Stocks and funds don't pay a fixed rate, but long-run planning still needs a number. Enter what you invest now, what you add each month and an expected annual return to project the balance, with returns compounded yearly as fund returns are usually quoted. Add an inflation rate to see the result in today's purchasing power.
When to use this
Use it to set a monthly target for retirement, compare a cautious 5% return with an optimistic 9%, see what raising a 401(k) or IRA contribution does to the end balance, or estimate a child's college fund at age 18.
Frequently Asked Questions
What return should I assume for stocks?
The US stock market has historically returned around 10% a year before inflation, or about 7% after it, with large swings from year to year. Many planners use 5-7% after inflation to stay on the cautious side.
Should I enter returns before or after inflation?
Either, but be consistent. Enter a nominal return (for example 10%) with an inflation rate (for example 3%) to see both figures, or enter a real return (7%) and leave inflation at 0 for a result already in today's money.
Does this account for market crashes?
No. It assumes a steady average return. Real portfolios rise and fall, and the order of good and bad years affects the outcome, especially near retirement. Try several rates to see a range rather than one forecast.
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