How much can you reasonably expect your retirement savings to grow?
That’s a big question – and no, the answer isn’t “whatever you want it to be.”
But it is possible to make thoughtful assumptions based on your personal circumstances and investment approach. If you’re aiming to estimate how far your savings might stretch over the years, using an assumed growth rate can be a helpful planning tool, provided it’s grounded in reality.
Let’s explore how to do that, without getting tangled in financial jargon.
What Is a Growth Rate and Why Use One?
In retirement planning, a “growth rate” typically refers to the estimated annual return your investments might earn. It’s not a target, promise, or prediction – it’s a planning tool.
You’ll most commonly see growth rates used in cash flow modelling or retirement calculators to forecast how your pension pot could grow over time. While it’s based on market data and historical averages, it’s still an assumption. The key is to base it on your personal situation and make sure it’s realistic.
By using a sensible rate, you’re not trying to guess the future, you’re building a plan that’s flexible and better prepared for it.
Factors That Shape Your Growth Rate Assumption
There’s no magic number that works for everyone.
What you assume as a sensible rate depends on your personal and financial circumstances. Let’s look at three key factors that can help shape a suitable planning assumption.
1. Your Risk Tolerance
Are you the type who checks your portfolio daily or someone who barely glances at it once a year?
- If you’re risk-averse and feel uneasy during market dips, it’s reasonable to use a lower growth assumption.
- If you’re comfortable with short-term fluctuations in exchange for long-term gain, a higher assumption may be appropriate.
Your emotional tolerance for risk matters just as much as your financial one.
2. Your Time Horizon
This is how long you have until you plan to retire, and how long you expect retirement to last.
- If you’re in your 20s or 30s, you have time on your side. You can afford to assume a higher growth rate, knowing you’ll ride out multiple market cycles.
- If you’re within ten years of retirement, your focus may shift toward preserving your wealth. A more conservative assumption will reflect a lower-risk portfolio.
Remember, retirement can last 20–30 years, or more. You’re not just planning for the day you retire, but the decades that follow.
3. Your Investment Mix
Your asset allocation (how your money is spread across equities, bonds, property, and cash) has a direct impact on likely returns.
Here’s a simplified breakdown:
- Equities (shares): Higher growth potential but more ups and downs.
- Bonds: Steadier, lower returns, often used to reduce portfolio risk.
- Cash: Stable and accessible, but rarely keeps up with inflation.
A portfolio with 80% equities may justify a higher assumed return than one that’s mostly bonds and cash. But that higher growth potential also comes with more volatility.
What’s a Reasonable Rate to Use?
Most long-term retirement plans use nominal returns (before inflation), typically in these ranges:
- Conservative (low risk): 3%–4%
- Moderate (balanced): 5%–6%
- Growth-focused (higher risk): 7%–8%
To estimate your real return (after inflation), subtract 2%–3%. For example, a 6% nominal return minus 2.5% inflation gives you a 3.5% real return, a more realistic view of your future spending power.
These ranges aren’t targets, they’re working assumptions. Your actual returns may vary, so it’s important not to lean on a single figure as fact.
Classic Planning Pitfalls to Avoid
It’s easy to fall into traps when choosing a growth rate. Here are two of the most common missteps:
- Assuming 10% every year: While equities have delivered high returns over some periods, this isn’t a reliable benchmark for retirement planning. Market performance varies widely.
- Being overly cautious too soon: Shifting to cash-heavy investments in your 30s or 40s may feel safer, but can limit your ability to build enough for retirement. Growth comes from time in the market, not timing the market.
Practical Strategies to Help Meet Your Goals
You can’t control market returns, but you can take action to support your plan and give it the best chance of success.
1. Diversify Wisely
Spread your investments across sectors, regions, and asset classes. This reduces your reliance on any one area and can cushion against market dips.
2. Align Your Allocation
A 60/40 equity-to-bond portfolio has historically returned around 6–7% annually, according to sources like Vanguard. If your assumption is higher, you’ll need more exposure to equities, and a greater tolerance for volatility.
3. Stay Consistent with Contributions
Even if your return is modest, regular saving into your pension, ISA, or workplace plan compounds over time. The earlier and more consistently you save, the more flexibility you’ll have later.
4. Use Tools to Model Your Plan
Online retirement calculators (such as those from MoneyHelper or your pension provider) let you plug in growth assumptions and test scenarios. It’s a great way to visualise how different rates affect your outcome.
Adjust and Reassess Over Time
Don’t set it and forget it.
Reviewing your growth assumptions annually, or after major life changes, helps keep your plan current. Markets change. Your goals change. Your strategy should adapt, too.
You might also want to lower your assumption as you approach retirement and shift toward more stable investments. That’s perfectly normal – and shows your plan is evolving with you.
Final Thoughts
So, what growth rate should you use?
There’s no one-size-fits-all answer. But with a thoughtful, realistic assumption, based on your risk tolerance, investment mix, and planning horizon, you can build a retirement forecast that supports your goals and adjusts to life as it happens.
And remember: it’s not just the rate that matters – it’s the strategy behind it. With the right planning, consistent saving, and regular review, you’ll put yourself in the best possible position to retire on your terms.
Need help deciding on a suitable growth rate or testing different scenarios in your retirement plan?
Get in touch – we’re here to help you build a personalised plan that feels right for your future.
