What return should you assume for retirement planning?
Two numbers drive every retirement projection: the return your money earns and the inflation that erodes it. Set them a point too optimistic and a plan that “works” on screen can fail in real life. Set them a point too pessimistic and you may work years longer than you needed to.
This guide covers what long-run history says, why cinder.fi’s defaults are what they are, and when to change them.
Nominal vs real: the mistake that breaks DIY plans
A nominal return is the headline number your account statement shows. A real return is what’s left after inflation. The most common spreadsheet error in retirement planning is mixing them: projecting a nominal 8% return while holding spending flat in today’s dollars, which double-counts inflation in your favour.
cinder.fi models everything in nominal terms with an explicit inflation assumption. Future dollars stay visible, and things that inflate on their own schedules (tax brackets, contribution limits, CPP/OAS and Social Security) are each handled separately instead of being flattened into one “real” rate.
What nearly 100 years of history says
The Stress test view on cinder.fi’s Retirement tab replays your plan against market history back to 1928. Some long-run figures from that record and related global data:
- US stocks have returned roughly 6.5% per year after inflation since 1900. That is closer to 10% nominal, but a third of the headline was inflation.
- Canadian stocks land a little lower: about 5.5–6% real over the last century.
- Government bonds have delivered roughly 1.5–2% real over the long run, with brutal decade-long stretches below zero (the 1970s, the 2010s).
- A balanced 60/40 portfolio, which is what most retirement money looks like, has historically produced 7–8% nominal in North America, before fees.
Three adjustments turn that history into a planning number:
- Fees. A 2% mutual-fund MER consumes roughly a third of a balanced portfolio’s real return. Index ETFs at 0.1–0.25% mostly don’t. Use the return your funds earn, not the index’s.
- Home-country and survivorship bias. The US was the best-performing major market of the 20th century. Expectations for a globally diversified portfolio sit below the US-only record.
- Starting valuations. When markets are expensive, the following decade has historically returned less. You can’t time it, but it is a reason to plan at the middle of the band, not the top.
Together, these put a diversified balanced portfolio at 5–7% nominal.
Why cinder.fi defaults to 6% / 5% / 2.5%
- Sheltered accounts (RRSP, TFSA, 401(k), Roth…): 6% nominal. Mid-band for a balanced portfolio with low-cost funds, compounding untaxed.
- Non-registered accounts: 5% nominal. The same portfolio earns less here because distributions are taxed every year along the way — dividend and interest tax drag applies even before you sell. (cinder.fi also models capital-gains tax when the engine sells, so don’t lower this further to “account for taxes”; that double-counts.)
- Inflation: 2.5%. Both central banks target 2%. Canada’s realized average since targeting began in 1991 is almost exactly 2% (Bank of Canada inflation calculator); the US has run closer to 2.6% since 1990 (BLS CPI). Planning half a point above target keeps errors on the safe side.
- Salary growth: ~3%. That is inflation plus about a point of real growth, matching Statistics Canada average weekly earnings and the US Average Wage Index over multi-decade windows. Model promotions as income life events rather than a permanently higher rate.
When you should change the defaults
- Your portfolio isn’t balanced. 90% equities with decades of runway justifies the top of the band. A GIC ladder does not earn 6%.
- Your fees are high. Subtract your real MER from the band before you pick a number.
- You hold different assets in different accounts. Pro plans can set per-account returns, so bonds in the RRSP and equities in the TFSA compound at different rates.
- You’re testing robustness, not forecasting. Run the Stress test, which replays sequences like retiring in 1929, 1973, or 2000. A plan that only works at exactly 6% every year is fragile.
The average return is not the whole story
Two retirees can earn the same average return and end up in different places. The one who hits a bear market in the first five years of withdrawals can run out of money while the other never notices. This is sequence-of-returns risk, and it’s why cinder.fi pairs a single planning return with historical replay and Monte Carlo instead of one straight line. If your withdrawals are flexible, adaptive spending strategies can turn that flexibility into a higher safe starting income.
Set your own assumptions under Retirement → Inputs → Growth & Inflation.