Vanguard and Fidelity expect less than half the stock returns of the last decade. Here’s the math for a 66-year-old with $2 million and $4,000 a month in Social Security.

Vanguard and Fidelity now expect U.S. stocks to return about 5.8 percent a year, and for a 66-year-old with $2 million, that forecast is worth more than a million dollars less at age 76 than the 10 percent a year predicted by a generation of retirees.

Vanguard’s return forecast page, updated October 21 from its September 30 model, estimates U.S. stocks between 4.8% and 6.8% per year for the next ten years. The Fidelity research team, working over a 20-year horizon, expects an increase of 5.8% per year before inflation and 3.2% after. The S&P 500 fund has returned 15.2% annually with dividends reinvested over the ten years through Friday, so both companies are claiming less than half that pace. Vanguard also places U.S. bonds at 5.1% to 6.1%, two-tenths of a point from its stock’s midpoint.

Two forecasts from two of the nation’s largest retirement savings managers, falling on the same figure, read like a warning to anyone whose plan still assumes 10 percent a year in stocks. These are also just predictions: Vanguard’s own range increased 0.6 points in a single quarter, from 4.2% to 6.2% as of June 30, and neither company claims to know the order in which the years will pass.

Take a 66-year-old retired engineer and his 63-year-old wife. They have $2 million: $1.4 million in a rollover IRA, $450,000 in a brokerage account, and $150,000 in a Roth. Social Security pays them $4,000 a month, or $48,000 a year, which covers 44 percent of the $110,000 they spend. The remaining $62,000 comes from savings, a withdrawal rate of 3.1%. Their plan, like most plans, and probably like yours, is based on a long-term average of about 10%. Here’s what the new numbers do about it.

Ten years of 2 million dollars each return

Each year, the $62,000 goes out first, growing 2.5% annually in line with Vanguard’s underlying inflation forecast for 2027, and the rest earns the yield. The table shows the balance at 76.

At 10%, the couple reaches age 76 with about $4 million after withdrawing $694,610 along the way. At 5.8%, they reach it with $2,566,012. That’s $1,426,920 less, or over a million dollars, with the same expenses and the same starting pile. Compared to the pace of the last decade, the gap is about $4 million. It’s not money they lost. This is money that the old assumption said they would have, for a long-term care bill, a second home or the children. If your own plan was constructed with 10%, the same variance appears in your spreadsheet.

The 4% rule survives predictions

The next question you ask yourself is whether the money has run out. This is not the case, no matter what withdrawal rate this couple is likely to use. At 5.8%, the $62,000 drawdown, which increases with inflation, lasts more than 60 years. The 4% rule, or $80,000 a year on $2 million, lasts 48 years at 5.8% and 36 years at the Vanguard floor of 4.8%. Even $100,000 per year, at a 5% rate, lasts 31 years at the midpoint and 27 years at the floor, bringing the youngest spouse to 90.

The 4% rule you’ve been hearing about for 30 years is based on the history of the US market, which averaged about 10% per year, with some terrible decades. A steady 5.8% is a smoother path than many in history, provided the early years aren’t the bad ones. What the forecast changes is how much you spend and how much you leave behind.

Bonds cost almost nothing anymore

The quietest figure in Vanguard’s chart is for bonds: 5.1% to 6.1% per year, or a midpoint of 5.6% versus 5.8% for stocks. Ten years ago, security paid back. According to this forecast, a 60/40 mix of stocks and bonds has an expected return of 5.72% at the midpoint, or 0.08 points for all stocks. On the couple’s numbers, the two paths end up $22,363 apart at 76. $2,543,649 versus $2,566,012.

What the 40% buys you is Thursday. The S&P 500 fund fell 4.4% in one day on November 5 and closed Friday down 5.6% below its October 6 record. On $2 million held entirely in stocks, on Thursday it cost $88,184. With 60% in stocks and stable bonds, it cost $52,910, saving $35,273. The $800,000 bond side represents 12.9 years on the $62,000 drawdown, and at the current rate of 4.17% on three-month bills, it alone brings in $33,360 a year, or more than half the gap left by Social Security. You’re giving up eight hundredths of a point in expected return and you’ll never have to sell any stock in a year like this.

What to change and what to leave alone

First, the hypothesis. If your spreadsheet still compounds at 10%, change it to 6% and look at the balance again at 76 and 86. Most plans based on a 3-4% withdrawal rate survive the change. The number that moves is what stays.

Second, mixing. With the forecast for bonds two-tenths that of stocks, there’s little reward left for holding more stocks than you need, and it’s the bond side where withdrawals come from in a bad year. Keep it in Treasury bills or a short-term bond fund inside the IRA, since that’s the account the $62,000 came from and the interest there is protected until it’s withdrawn.

Third, leave spending alone. The torque rate of 3.1% runs at 4.8%. Removing it because of a forecast would pay off today for a decade that might not happen. Social Security is quietly doing its part: the cost of living increase of 3.6% for 2027 brings its $48,000 to $49,728, or $4,144 per month, without any forecast.

Where it’s weak

Forecasts are ranges, and Vanguard publishes its forecasts as a range for a reason you should keep in mind: the middle of the model has been wrong before, and the range has moved 0.6 points in a single quarter. A constant rate of 5.8% is an average, and an average is a different thing from a path; two bad years at the beginning do more damage than the table shows, which explains the bond side. The table does not take into account taxes on IRA withdrawals and assumes that the drawdown increases at exactly 2.5% per year. Social Security and the $110,000 in expenses are the assumptions of the story, so fill in your own gap. Fidelity’s number covers 20 years and Vanguard’s number covers ten years, so the two can’t exactly be stacked on top of each other; they happen to agree at 5.8%.

The essentials

Vanguard and Fidelity expect U.S. stocks to gain about 5.8% annually, less than half the 15.2% over the past decade. For a 66-year-old with $2 million and drawing $62,000 a year, that’s $2,566,012 at age 76 instead of about $4 million, a difference of over a million dollars, and money still lasts past age 90, at least up to 5%. The biggest change is in the price of security: With bonds expected at 5.6%, a 60/40 mix gives up $22,363 over ten years and saves $35,273 on a day like Thursday. Change your assumption, keep your spending, and let the bond side sell in bad years.

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