50, then rises 50% to $75. The arithmetic average is 0%, but you lost 25%. The compound return is about −13.4% a year. Use compound averages for projections.
Nominal vs. real returns #
Nominal returns are the raw growth figures. Real returns subtract inflation. If you project with a real return, the result is in today’s dollars, which makes it easy to compare with your current budget.
For example, $100,000 growing at 10% for 30 years becomes about $1,745,000. At 3% inflation, that buys what about $719,000 buys today. Planning with the first number instead of the second would leave you badly short. For more on this, see adjusting your FIRE number for inflation.
How much do returns vary over 30 years? #
Long-run averages hide a wide range. Looking at every 30-year window from 1928 through 2025, after inflation:
- Best: about 10.3% a year (1932 to 1961)
- Worst: about 4.3% a year (1965 to 1994)
- Below 5%: 9 of the 69 windows
- Below 6%: 15 of the 69 windows
Over ten years, the range is much wider. The worst ten-year real return was about −4.1% a year, from 1999 through 2008. From 2000 through 2009, the index lost about 1% a year even before inflation.
So a 6% real assumption has historically been beaten in most 30-year periods, but not all of them. And the future doesn’t have to resemble the past. Several large asset managers publish ten-year forecasts for U.S. stocks below the historical average, largely because valuations are high. Check a current one if you want a forward-looking view.
What rate should you use? #
| Approach | Real return to use | When it fits |
|---|---|---|
| Conservative | 4% to 5% | Coast FIRE math, early retirement plans, short horizons, or anyone who wants a margin |
| Middle | 5% to 6% | Long-term all-stock accumulation plans |
| Historical | about 6.5% to 7% | Optimistic case, matching the long-run past |
| Aggressive | 8% or more | Not advisable for planning |
These are for an all-stock portfolio. Bonds have historically returned less than stocks, so a 60/40 portfolio should use a lower number.
Using a conservative rate doesn’t predict a bad market. It builds a cushion for fees, taxes, a bad sequence or a lower-return decade. If the market does better, you reach your goal early, which is a much easier problem than arriving short.
Where planners go wrong #
- Using nominal returns without inflation. It inflates the ending balance and hides the real target.
- Forgetting fees. A 1% advisory fee turns a 6% real return into 5%. Subtract fees from whatever rate you pick.
- Assuming dividends are reinvested when they aren’t. The historical figures include reinvested dividends. If you spend your dividends, your price growth is lower, currently by a yield well under 2%.
- Confusing return with withdrawal rate. Earning 6% real on average doesn’t mean you can withdraw 6% a year. Because of sequence risk, safe starting withdrawal rates have historically been around 4% for 30 years, and lower for longer retirements. See whether the 4% rule is safe for 40 years.
How your return assumption changes Coast FIRE #
Coast FIRE depends entirely on growth, so the rate you choose moves it a lot. Say you have $100,000 at 30 and plan to retire at 65:
- At a 7% real return, it grows to about $1,068,000 in today’s dollars.
- At a 5% real return, it grows to about $552,000.
That two-point difference roughly halves the result. It’s why a conservative rate matters most for Coast FIRE. Our Coast FIRE number guide walks through it, and when compound interest starts to accelerate shows the same effect over time.
Try the rates on your own numbers #
Retire Goals lets you run the same plan at different returns quickly. The Compound Growth calculator shows 10-, 20- and 30-year projections at any rate you choose, and an inflation toggle restates projections in today’s dollars, so you can enter a nominal rate and still see real purchasing power. On each goal, the Monte Carlo outlook infers volatility from the return you expect and shows the odds of reaching your target, which is more honest than a single straight line. If you want to see how the market is doing, you can add a free API key you control and get live S&P 500 performance on the dashboard.
Frequently asked questions #
Does the historical S&P 500 return include dividends? #
Yes. The roughly 10% nominal and 6.8% real figures are total returns, assuming dividends are reinvested. Price-only returns are lower by the dividend yield.
What was the S&P 500’s worst 10-year period? #
After inflation, the worst ten years in the data were 1999 through 2008, at about −4.1% a year. Before inflation, 2000 through 2009 lost about 1% a year, and the ten years starting in 1929 lost about 1.7% a year.
Should I lower my return assumption as I near retirement? #
Usually, because most people add bonds and cash as they approach retirement, and those have historically returned less than stocks. Base your assumption on your actual mix, not on the S&P 500 alone.
Is 7% a realistic return for retirement planning? #
As a real return for an all-stock portfolio, 7% is close to the long-run historical average, so it’s possible but not conservative. Many planners use 5% to 6% for stocks and less for mixed portfolios to allow for fees, taxes and weaker decades.