Assumptions Tab

The Assumptions tab is where you set how markets and inflation behave in your simulation. The defaults are based on long-term historical averages and are a sensible starting point — but this is also where you go to stress-test a more cautious future. Every value is editable.

Expected return and volatility

Each asset class has two inputs:

• Expected annual return — the average return you assume it earns over the long run.
• Annual volatility — how much returns swing from year to year. Higher volatility means a wider range of outcomes (both better and worse), which widens the bands in your results.

Default assumptions — grounded in long-run market history, set on the conservative side rather than matching the rosiest historical averages:

Lower the return numbers if you want a more conservative plan — see what if returns disappoint?

Return type: CAGR vs. arithmetic mean

This setting decides how your return number is interpreted, and it matters more than people expect:

• CAGR (Compound Annual Growth Rate) — the geometric average: the return you actually experience as money compounds over time. It accounts for the drag of volatility (a 50% gain then a 50% loss leaves you down, not even). This is the default, and the right choice for most planning.
• Arithmetic mean — the simple average of yearly returns. For a volatile asset it’s higher than the CAGR, so using it produces more optimistic projections.

The gap between the two grows with volatility. Most published return figures are arithmetic means; CAGR is closer to what a long-term retiree actually lives. When in doubt, leave this on CAGR.

Stock–bond correlation

By default, stocks and bonds have a slight negative correlation (−0.20) — meaning when stocks fall, bonds tend to hold up or rise. This is why holding some bonds reduces overall portfolio risk, and RetireRange draws the two together so that relationship is reflected in every simulated path. Adjust it if you believe the relationship will differ. (Note: the model holds this correlation constant; in real crises, assets can become more correlated — see Limitations.)

Inflation

• General inflation (default 2.7%, with its own volatility) drives the rising cost of everything and the inflation-adjustment of your spending and benefits.
• Medical inflation — off by default (medical costs rise with general inflation). Turn on Use separate medical inflation to set a higher healthcare rate; it starts at 5% — a historically informed figure, since medical costs have tended to rise faster than general prices — and medical expenses then grow at that rate instead.
• Social Security COLA — by default your benefit grows with general inflation; you can set a separate cost-of-living rate if you want to model SS keeping more or less pace.

Heir tax treatment

Used only for the after-tax legacy figure — what your heirs actually keep after the tax due on what they inherit. The IRS treats inherited accounts very differently by type, so the Heir Tax Treatment card has three inputs:

• Heir’s Federal Ordinary Rate (default 25%) — applied to inherited Traditional (401(k)/IRA) and HSA balances, which a non-spouse heir takes as ordinary income.
• Heir’s State Rate (default 0%) — added on top for those same Traditional/HSA balances. Use your heirs’ likely state marginal rate (~5% CT, ~6.5% NY); leave 0% for no-income-tax states (FL, TX, TN…).
• Heir’s LTCG Rate (default 15%) — the long-term capital-gains rate for inherited Taxable accounts, whose basis steps up at death so only post-death growth is taxed.

Roth and VEBA pass to heirs at full value — no tax is applied to either.

Live now vs. coming: today the ordinary + state rates are what reduce inherited Traditional and HSA balances; inherited Taxable passes at full value. The LTCG Rate input is in place for a planned refinement that adds the capital-gains drag on inherited taxable growth (the SECURE Act 10-year-drawdown bracket math on inherited Traditional is also planned). See Taxes.

Bootstrap mode (drawing from real history)

By default, RetireRange generates returns from a mathematical bell curve. Bootstrap mode is an alternative: instead of a curve, it stitches together blocks of actual historical returns (1928–2025) to build each simulated future.

• It preserves real-world patterns the bell curve misses — momentum, volatility clustering, and the fat tails of real crashes.
• The block length (default 5 years) controls how much real-world structure is kept: shorter blocks add randomness, longer blocks preserve more of history’s sequences.

Use bootstrap mode when you want results grounded in observed history rather than an idealized distribution. It’s a close cousin of the Historical backtest — bootstrap reshuffles history into many paths, while the backtest replays each historical start year exactly.

Getting back to the defaults

Experimented your way somewhere you’d rather not be? The Reset to Defaults button at the top-right of the tab clears your assumption edits and restores the shipped defaults in one click — the return models, inflation, stock/bond correlation, heir-tax rates, the separate-medical-inflation and separate-SS-COLA toggles, and the return-generation mode. It asks you to confirm first (an inline "Clear your assumption edits and restore the defaults?" prompt), so there’s no risk of an accidental wipe. Contribution limits are not affected — those are IRS-published reference figures, maintained separately.

A good way to work

Start with the defaults, get a baseline, then change one assumption at a time and re-run so you can see its effect. The Assumptions tab is the natural home for stress-testing — trim returns, raise inflation, or switch to bootstrap mode and compare. For what the results mean, see Understanding your results; unfamiliar terms are in the Glossary.