Our calculator defaults to 8%. That is not a forecast for next year, and it is not a secret AI prediction. It is a planning rate in the neighborhood of long-run U.S. large-cap stock history, after you leave a little room for fees and for the fact that you might not be 100% in stocks. S&P Dow Jones Indices documents the index itself on the official S&P 500 page.
Nominal vs real returns
Nominal is the number on a brokerage statement. Real is what you can buy after inflation. A 10% market year with 3% inflation is about 7% in spending power. If you are saving for retirement groceries in 2046, real returns are the honest ones. Investor.gov on stocks is a plain-English reminder that prices go down as well as up.
On the calculator, you can either type a lower expected return (a real rate) or keep 8% and turn on “today’s dollars” with a 3% inflation assumption. Do not do both unless you want to understate growth twice.
Averages hide ugly decades
The 2000s are the teaching example: the S&P 500 spent years underwater after the dot-com crash and then the global financial crisis. Someone who started in 1999 and needed the money in 2009 did not “get 10%.” Someone who kept buying through those years, via a 401(k), often did fine by 2019. Time in the market is doing the work. The average is what you get if you stay.
| What people say | What to do in a calculator |
|---|---|
| “Stocks return 10%” | Optimistic if you are not 100% U.S. stocks and paying 0% fees |
| “I’ll use 8%” | Reasonable long-term planning default |
| “I’ll use 6%–7%” | Better if you want a margin of safety or a stock/bond mix |
| “I’ll use 12% because last year was huge” | That is recency, not a plan |
Index funds vs “the market”
An S&P 500 index fund (VOO, IVV, FXAIX, and the like) is a common way U.S. investors own those 500 companies. A total U.S. market fund (VTI) adds smaller companies. Neither removes drawdowns. Expense ratios of a few hundredths of a percent are worth hunting; 1%+ active fees are a slow leak in the compounding formula. Vanguard’s explainer on how index funds work is a good next click if you are new to the product.
Past index performance still does not guarantee the next 20 years will look like 1980–2020. Valuations, demographics, and profit margins can all mean-revert. That is another reason to prefer 7%–8% over 12%.
How to stress-test your $500 a month
- Enter your real starting balance and monthly amount.
- Set 8% and note the 20- or 25-year value.
- Drop the rate to 5% without changing savings. If that result would wreck the plan, save more or spend less later — do not bump the return slider to feel better.
- Turn on today’s dollars and compare. That is the number to hold against a 4% rule nest egg.
Inflation, bonds, and “I’m not 100% stocks”
A 60/40 stock/bond portfolio has historically returned less than 100% equities, with milder crashes. If that is your mix, 8% may be a stretch. Try 6%. Target-date funds inside a 401(k) glide toward more bonds as you age; the expected return should glide down too.
Frequently asked questions
Is 8% after fees?
Treat it as roughly after very low index-fund fees, before advisory wrap fees. A 1% AUM fee is a big haircut; model 7% instead of 8% if you pay one.
Should I wait for a crash to invest?
Usually no. Dollar-cost averaging exists because nobody reliably times the bottom. A cash emergency fund is what lets you keep buying. See emergency fund vs investing.
Does this apply outside the U.S.?
The S&P 500 is U.S. large caps. Other countries had worse 20-year stretches. If you are in the UK, EU, or Australia, you may still hold U.S. index funds, but your tax wrapper (ISA, super, etc.) is a different article.
