Vanguard and Fidelity Expect Less Than Half the Stock Returns of the Past Decade. Here’s the Math for a 66-Year-Old With $2 Million and $4,000 a Month in Social Security.

Key Points:

• Vanguard and Fidelity now forecast U.S. stock returns at about 5.8% annually over the next decade or two, significantly lower than the 10% average assumed by previous generations of retirees. This revision implies that a 66-year-old with $2 million could have over $1 million less at age 76 than previously expected under a 10% return assumption.
• Despite lower return expectations, typical withdrawal rates around 3-4% remain sustainable, with portfolios lasting well beyond 30 years even at the reduced forecasted returns. The traditional 4% withdrawal rule still holds, ensuring retirees do not outlive their savings.
• Bond returns are now forecasted close to stock returns (around 5.6%), reducing the historical premium for stocks and supporting a balanced portfolio approach. A 60/40 stock-bond mix provides nearly the same expected return as all stocks but offers downside protection during market downturns.
• Retirees are advised to update their financial plans to reflect lower expected returns (around 6% instead of 10%), maintain spending levels rather than cutting prematurely, and rely on bonds to provide stability and liquidity during market volatility.
• Forecasts carry uncertainty and can change, so retirees should consider ranges and remain flexible, understanding that early negative returns can have outsized impacts and that tax considerations and personal circumstances will affect individual outcomes.