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Key Lessons:

📌 We Just Don’t Know – Add Variance: While past market return averages (seven percent annually) offer a reference point for planning, relying on a single static figure oversimplifies reality. Future returns should be modeled with variability, incorporating the risks of sequence-of-returns shocks and multi-year downturns.

📌 Capture Inflation Accurately: Nominal returns need to be adjusted for inflation to provide realistic projections. Assumptions about inflation should also vary, as fixed rates do not account for economic volatility.

📌 Avoid Pessimistic Shortcuts: While intentional pessimism (e.g., assuming 7.2 percent for simplicity) can provide a margin of safety, overly conservative estimates can lead to unnecessarily restrictive planning

📌 Perspective is Key: Recent strong performance (e.g., the S&P 500's 37 percent return in one year) is not representative of long-term averages or the variability over decades. Over-reliance on short-term trends ignores periods of zero or negative returns.

Keep in Mind: Your retirement plan requires more than simple assumptions; it demands careful analysis and an understanding of both the possibilities and limitations of historical data.