Most retirement calculators default to 10%. That is what the S&P 500 has averaged annually since 1957, and it has become the backbone of nearly every retirement plan built in the last few decades. Run that number, and $500,000 becomes roughly $1.3 million in ten years.
That 10% is not a forecast. It is a rearview mirror. And the two firms managing more retirement money than almost anyone else in America have clearly said they don’t expect the next decade to look like the last one.
Fidelity and Vanguard aren’t predicting a crash. What they’re saying is almost more unsettling: plan for about half of what your calculator assumes.
What Fidelity and Vanguard are forecasting
Vanguard’s latest market outlook, updated through September, puts U.S. stock returns between 4.8% and 6.8% per year over the next decade. The midpoint of that range is 5.8%.
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Fidelity’s capital market assumptions use a 20-year horizon rather than a decade, and its expected annual return for U.S. stocks comes in at 5.8% as well. The two firms use fundamentally different methodologies and model different time periods, yet arrived at the same projection. That’s the kind of agreement between independent forecasts that’s hard to explain away.
Vanguard and Fidelity aren’t niche forecasters. Between them, they manage retirement savings for a substantial portion of American households. When two institutions that size independently come out with the same number, it’s not something you read once and then go back to assuming 10%.
What lower stock returns cost your retirement
At 10% a year, $500,000 grows to roughly $1.3 million over ten years. At 5%, it reaches about $814,000. That’s nearly $480,000 less from the same starting amount, over the same time period, just because the return assumption is different.
If your retirement plan is built on 10% growth and you get 5%, you don’t just retire with less. You retire with a plan that never accounted for what actually happened to your money.
And the closer you are to retirement, the less room you have to course-correct. At 10 to 15 years out, you can save more, work longer, or reset the target. At five years out, those options narrow fast.
Neither Vanguard nor Fidelity is telling you to sell your stocks. Both still expect equities to outperform bonds over the long run.
Why experts expect below-average stock returns
U.S. stocks are expensive by most historical measures. When valuations are elevated, forward returns tend to be lower. There’s less room for prices to run when buyers have already paid a premium. That’s not a prediction. It’s just how the math has worked consistently in long-run market data, and both Vanguard and Fidelity build it into their models.
Earnings growth has also moderated from the pace of the 2010s. That decade produced an unusual combination of cheap borrowing, expanding profit margins and aggressive share buybacks that pushed corporate earnings well above their long-run trend. That backdrop is harder to repeat in the current environment.
Interest rates are part of the picture too. For most of the past 15 years, near-zero rates pushed investors into equities because bonds offered almost nothing in return. That’s no longer the case. Bonds now compete with stocks for capital in ways they haven’t in over a decade, and that competition limits how aggressively equity prices need to run to attract buyers.
How to adjust your retirement plan now
Neither Vanguard nor Fidelity is telling you to sell your stocks. Both still expect equities to outperform bonds over the long run. But the return gap between the two has narrowed, and that changes some of the planning assumptions that may have governed your portfolio for years.
Start with what you’re taking out each year. The 4% withdrawal rule was designed for a world where stocks averaged around 10%. At 5% or 6%, pulling 4% out every year, no matter what, is a good way to run short before you expected to. Most financial planners have shifted toward a flexible withdrawal strategy, somewhere in the 2% to 5% range, adjusted based on what markets are actually doing rather than a rate you committed to on day one of retirement.
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A cash cushion matters too. Six to twelve months of living expenses held outside your portfolio give you the ability to cover bills without selling equities during a downturn.
That’s most important in the first few years of retirement, when a bad run of returns early on can do lasting damage to a portfolio’s long-term trajectory. Selling stocks at a loss to meet expenses in year one or two of retirement is one of the fastest ways to undermine a plan that otherwise looked fine on paper.
If you have income that doesn’t depend on your portfolio, things like Social Security, a pension or rental income, that changes your exposure significantly. The less you’re forced to sell stocks to cover monthly expenses, the less your financial security rides on hitting a particular return target every year.
What these forecasts mean for your savings
Keep in mind what Fidelity and Vanguard are actually saying. They built probability ranges from current valuations and growth trends. Nobody’s calling this another 2008. What they’re pointing out is simpler: if your plan assumed 10% and you get 5% to 6%, there’s a shortfall. The earlier you recognize that, the more you can do about it.
A 5% to 6% average return over ten or twenty years still builds real wealth. It still compounds. The problem isn’t that lower returns make retirement impossible. It’s that a plan built for 10% and running on 5% will come up short on its own projections.
Run your own numbers at 5%. See where you land. If the gap between that answer and what you planned for is uncomfortable, the time to close it is before you retire, not after.
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