Required rate of return calculator

Work out the annual return your money has to earn to reach a goal — then find out whether that return is one markets have actually delivered.

How the math works

A future-value calculator picks a rate and reads off the ending balance. This one does the reverse: it fixes the ending balance — your goal — and solves for the rate.

With no contributions, the money is a single lump sum, and the required return is the compound annual growth rate (CAGR):

Where FV is the goal, PV is the starting balance, and t is the number of years. Once you add a monthly contribution, there's no clean closed form, so the calculator solves the future-value-of-an-annuity equation for the rate numerically:

Here PMT is the monthly contribution, i is the monthly rate, and n is the number of months. The ending balance only ever rises as the rate rises, so there is exactly one rate that lands on the goal, and the calculator finds it. The figure it reports is the effective annual return — the number people mean when they say they need "X% a year."

Worked example

Take a household earning the U.S. median household income of $80,610 and saving 10% of it — $8,061 a year, or $672 a month. They start from $0 and want $1,000,000 in 30 years.

Over 30 years they contribute $672 × 360 months, or $241,920 of their own money. The remaining $758,080 has to come from growth. Solving for the rate, the money needs to earn about 8.3% a year.

That number only means something next to a benchmark. The S&P 500's long-run average annual nominal return is 10.2%. So 8.3% sits below what a stock-heavy portfolio has historically delivered — the goal is demanding but not fanciful. Push the goal to $1,500,000 on the same contribution and the required return climbs past 10.2%, into territory no allocation reliably reaches.

When this calculator is wrong

The required return is an arithmetic fact about your inputs. What it is not is a return you can order off a menu. A fund's past performance has close to zero power to predict its future relative performance, so a required return above what the broad market has delivered is not a cue to go shopping for a hotter fund — it's a cue to change the goal, the contribution, or the horizon.

• A goal in today's dollars needs a much higher return. The 8.3% above gets you to $1,000,000 of future dollars. But $1,000,000 in 30 years, at the post-WWII inflation average of 3.3%, buys what $377,564 buys today. To have $1,000,000 of today's purchasing power you'd need about $2,648,559 in future dollars — and the required return jumps to roughly 13.3%, above the market's long-run 10.2%. Most calculators don't make you choose, and silently answer the easier question.
• It's a pre-tax, pre-fee number. In a taxable account, dividends and realized gains are taxed along the way, so the gross return you need is higher than the net return the calculator solves for. Fund costs compound the problem — the gap between a 0.03% index fund and the 0.66% active-fund average comes straight off the return you actually keep.
• One average rate hides the order of returns. The calculator assumes a steady annual return. Real markets arrive out of order, and a run of bad years early — while the balance is still small — lands differently than the same years late. The single rate is the right target; it is not a promise the path will be smooth.

What to do with the result

Compare the required return to 10.2% — the S&P 500's long-run nominal average — and to 7.0%, its long-run real average. Below 7%, the goal is reachable without leaning hard on stocks, and you have room for bonds or cash. Between 7% and 10.2%, the goal needs a stock-heavy portfolio and the returns to actually show up — plan on monitoring it, not setting it and forgetting it. Above 10.2%, treat the number as a red flag: raise the contribution, extend the horizon, or cut the target, because no fund choice reliably closes that gap.

Common questions

What is a good required rate of return?

There's no single good number — it's whatever your goal, contribution, and timeline produce. The useful test is whether it's achievable. A required return at or below the S&P 500's long-run nominal average of 10.2% is historically plausible for a stock-heavy portfolio; above it, the goal is likely asking for more than markets have delivered.

How is required rate of return different from CAPM?

They answer different questions that share a name. The Capital Asset Pricing Model estimates the return an investor should demand for holding a specific asset given its risk — risk-free rate plus beta times the market premium. This calculator instead solves for the return your own money must earn to reach a goal you set. One prices risk; the other reverse-engineers a savings plan.

Should I use my required return as a target allocation?

Use it as a sanity check, not a dial. If the number is low, you can afford a more conservative mix. If it's high, a riskier mix raises the expected return but also the chance of falling short — and past a point, no allocation delivers it. The required return tells you how much room you have; it doesn't hand you a portfolio.

Does the result account for inflation?

Only if your goal is already stated in future dollars. If the goal is an amount in today's purchasing power, inflate it first — at the 3.3% post-WWII average, money roughly halves in buying power about every 21 years — then solve. The calculator works with whatever number you enter; it can't know which one you mean.

What if the calculator shows a negative return?

That means your starting balance and contributions already reach the goal on their own, so the money could lose value and still get there. The practical read is that the goal is comfortably funded and you can take less risk than you might think.