Is 7% a Realistic Stock Market Return Assumption?

Every retirement projection starts with a return number. Most FIRE calculators (this one included) default to 7% real — that is, 7% above inflation. Pick a higher number and your Coast FIRE date jumps forward by years. Pick a lower one and it slides backward. The difference between an aggressive 8% and a conservative 5% can be the difference between coasting at 35 and still saving hard at 50.

Seven percent didn't fall out of the sky. It has a history, defenders, and detractors. This is a long look at where it came from, whether it is still defensible, and what to do if you suspect the next thirty years will be colder than the last hundred.

The short answer

Yes — probably. Over very long windows of US equity history, 7% real has held up. Over shorter windows, it has not. The next thirty years may not look like the last hundred, and any responsible plan accommodates the possibility that they won't.

That answer is not very satisfying, which is why the rest of this article exists.

Where 7% comes from

The number traces back to the work of Jeremy Siegel, Eugene Fama, Robert Shiller, and the dataset they built from US market history back to 1871. Across that 150-year window, the S&P 500 (and its predecessors) delivered a nominal return averaging just under 10% with average inflation around 3% — leaving a real return near 7%.

The number stuck because of the Trinity Study in 1998, which used historical US returns to test whether a 4% inflation-adjusted withdrawal from a 60/40 portfolio could last 30 years. It usually could. The combination — 7% real long-term returns and a 4% safe withdrawal rate — became the bedrock of the modern FIRE movement.

It is a US-centric number. Global ex-US equities have averaged closer to 5% real over the same century. The US ran hotter, partly because the rest of the world did not.

Historical real returns by decade

The aggregate is comforting; the dispersion is not. Here is the S&P 500's annualized real return, decade by decade:

Three observations:

• A century averages 7%, but individual decades range from −3% to +16%. The decade you happen to start with matters enormously to your wealth trajectory — that is the sequence-of-returns risk that gets discussed elsewhere.
• Two decades since 1920 produced negative real returns. A FIRE plan assuming 7% real over 30 years implicitly bets that none of those decades will arrive at the start of yours.
• The 1990s/2010s pattern of double-digit real returns is unusual in the long sweep. Most decades produced 2-6% real, not 11-14%.

The bear case

The bears are not crying wolf about equities. They are arguing that future returns will be lower than the historical average. The argument is structural, not emotional.

Bogle's expected-returns formula

The late John Bogle, Vanguard's founder, decomposed equity returns into three drivers:

expected return = dividend yield + earnings growth + valuation change

Each piece is observable today, which makes the formula useful for forecasting.

• Dividend yield: The S&P 500's dividend yield is roughly 1.3% in early 2026. Across the 20th century it averaged closer to 4%.
• Earnings growth: Long-run real US earnings growth has been about 2% per year.
• Valuation change: This is the swing factor. If the market's price-to-earnings ratio expands, returns are juiced; if it contracts, returns are reduced.

Add the first two: 1.3% + 2% = ~3.3% real, before any change in valuation. To get to 7% real, valuations have to keep expanding — which is exactly what happened over the past forty years.

The CAPE problem

Shiller's cyclically adjusted price-to-earnings ratio (CAPE) smooths earnings over ten years to filter out cyclical noise. Its long-run average is around 17. In early 2026 it is hovering above 30.

CAPE is not a timing tool. Markets have stayed expensive for years before correcting. But across long windows, starting CAPE is one of the better predictors of subsequent 10-year returns. Buying at CAPE = 30 has historically produced annualized real returns in the 2-4% range over the following decade. Not zero — but a long way from 7%.

The bear case is not that stocks will crash. It is that stocks may simply return less over the next 10-20 years because they start expensive. A long flat patch is the more likely failure mode than a dramatic crash.

What this means for FIRE

If you accept the bear case and plug 4-5% real into the calculator, your Coast FIRE number moves significantly upward. At age 35 with a $40,000 spending target and retirement at 65:

The same goal — $1 million in today's dollars at 65 — requires three times the capital if you assume 4% real instead of 8%. That is the entire span of the FIRE debate compressed into one row of a table.

The bull case

The bulls are not naive. They make three arguments worth engaging with.

Productivity. Real productivity growth in the US has held near 1.5-2% per year for over a century, despite every prediction of slowdown. AI, automation, and energy transition could plausibly raise it.

Profit margins. Corporate profit margins are at historical highs, and the bull thesis is that they stay there — driven by software's economics, scale advantages, and global market access.

Demographics. A wave of retiree wealth needs to be deployed into productive assets; equities remain the long-run home for that capital. Demand alone supports prices.

None of this is silly. The historical record is clear that pessimists about US equities have been wrong more often than right. The bull case has 100 years of inertia behind it.

The bear case has current valuations behind it. That is the genuine disagreement.

How to stress-test your plan

A pragmatic Coast FIRE plan does not need to pick a side. It needs to be robust to either being correct.

1. Calculate two versions of your number. Run the calculator at 7% real (the consensus) and 5% real (the Bogle-Shiller floor). The gap tells you how much extra capital buys you insurance against a cold decade.

2. Don't fully stop saving the moment you cross the line. The Coast FIRE math assumes you stop contributing forever. In practice, most people who reach Coast FIRE keep saving some — perhaps half their previous rate — for several more years. This single behavior largely neutralizes the difference between 5% and 7% return assumptions.

3. Plan for the first decade to be cold. A 7% long-run average can hide a flat first decade. If your coasting window starts with a lost decade, you may need to either save more later or push retirement back a few years. Both are recoverable; neither is catastrophic.

4. Watch for behavior, not forecasts. The biggest risk to a 30-year plan is not the return — it is selling during a 40% drawdown. The historical record is unforgiving toward investors who panic and forgiving toward those who don't.

A pragmatic answer

The most defensible single number for a long-horizon plan is probably 5-6% real, not 7%. The 7% figure is the historical average, which by construction includes the best decades in equity history. Future returns starting from current valuations are unlikely to match the full historical record over the next 20-30 years.

But the difference between 5% and 7% is largely cosmetic if you continue any saving at all after Coast FIRE. It is decisive only if you take the math literally and stop contributing the moment you cross the line. Few people actually do that.

Use 7% as a reasonable upper bound, 5% as a conservative lower bound, and run both. The truth almost certainly lies between them.

The calculator on the home page accepts your real-return assumption directly. Try the same inputs at 7%, 6%, and 5% — the chart and the projected age at Coast FIRE shift in ways that make the abstract debate concrete.