Stocked for Success? Finding an Appropriate Rate of Return for Your Retirement Plan

Admin • December 15, 2023

Planning for retirement can be quite daunting given the multitude of questions to tackle and gaps to fill. When faced with numerous unknowns, where do you even start?

Rest assured that you’re not alone if you’ve ever felt a bit stuck in planning for your future. After all, the game changes entirely if you envision retiring in a place with a reputation for sky-high living costs like California, compared to a more wallet-friendly option like Thailand. Plus, who can predict the curveballs life might throw your way between now and retirement?

But even with all the unknowns, you should still visualize what you want your retirement to look like and set goals to achieve, even if those goals need some fine-tuning along the way.

One such goal is figuring out the rate of return to aim for when investing for retirement. It’s a goal that might need some tweaking as your circumstances change, but it’s an essential variable in connecting the dots. Why? Because it helps you figure out another missing piece of the puzzle — how much you need to save for retirement. 

What Rate of Return Should I Use for Retirement Planning?

If you’re curious about what rate of return you should use for retirement planning, stay tuned. We’re about to break it down into a few key factors:

  1. Your time horizon
  2. Your risk tolerance
  3. Your asset allocation

If you’re all in for securing your future, let’s jump right in!

1. Your Time Horizon

Your time horizon is the stretch between now and when you need to tap into your retirement nest egg, and it significantly shapes your investment strategy and the rate of return you aim for.

If you have a longer time horizon, it gives you the flexibility to have a more diversified portfolio that includes a mix of assets with varying levels of risk and potential return because you have the leeway to ride out the ups and downs of the market.

Conversely, if you have a shorter time horizon, your focus might pivot from chasing growth to protecting the nest egg you’ve worked hard to build. Adopting a more preservation-oriented strategy could mean streamlining your investment choices to more conservative options, like bonds, which generally offer lower returns.

Historically, the average annual rate of return for the overall stock market, measured by indices like the S&P 500, has been around 10% per year . That might sound like an appealing annual rate of return on retirement investments, but the reality is that there are years when the market falls short of expectations and others when it will exceed them. 

What does that mean for you? It means you need to align your investments with the timeline leading up to your retirement. 

Imagine you’re two years away from retirement. Opting for a higher-risk portfolio in pursuit of a stellar 10% annual return might not be the most strategic move because those two years may turn out to be turbulent in the markets. You’d risk a loss you might not fully recover from.

The consensus is that the longer your time horizon, the more risk you can afford to take and the higher the rate of return you can target, given the time you have to recover from any setbacks. But it’s not just about the time you’ve got — it’s also about the volatility you can stomach, which we’ll cover next!

2. Your Risk Tolerance

Every investor dreams of reaping all the rewards, but not everyone can shoulder all the risks needed to achieve those rewards. 

Enter risk tolerance, a key factor in deciding the appropriate rate of return for your portfolio. We’ve touched on how your time horizon influences your risk tolerance, but let’s not forget the more personal and emotional aspects — considerations like your financial needs and goals and your comfort level when investing.

Your Financial Needs and Goals

The magnitude of your goals has a direct impact on your risk tolerance. For some, the objective might be as straightforward as securing a comfortable retirement without outliving their nest egg.

Meanwhile, some aspire to more profound objectives, such as aiming for a secure retirement while concurrently creating a lasting legacy for future generations. Such ambitious objectives might call for higher returns and a willingness to take some risks over the investment horizon.

Your Comfort Level

No matter your age, current circumstances, or goals, the bottom line is this: some investors can handle the natural highs and lows of the markets, while others find it highly nerve-wracking.

If there’s a disconnect between your risk tolerance and the actual risk in your portfolio, it can result in emotional stress and less-than-ideal investment decisions—such as deciding to cash out your entire portfolio when things start getting a bit shaky.

If you prefer a more conservative approach due to a low-risk tolerance, it might require you to boost your savings to reach your financial goals. 

You probably have a broad sense of your risk tolerance from what we’ve covered here, but if you want to take it a step further, find out if any of your financial institutions offer a risk tolerance questionnaire. Alternatively, you can consult with an advisor who can provide more personalized insights into your specific circumstances.

3. Your Asset Allocation

Let’s backtrack for a moment to the fact that the average annual return for the overall stock market, as measured by indices like the S&P 500, has historically hovered around 10% per year. 

The S&P 500 is a market index that tracks the performance of the 500 largest (and some of the most successful) public companies in the U.S. (think: Johnson & Johnson, Procter & Gamble, Berkshire Hathaway, Apple, Microsoft, to name a few).

With that in mind, it’s not practical to stash all your eggs in bonds and cash and anticipate a similar outcome to the historical performance of the overall market. Similarly, going all-in on one of the riskier asset classes — equities — doesn’t quite align with the goal of low-risk investments with minimal downside.

How you divide your portfolio across various assets matters in determining a realistic rate of return. 

To get a snapshot of your current portfolio, you should be able to log into your account(s) or review statements to find a breakdown of your investments and their historical performance and returns. Understanding your current allocation and its historical performance is a helpful way to gauge a realistic rate of return for the future (and helps you assess if any changes are in order!).

Just like your time horizon and risk tolerance, your asset allocation might require some fine-tuning as you navigate different phases of life and adapt to the ever-changing market landscape .

Assembling the Pieces to Find Your “Ideal” Rate of Return

It’s no secret that personal finance is, well, personal. There isn’t some generic instruction manual for pinpointing the perfect rate of return for retirement (and not to mention that this “perfect” rate would change over time).

Online calculators come in handy for plugging in variables like your age, current nest egg, and monthly savings and crunching the numbers to give you an idea if you’re on the right track or if some tweaks are in order.

Nonetheless, drawing from our experience , we understand the intricacies of assembling all the pieces for a comprehensive and strategic retirement plan. We understand that, for some, figuring out what rate of return they should use for retirement planning or crafting any part of their own retirement plan can be intimidating.

If that’s you, we’d love to get to know you and see how we can help you get unstuck in planning for your future, so send us an email at info@fivepinewealth.com or give us a call at 877.333.1015 to grab some time on our calendar! We can’t wait to learn more about your goals and work together to fill in the missing pieces, guiding you toward the retirement you’ve always envisioned. 

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You've Maxed Your 401(k). Now What? A Strategic Guide for High Earners

January 26, 2026
Key Takeaways High earners maxing out 401(k)s at $24,500 are only saving about 8% of a $300,000 income in their primary retirement account. The mega backdoor Roth strategy can increase total 401(k) contributions to $72,000 annually with tax-free growth. A comprehensive approach can create nearly $3 million in additional retirement wealth over 20 years. It's 2026. You're checking all the boxes. You're earning upwards of $300,000 annually, and you're maxing out your 401(k) every year. You've reached the $24,500 contribution limit and feel confident about securing your financial future. Then you realize $24,500 represents less than 8% of your income. Over 20 years, this gap adds up to millions in lost opportunity. Thankfully, you're not stuck with the basic 401(k) playbook. There are sophisticated strategies beyond your contribution limit. 5 Strategic Moves for High Earners with Maxed-Out 401(k)s Here are five sophisticated strategies that can help you build wealth beyond your basic 401(k) contributions. All projections assume a 7% average annual return and are estimates for illustrative purposes. 1. Mega Backdoor Roth Contributions If your employer's 401(k) plan allows after-tax contributions, this could be your biggest opportunity. With employee contributions, employer match, and after-tax contributions, the combined 401(k) limit for 2026 is $72,000 ($80,000 if you're 50 or older). The mega backdoor Roth works because you immediately convert those after-tax contributions into a Roth account, where they grow tax-free forever. The catch: Not all employers offer this option. You need a plan that permits after-tax contributions and in-service Roth conversions. The impact: The available space for after-tax contributions depends on your employer match. With a typical employer match of 3-6% (roughly $10,000-$21,000 on a $350,000 salary), you could contribute approximately $26,500-$37,000 annually. At 7% average returns over 20 years, this creates approximately $1.1-$1.5 million in additional tax-free retirement savings. 2. Donor-Advised Funds for Charitable Giving If you're charitably inclined, donor-advised funds (DAFs) offer a way to bunch several years of charitable contributions into one tax year, maximizing your itemized deductions while still spreading your giving over time. You get an immediate tax deduction for the full contribution, but you can recommend grants to charities over many years. The funds grow tax-free in the meantime. The catch: Once you contribute to a DAF, the money is irrevocably committed to charity. You can't get it back for personal use. The impact: Contributing $50,000 to a DAF in a high-income year (versus giving $10,000 annually) can create immediate federal tax savings of $15,000-$18,500 while still allowing you to support the same charities over five years. 3. Taxable Brokerage Accounts with Tax-Loss Harvesting Once you've maximized tax-advantaged accounts, strategic taxable investing becomes your next move. The key is working with a financial advisor who implements systematic tax-loss harvesting throughout the year. Tax-loss harvesting involves selling investments at a loss to offset capital gains elsewhere. Done strategically, this can save thousands in taxes annually. The catch: Long-term capital gain rates (0%, 15%, or 20%) are lower than ordinary income tax rates, but you're still paying taxes on gains. It's less tax-efficient than retirement accounts, but far better than ignoring tax optimization. The impact: For high earners in the 35-37% ordinary income brackets, the difference between long-term capital gains (20%) and ordinary rates is significant. Effective tax-loss harvesting on $50,000 in annual gains over 20 years could save $150,000+ in taxes. 4. Health Savings Account (HSA) Triple Tax Advantage HSAs offer a unique triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. With 2026 contribution limits of $4,400 for individuals and $8,750 for families, this adds another powerful layer to your strategy. You can invest HSA funds just like an IRA and let them grow for decades. After age 65, you can withdraw the funds for any purpose, medical or otherwise. The catch: You must have a high-deductible health plan to qualify for an HSA. After age 65, non-medical withdrawals are taxed as ordinary income (like traditional IRA distributions), but you still benefit from the upfront deduction and decades of tax-free growth. The impact: Contributing the family maximum ($8,750) annually for 20 years at a 7% average annual return creates approximately $355,000-$360,000 in tax-advantaged savings. 5. Backdoor Roth IRA Contributions Not to be confused with mega backdoor Roth contributions! Even if your income exceeds the Roth IRA contribution limits, you can still fund a Roth through the backdoor method: make a non-deductible contribution to a traditional IRA, then immediately convert it to a Roth IRA. The catch: If you have existing traditional IRA balances, the pro-rata rule complicates things. You may want to consider rolling those funds into your 401(k) first if your plan allows. The impact: Contributing $7,000 annually through the backdoor Roth for 20 years at 7% average annual return creates approximately $285,000-$290,000 in tax-free retirement savings. What Compounding These Strategies Looks Like Over 20 Years Let’s look at approximate outcomes based on a 7% average annual return. 401(k) Only: Annual contribution: $24,500 Total after 20 years: ~$1M 401(k) + Mega Backdoor Roth: Annual contribution: $72,000 Total after 20 years: ~$3M Note: Mega backdoor Roth space varies based on your employer's match. These calculations assume you're maximizing the total annual limit. Comprehensive Approach (under age 50): Mega Backdoor Roth: ~$3.0M HSA: ~$350K-$360K Backdoor Roth IRA: ~$285K-$290K Strategic taxable investing with tax-loss harvesting Total retirement savings: ~$3.6M+, plus taxable investments Comprehensive Approach (ages 50-59): With higher contribution limits and catch-up contributions, total retirement savings can reach ~$4M+ over 20 years. Comprehensive Approach (ages 60–63 with enhanced catch-up contributions) Higher contribution limits during peak earning years allow for meaningful acceleration of retirement savings. The exact impact depends on timing, contribution duration, and existing balances. The Bottom Line The difference between stopping at your basic 401(k) and implementing a comprehensive strategy can approach $3 million or more in additional retirement wealth over time. Why Strategic Coordination Matters These aren't either/or decisions. The most effective approach coordinates multiple strategies while ensuring everything works together. At Five Pine Wealth Management , we help high-earning clients build comprehensive plans that go beyond the 401(k). We coordinate your employer benefits, tax strategies, and investment accounts to create a cohesive approach that maximizes your wealth-building potential. This requires working across several areas: Analyzing your employer's 401(k) plan for mega backdoor Roth opportunities Implementing systematic tax-loss harvesting in taxable accounts Coordinating Roth conversions and backdoor contributions Optimizing your HSA as a long-term retirement vehicle Ensuring charitable giving strategies align with your tax situation Maximizing catch-up contributions when you reach milestone ages As fiduciary advisors, we're legally obligated to act in your best interest. That means we're focused on strategies that serve your goals, not products that generate commissions. Ready to see what's possible beyond your 401(k)? Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation about your specific situation. Frequently Asked Questions (FAQs) Q: Does my employer's 401(k) plan automatically allow mega backdoor Roth contributions? A: No. You need a plan that permits after-tax contributions and in-service conversions to Roth. Check with your HR department. Q: How do I prioritize which investment strategies to use? A: Generally, maximize employer match first (it's free money), then fully fund your 401(k), explore Mega Backdoor Roth if available, max out your HSA, consider backdoor Roth IRA contributions, and then move to taxable accounts with tax-loss harvesting. We can help determine the right sequence for your circumstances.

What's the Best Asset Allocation for Someone 10 Years Away from Retirement?

December 22, 2025
Key Takeaways Your guaranteed income sources (pensions, Social Security) matter more than your age when deciding allocation. Retiring at 65 doesn't mean your timeline ends. You likely have 20-30 years of investing ahead. Think in time buckets: near-term stability, mid-term balance, long-term growth. You're 55 years old with over a million dollars saved for retirement. Your 401(k) statements arrive each month, and you find yourself questioning whether your current allocation still makes sense. Should you be moving everything to bonds? Keeping it all in stocks? Something in between? There's no single "correct" asset allocation for everyone in this position. What works for you depends on factors unique to your situation: your retirement income sources, spending needs, and risk tolerance. Let's look at what matters most as you approach this major life transition. Why Asset Allocation Changes as Retirement Approaches When you’re 30 or 40, your investment timeline stretches decades into the future. When you’re 55 and looking to retire at 65, that equation changes because you’re no longer just building wealth: you’re preparing to start spending it. You need enough growth to keep pace with inflation and fund decades of retirement, but you also need stability to avoid the need to sell investments during market downturns. At this point, asset allocation 10 years before retirement is more nuanced than a simple “more conservative” approach. Understanding Your Actual Time Horizon Hitting retirement age doesn't make your investment timeline shrink to zero. If you retire at 65 and live to 90, that's a 25-year investment horizon. Think about your money in buckets based on when you'll need it: Time Horizon Investment Approach Example Needs Short-Term (Years 1-5 of Retirement) Stable & accessible funds Monthly living expenses, healthcare costs, and early travel plans Medium-Term (Years 6-15) Moderate risk; balanced growth Home repairs, care and income replacement, and helping grandchildren with college Long-Term (Years 16+) Growth-oriented with a Long-term care expenses, decades-long timeline legacy planning, and extended longevity needs This bucket approach helps you think beyond simple stock-versus-bond percentages. Asset Allocation 10 Years Before Retirement: Starting Points While there's no one-size-fits-all answer, here are some reasonable starting frameworks: Conservative Approach (60% stocks / 40% bonds) : Makes sense if you have minimal guaranteed income or plan to begin drawing heavily from your portfolio upon retirement. Moderate Approach (70% stocks / 30% bonds) : Works well for those with some guaranteed income sources, moderate risk tolerance, and a flexible withdrawal strategy. Growth-Oriented Approach (80% stocks / 20% bonds) : Can be appropriate if you have substantial guaranteed income covering basic expenses and the flexibility to reduce spending temporarily as needed. Remember, these are starting points for discussion, not recommendations. 3 Steps to Evaluate Your Current Allocation Ready to see if your current allocation still makes sense? Here's how to start: Step 1: Calculate your current stock/bond split. Pull your recent statements and add up everything in stocks (including mutual funds and ETFs) versus bonds. Divide each by your total portfolio to get percentages. Step 2: List your guaranteed retirement income. Write down income sources that aren't portfolio-dependent: Social Security (estimate at ssa.gov), pensions, annuities, rental income, or planned part-time work. Total the monthly amount. Step 3: Calculate your coverage gap. Estimate monthly retirement expenses, then subtract your guaranteed income. If guaranteed income covers 70-80%+ of expenses, you can be more growth-oriented. Under 50% coverage means you'll need a more balanced approach. When to Adjust Your Allocation Here are specific triggers that signal it's time to review and potentially adjust: Your allocation has drifted more than 5% from target. If you started at 70/30 stocks to bonds and market movements have pushed you to 77/23, it's time to rebalance back to your target. Your retirement timeline changes significantly. Planning to retire at 60 instead of 65? That's a trigger. Every two years of timeline shift warrants a fresh look at your allocation. Major health changes occur. A serious diagnosis that changes your life expectancy or healthcare costs should prompt an allocation review. You gain or lose a guaranteed income source. Inheriting a pension through remarriage, losing expected Social Security benefits through divorce, or discovering your pension is underfunded. Market volatility affects your sleep. If you're checking your portfolio daily and feeling genuine anxiety about normal market movements, your allocation might be too aggressive for your comfort, and that's a valid reason to adjust. Beyond Stocks and Bonds Modern retirement planning involves more than just deciding your stock-to-bond ratio. Consider international diversification (20-30% of your stock allocation), real estate exposure through REITs, cash reserves covering 1-2 years of spending, and income-producing investments such as dividend-paying stocks. The Biggest Mistake: Becoming Too Conservative Too Soon Moving everything to bonds at 55 might feel safer, but it creates two significant problems. First, you're almost guaranteeing that inflation will outpace your returns over a 30-year retirement. Second, you're missing a decade of potential growth during your peak earning and saving years. The difference between 60% and 80% stock allocation over 10 years can mean hundreds of thousands of dollars in portfolio value. Being too conservative can be just as risky as being too aggressive, just in different ways. Questions to Ask Yourself As you think about your asset allocation for the next 10 years: What percentage of my retirement spending will be covered by Social Security, pensions, or other guaranteed income? How flexible is my retirement budget? Could I reduce spending by 10-20% during a market downturn? What's my emotional reaction to seeing my portfolio drop 20% or more? Do I plan to leave money to heirs, or is my goal to spend most of it during retirement? Your honest answers to these questions matter more than your age or any generic allocation rule. Work With Professionals Who Understand Your Complete Picture At Five Pine Wealth Management, we help clients work through these decisions by looking at their complete financial picture. We stress-test different allocation strategies against various market scenarios, coordinate withdrawal strategies with tax planning, and help clients understand the trade-offs between different approaches. If you're within 10 years of retirement and wondering whether your current allocation still makes sense, let's talk. Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation. Frequently Asked Questions (FAQs) Q: What is the rule of thumb for asset allocation by age? A: Traditional rules like "subtract your age from 100" are oversimplified. Your allocation should be based on your guaranteed income sources, spending flexibility, and risk tolerance; not just your age. Q: Should I move my 401(k) to bonds before retirement? A: Not entirely. You still need growth to outpace inflation. Gradually shift toward a balanced allocation (60-80% stocks, depending on your situation) and keep 1-2 years of expenses in stable investments. Q: What's the difference between stocks and bonds in a retirement portfolio?  A: Stocks provide growth potential to keep pace with inflation but come with volatility. Bonds offer stability and income but typically don't grow as much.