What Is a Reasonable Rate of Return for Retirement? (2026 Guide)
By Tim Hayes, Financial Advisor for the Public and Not-for-Profit Sector
Discover the essentials of managing your retirement investments. Learn about reasonable return rates, market impact, and optimizing stock and bond allocations.
Why Your Retirement Start Date Determines Your Average Rate of Return
After retiring, a crucial decision is deciding how much of your retirement money to keep in stocks and bonds. Over the long term, stocks provide a better return but more volatility. If you were the unlucky person retiring in February 1999, your 10-year future stock market return was -3% a year.
I ran a hypothetical of a well-known stock mutual fund using that date (February 1999), a $1 million investment, and 5% yearly withdrawals. At the end of those ten years, the account was worth a little over $600,000.
By contrast, investing $1 million in the same fund with 5% annual withdrawals during the best ten-year stock market period (Aug 1990–Aug 2000) ended with over $3.5 million. In that case, 5% of $3.5 million generates $175,000 a year in future retirement income, while in the February 1999 scenario, 5% of $600,000 gets you only $30,000 per year.
In February of 1999, the first scenario, the stock market, much like today, was highly-priced. The same goes for 2007 before the financial crisis. In the 1999 Dotcom bubble, the NASDAQ dropped 78%, while in the 2008 financial crisis, the S&P 500 fell 46%. Big drops like these cause much of the subpar future yearly returns.
During the Market Decline He Acted
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Why Today’s High Valuations Demand a New Strategy
U.S. valuations remain at historic extremes. The Buffett Indicator (total market value vs. GDP) is ~220% today—well above the ~144% seen at the 2000 peak 1.
Andrew Smithers’ final April 2025 update places both the Q Ratio and CAPE at roughly three times long-run “fair value” 2. In plain terms: you’re paying premium prices, so future returns can be more variable. CAPE (Shiller) smooths earnings so we can compare across cycles 3.
1 Buffett Indicator ≈217%–220%; dot-com peak ≈144%. ↩2 Smithers’ April 2025 note: U.S. q & CAPE near ~3× fair value / 1929 levels. ↩3 CAPE = price vs. 10-yr inflation-adjusted earnings (Shiller). ↩
How Markets Have Reacted After Past Peaks
| Time Period | Stock Market Peak to Trough | 10 Yr Treasury Bonds Return |
|---|---|---|
| 2022 Inflation Scare | -18% | -18% |
| The 2008 Great Recession | -54% | +20% |
| The 2000 Dotcom Bust | -38% | +17% |
| The 1973-1975 Recession | -43% | +5.5% |
| 1929 Crash | We do not want to go there |
Two Market Views: Random Walk vs. Mean Reversion
There are two main perspectives on stock market behavior. One viewpoint is the Random Walk theory, which suggests that the market is always correctly priced and that any future returns—whether positive or negative—are driven by new information.
The opposing perspective highlights Negative Serial Correlation, which posits that extreme returns are often followed by outcomes in the opposite direction. This belief is supported by indicators such as the Buffett Indicator, the CAPE ratio, and the Q Ratio. In contrast, many academics support the Random Walk theory.
I believe in Negative Serial Correlation; periods of extreme overvaluation rarely end quietly. They often unwind through crashes or lost decades.
Finding Your Guardrails: The Right Stock & Bond Mix
Another well-known but more conservative fund with about 30% in bonds with those same scenarios had around $860,000 after the worst ten-year period and $2,200,000 after the best.
The math gets simple: your portfolio will fall in value if you withdraw a higher percentage than you are earning, but on the other hand, if you are lucky and make more than you are taking out, the portfolio will rise and help cushion the impact of rising prices by generating more income.
Having a percentage of retirement money in bonds will reduce the large drops. However, it will also reduce the gains someone with a larger stock share may earn.
Your 3-Step Plan for Massachusetts Public Employees
- Introductory Meeting (Don’t Wait): Schedule a meeting with Tim, whether in person, over the phone, or via Zoom, to determine if he is the right fit for you.
- If you are nearing retirement or have already retired: Have Tim review your current allocations in both your retirement and non-retirement accounts.
- Personalized recommendations: Tim will provide recommendations based on today’s high valuations and your individual goals.
About the Advisor: Tim Hayes
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These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.