Could your 401(k) be overestimating your future? What to check now

If your retirement calculator still assumes an 8% return on your 401(k), your plan may be built on shaky accounts. Traditional tools often rely on outdated forecasts of market performance, numbers that do not match current economic forecasts. And if you’re using exaggerated return assumptions, there’s a good chance your retirement timeline is off track.

According to financial advisor Kevin C. Vij, founder of Walk You To Wealth, says retirement calculators and other tools that take advantage of technology, and even artificial intelligence (AI), can be a “great tool,” but he has seen an increase in clients using “carefully selected assumptions.” Some may use the past 10 years’ returns instead of longer-term historical returns, or others may use overly aggressive expected returns. This can lead to overconfidence and lack of saving.

The outdated mathematics behind your retirement planning

Many online tools still assume long-term returns of 8% or more by default, especially for diversified portfolios like the classic 60/40 mix of stocks and bonds. But Fig warns that this isn’t always realistic, and sometimes, tools will allow you to be overly aggressive. “I’m seeing more unrealistic assumptions, like a 12% stock market return,” he says. In some extreme cases, clients may turn to AI tools that recommend leveraged investments promising returns of more than 20%, without fully understanding the risks.

Feig also suggests looking at returns over the longest time period possible to avoid reinforcing your assumptions from recent high returns. For example, the standard 60/40 portfolio has returned about 6.1% annually since 1990, but only 5.4% since 1970.

What returns really look like in today’s market

So, what are the most realistic expectations?

A recent market forecast from Goldman Sachs put the future return of a 60/40 portfolio at about 5.7%, assuming inflation of 2% to 4% — much lower than the traditional 8% used by many calculators. Stocks may still outperform over the long term, but bond yields remain low by historical standards, lowering overall portfolio expectations.

Vig cautions against relying too heavily on forecasts: “I personally use historical returns because no one can accurately predict the market.” However, he emphasizes that relying on short-term historical gains — such as the last decade of stock performance — can be seriously misleading.

Recalculate your retirement timeline

If your retirement plan is based on overly rosy assumptions, all is not lost, but you should consider making adjustments.

Feig often guides clients through a “possibilities chart,” showing how small changes — such as contributing more or adjusting your target retirement age — can have a big impact. “When a client sees that their current path has a 0% chance of success, but financial changes result in a 70% to 90% chance of success, that is generally all the encouragement needed,” he says.

Other strategies might include reconsidering your asset allocation, increasing catch-up contributions, or rethinking what retirement looks like altogether. “An often overlooked tactic that I discuss with clients is working during retirement,” Vig says. “It’s not the soul-sucking job they might have today, but it’s a job that provides some mental stimulation and income.”

Bottom line

If your 401(k) expectations are based on inflated return assumptions, it’s time for a reality check. Market expectations have changed, and failure to adapt could leave you short. The good news? Even modest changes, made early, can dramatically improve your odds of long-term success.

As Fig says, “Having a plan makes you less likely to panic.” In today’s uncertain markets, peace of mind may be the most valuable asset of all.