If you want to have enough money when you retire, you need to know this

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There are plenty of charts on the internet and in books about financial planning that suggest how much someone needs to save to retire with millions of dollars — but there’s not as much explanation as to how that money will grow.

Calculating future savings requires numerous factors, including current age and predicted retirement age, any current assets, how the portfolio is invested and at what rate a person can realistically expect that money to grow. The latter, known as a “rate of return,” includes inflation, interest and dividend payments, and many experts disagree on what individuals can anticipate that rate to be.

Conservative advisers will argue individuals should bank on 4% or 5%, while some advisers track indexes and say 7% or 8% is reasonable. There are also established financial authors who occasionally tout the 12% rate of return, as Suze Orman did when she suggested a daily to-go coffee habit could deter Americans from having $1 million in retirement. Financial advisers argued then, and now, that such a return is unreasonable and far too idealistic.

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How the rate of return is calculated and used can be a bit complex, as there are two ways the rate is often expressed: either as a “nominal rate of return” or a “real rate of return.” A nominal rate of return does not include inflation, whereas the real rate of return does (which would make the real rate of return lower than the nominal rate). With a real rate of return, if a person is talking about current dollars and future dollars, the value of those dollars is the same. Ignoring inflation could result in thousands of dollars or more lost in purchasing power.

A higher rate of return may also be assumed for portfolios comprised entirely of equities, which is usually not the case for 401(k) and similar retirement accounts — even for young investors, who are typically advised to invest more in stocks than bonds. The average historical return, since 1987, for the total U.S. stock market is around 11.2%, whereas the total U.S. bond market is approximately 5.9%, said Bijan Ramirez, a financial consultant at SVA Financial. “Most people’s retirement accounts will be a mix of all of these asset classes, giving them returns between 5.9% and 11.2% depending on weighting in this example,” he said.

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Analysts have their own projected return rates for various types of assets as well, such as short-term or long-term bonds and large cap or mid cap value stocks. Projections also vary if they are based on historical returns versus current market data, said Benjamin Yeung, lead adviser of FAI Wealth in Columbia, Md.

Gregory Hart, founder and managing director of Haddon Wealth Management in Haddonfield, N.J., said he looks at the past 10 or more years of average rates of return for various asset classes when he builds a financial plan for clients that looks 10 to 30 years into the future.

As with most other facets of retirement planning, an assumed rate of return can be different from one person to the next, said Eric Reich, an adviser at Reich Asset Management in Marmora, N.J. “The reality is that it is almost entirely dependent upon your own personal allocation,” he said. Many advisers also have their own way of creating projections, and will show clients a few estimates — from conservative to aggressive — when making a financial plan. “There is no one perfect number to use,” Hart said.

Still, investors may want to err on the conservative side, as it’s better to save too much than end up in retirement with too little, Yeung said. And investors, especially younger ones, should not be chasing returns.

“Participating in the plan is the number one most important factor,” said Jeffrey Edwards, president of Atlas Financial Plans in Irvine, Calif. “The second would be to invest those contributions according to their time horizon and risk tolerance. Do that and the returns will follow.”

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