Vanguard and Fidelity See Far Lower Stock Returns Than the Last Decade. Here’s What That Means for a 66-Year-Old With $2 Million and $4,000 a Month From Social Security.

Vanguard now projects U.S. stocks will return 4.8% to 6.8% annually over the next decade, while Fidelity’s 20-year estimate is 5.8% — less than half the S&P 500 fund’s 15.2% annual gain over the past decade. Here is what that means.

Vanguard and Fidelity now both point to roughly 5.8% annual returns for American stocks, and for a 66-year-old with $2 million, that outlook leaves more than $1 million less by age 76 than the 10% annual return many retirees have long planned around.

Vanguard’s return forecast page, updated from a previous model run, puts U.S. stocks at 4.8% to 6.8% a year for the coming decade. Fidelity’s research team, looking out 20 years, expects 5.8% a year before inflation and 3.2% after inflation. The S&P 500 fund returned 15.2% a year with dividends reinvested over the past decade, so both firms are forecasting less than half that pace. Vanguard also sees U.S. bonds returning 5.1% to 6.1%, only a small distance from its stock midpoint.

When two of the country’s biggest retirement asset managers land on the same number, it should be taken as a caution sign for anyone whose financial plan still assumes 10% annual stock gains. These are still forecasts, though: Vanguard’s own range shifted by 0.6 percentage point in a single quarter, and neither firm claims to know which years will be good or bad.

Consider a retired engineer and his wife. They are 66 and 63, and together they have $2 million: $1.4 million in a rollover IRA, $450,000 in a brokerage account and $150,000 in a Roth account. Social Security provides $4,000 a month, or $48,000 a year, covering 44% of their $110,000 in annual spending. The remaining $62,000 comes from savings, equal to a 3.1% withdrawal rate. Like most retirement plans — and likely yours — theirs was built on a long-term average return of about 10%. Here is how the newer assumptions change the picture.

Ten years of $2 million at different return levels

Each year, the $62,000 withdrawal comes out first and then rises 2.5% annually in line with Vanguard’s core inflation forecast. The remaining balance earns the assumed return. The table below shows what the account would be worth at age 76.

At 10%, the couple reaches age 76 with about $4 million after withdrawing $694,610 along the way. At 5.8%, they reach that age with $2,566,012. That is $1,426,920 less — more than $1 million — even though their spending and starting balance are unchanged. Compared with the past decade’s pace, the shortfall is about $4 million. None of that is money they have already lost; it is money the older assumption suggested they might have for long-term care, a second home or their children. If your own plan was built on 10%, the same gap is likely sitting in your spreadsheet.

The 4% rule still works under the forecast

The next question is whether the money runs out. Under the withdrawal rates this couple would likely use, it does not. At 5.8%, a $62,000 draw that rises with inflation lasts more than 60 years. The 4% rule — $80,000 a year from $2 million — lasts 48 years at 5.8% and 36 years at Vanguard’s low end of 4.8%. Even $100,000 a year, or 5%, lasts 31 years at the midpoint and 27 years at the low end, carrying the younger spouse to age 90.

The 4% rule people have discussed for decades was built on U.S. market history that averaged roughly 10% a year, with some very difficult stretches along the way. A steady 5.8% return is actually gentler than several of those historical periods, as long as the early years are not the weak ones. The forecast mainly changes how much you can spend and how much you leave behind.

Bonds now come with almost no penalty

The less-noticed figure in Vanguard’s outlook is the bond estimate: 5.1% to 6.1% a year, with a midpoint of 5.6%, compared with 5.8% for stocks. In the past, investors gave up return in exchange for safety. Under this forecast, a 60/40 mix of stocks and bonds has an expected return of 5.72% at the midpoints, only 0.08 point below all stocks. On this couple’s numbers, the two approaches end up only $22,363 apart at age 76: $2,543,649 versus $2,566,012.

What the 40% bond allocation buys you is a buffer for a bad day. The S&P 500 fund dropped 4.4% in one day and was 5.6% below its recent record by the end of the week. On $2 million invested entirely in stocks, that one day cost $88,184. With 60% in stocks and bonds unchanged, the loss was $52,910, saving $35,273. The $800,000 bond portion is equal to 12.9 years of the couple’s $62,000 annual withdrawal, and at the current 3-month bill rate it produces $33,360 a year on its own — more than half the gap left by Social Security. You give up just eight-hundredths of a point in expected return and avoid being forced to sell stocks in a year like this one.

What to adjust, and what to keep

First, update the assumption. If your spreadsheet still uses 10%, replace it with 6% and revisit the balance at age 76 and age 86. Most plans built on a 3% to 4% withdrawal rate still survive that change. What shifts is the amount left over.

Second, reconsider the mix. With bonds forecast to come within two tenths of a point of stocks, there is little extra reward for taking more stock risk than your spending requires, and the bond sleeve is where withdrawals can be taken in a weak year. Keep it in Treasuries or a short-term bond fund inside the IRA, since that is the account funding the $62,000 withdrawal and the interest remains sheltered there until it is taken out.

Third, do not cut spending just because of the forecast. Their 3.1% withdrawal rate still works at 4.8%. Reducing spending now would mean paying today for a decade that may never arrive. Social Security is doing part of the work quietly: a 3.6% cost-of-living increase would lift their $48,000 benefit to $49,728, or $4,144 a month, with no forecast required.

Where the math is limited

Forecasts are ranges, and Vanguard publishes a range for good reason: its midpoint has been wrong before, and the range moved by 0.6 point in one quarter. A steady 5.8% is an average, not a path, and two bad early years can do more damage than the table shows — which is why the bond side matters. The table also leaves out taxes on IRA withdrawals and assumes the draw rises exactly 2.5% a year. Social Security and $110,000 in annual spending are the assumptions used here, so you should substitute your own numbers. Fidelity’s estimate covers 20 years while Vanguard’s covers 10, so the two are not directly additive; they simply happen to line up at 5.8%.

The takeaway

Vanguard and Fidelity expect U.S. stocks to return about 5.8% a year, far below the past decade’s 15.2%. For a 66-year-old with $2 million withdrawing $62,000 a year, that means about $2,566,012 at age 76 instead of roughly $4 million — a gap of more than $1 million — while the money still lasts well past age 90 at withdrawal rates up to 5%. The bigger shift is the cost of safety: with bonds expected to return 5.6%, a 60/40 portfolio gives up only $22,363 over ten years and cushions a day like the recent market drop by $35,273. Update the assumption, keep the spending plan, and let the bond side do the selling in weak years.