Faculty Publications

Title

Debunking the myth of the 8% return

Document Type

Article

Publication Date

2-27-2013

Abstract

One of the very basic staples of personal finance is the idea that by starting to save when young, one can become very wealthy watching their investments multiply over time. I surely agree that starting to save young is ideal, but a lot of the personal-finance literature can take things way too far. It is common to see return assumptions of 8% or higher when showing basic examples about the power of compound interest. Surely, if someone can earn 8%, planning for retirement becomes a lot easier. But let's break this assumption down.