What return should you assume for retirement planning?
Two numbers quietly control every retirement projection: the return your money earns and the inflation that erodes it. Get them a point too optimistic and a plan that “works” on screen fails in real life; a point too pessimistic and you work years longer than you needed to.
This guide covers what long-run history actually says, why cinder.fi’s defaults are what they are, and the few situations where you should 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 single most common spreadsheet error in retirement planning is mixing them — projecting a nominal 8% return while also holding spending flat in today’s dollars, which silently double-counts inflation in your favour.
cinder.fi models everything in nominal terms with an explicit inflation assumption. Future dollars stay visible, and the things that inflate on their own schedules — tax brackets, contribution limits, CPP/OAS and Social Security — each get their own treatment instead of being flattened into one “real” rate.
What 150 years of history says
The Stress Test tab in cinder.fi replays your plan against market history back to 1871 (the Shiller dataset). Some long-run anchors from that record and the global data that surrounds it:
- US stocks have returned roughly 6.5% per year after inflation since 1900 — closer to 10% nominal, but a third of that 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 — what most retirement money actually looks like — has historically produced 7–8% nominal in North America, before fees.
Three haircuts 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. Assume 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. Global diversified expectations 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’s a reason to plan at the middle of the band, not the top.
Put together, a 5–7% nominal band for a diversified balanced portfolio is the defensible place to plan.
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 is real even before you sell. (cinder.fi additionally models capital-gains tax when the engine actually 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 the errors on the survivable side.
- Salary growth: ~3%. Inflation plus about a point of real growth, which matches 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 — bonds in the RRSP and equities in the TFSA genuinely compound differently.
- You’re testing robustness, not forecasting. Don’t argue with the average — run the Stress Test, which replays sequences like retiring in 1929, 1973, or 2000. A plan that only works at exactly 6% every year isn’t a plan.
The average return is not the whole story
Two retirees can earn the identical average return and end up in different worlds — 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 rather than trusting one straight line. If your withdrawals are flexible, adaptive spending strategies convert that flexibility into a meaningfully higher safe starting income.
Set your own assumptions under Planning → Inputs → Growth & Inflation — the defaults are sensible until you know better.