Someone asked me this question recently while I was attending a community event. Some people ask questions like this when they find out what I do for a living. It’s always difficult to find an answer for a question like this. On the one hand, the person may be genuinely curious about how their retirement portfolio is doing compared to a benchmark (my opinion). On the other hand, what I want to say is not concise and not helpful.
It’s kind of un-fair for someone to ask this question and expect a coherent answer. I wonder if people ask a doctor how to replace a knee joint at a party? They probably do.
What I want to say is, “It depends.” As in, it depends on:
- Your age,
- When you plan to retire,
- How much you’ll live on in retirement,
- What other assets you have,
- Your risk tolerance,
- How much you have saved vs. how much you’ll need for retirement,
- If you plan on working in retirement,
- Your retirement goals, for example, is leaving a legacy important,
- Your life expectancy,
- If you’re married,
- When you plan to start Social Security,
- How much your Social Security payments will be.
But instead, I say something like, “Generally a 7% annual rate of return for a diversified portfolio without too much risk is about right.” Of course, it depends.