1. I don’t believe we’ll get 12% over the long haul, but we don’t really need to with our plan. We’re also diversified in real estate and I think we’ll do pretty well there.

  2. I think it’s safe to say that picking your years, you can get all sorts of different return rates and make all sorts of points about expected return.

    I’m on the wait list at the library for the Total Money Makeover now. Friends tell me there’s good stuff in there, but I have also seen these stats about expected returns that are definitely questionable.

  3. I’m hoping to retire in about 10 years so I’m projecting a lower rate of return during this time frame, of about 5-7%. There isn’t enough time to average out the annual returns to earn 12% each year. I’d much rather be pleasantly surprised than horribly disappointed with my forecasting.

  4. I don’t necessarily think 12% returns are absurd. For example, we earn much more than that on our rental property. However, 12% is in line with the nominal historical average of the S&P 500 which includes a period of over 10 years when inflation ran into the double digits, and most years when inflation was over 3% (prior to the early 60s). The “real” returns I think adjust to more 6-8% when everything is taken into account, and most people don’t buy and hold which brings real returns into the 3% range.

    I use 7% for illustrative purposes, but I don’t think there is anything wrong with using larger returns for an illustration. The real key is to explain that the savings rate trumps the interest rate for the first 20-30 years of investing.

    • Pure gold: “The real key is to explain that the savings rate trumps the interest rate for the first 20-30 years of investing.” Love it, Hannah!

  5. The majority of my investments are in real estate, mutual funds and a few stocks. I am looking more at the 7-9% range which has been great. When I do my long term projections I shoot for the 5% range. I feel like this will help keep me focused and better off in the long run. I enjoy the blog. Thanks

  6. 12% to me is way too high to project. I think it is best to project your future returns based on a much lower amount, maybe 5-6%. They way if you do get 12% you are way better off. Projecting at 12% I believe will only result in disappointment.

    • I imagine it would be especially disheartening if you were new to investing in this market. Last year, my Vanguard account was kind of ugly – but I knew what I was getting into. If had imagined anything near 12%, I’m afraid I would have quit right then.

  7. I personal use 7-8% return for my calculations, but some people are pretty optimistic about returns. I’d rather plan for lower returns and be happy if I get excess cash in my future that have issues with cash because my planning was too optimistic.

    Side thought: Unless you’re in lower income brackets, is there a reason you’re doing Roth IRA rather than Traditional IRA? I’m still learning but I was doing Roth, now I’m doing Traditional IRA’s to get my tax bracket down and then I’ll convert those accounts to Roth later on if I’m able to retire early. Stuff is so complex, I just want to know if I’m incorrect on tax laws and retirement accounts.

    • That’s a great side thought! My husband and I are both teachers with pensions. As a result, Roth IRAs it is. My work also offers a 403b through AXA but the fees are horrendous. Sounds like you’ve got a solid plan!

  8. Nope, I project based on 5-7% because I don’t know how many of our building investment years will include really bad negative years. I’d rather end up being surprised with more money than less 🙂 I also diversified into real estate but I’m also being conservative there as well.

  9. Yeah, so I don’t do projections at all (maybe one day!)

    I have been lucky to have had a really good run, starting investing probably just coming out of the GFC and then enjoying a bumper run (NZ markets have done really well recently – not 12% I don’t think but not that far off either!)

  10. Hello Penny! Count me among those of little faith; I use a 7% return in my expected return. Truth be told, I haven’t cranked out any future value projections in a long time. As you know, we’ve been in hardcore savings mode the last few years, so I’ve overlooked this very basic aspect of retirement planning. Looks like it’s time to break out my trusty financial calculator…

    Side note, I picked up a penny today at school and instantly thought of you!
    Frugal on, Ed

    • Hooray for found money! I hope you’ll do a post (or 12!) when you run your projections. Your hardcore savings is so inspiring!

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