What Every Investor Gets Wrong About 'Average Returns'

You've seen it a hundred times.

The retirement income calculator that promises you'll have $2.3 million if your portfolio earns an "average" 8% return for the next 25 years.

The financial advisor who smiles and says, "Historically, the market returns about 10% annually."

The retirement planning software that spits out a number : how much you need to retire : based entirely on that magical average.

Here's what nobody tells you: that average is a lie.

Not because the math is wrong. But because the way you're being told to use it? That's where the damage happens.

The Average Return Nobody Ever Gets

Let's get specific.

When someone says "the market averages 10% a year," they're talking about a mathematical mean calculated over decades. What they're not telling you is how chaotic the path to that number actually is.

In reality, positive years average around 20% returns. Negative years? Around -9% to -10%.[1][2]

That means in any given year, you have a 28% chance of losing money and a 31% chance of making over 20%.[4]

The "average" return? The one your retirement income calculator is built on?

It almost never happens.

It's not a typical year. It's not what you should expect. It's a statistical artifact: a number that exists on paper but rarely shows up in your actual account.

The Real Cost: Lost Time You Can't Get Back

Here's where it gets painful.

A 2015 DALBAR study tracked what actual investors earned over 30 years versus what the S&P 500 returned during that same period.

The market? 11.06% annually.

The average investor? 2.47%.[2]

Read that again.

Same 30 years. Same market. An 8.6% gap between what could have happened and what actually happened for most people.

Why?

Because when you're focused on activity: timing the market, reacting to headlines, chasing last year's winners: you're not focused on outcomes. You buy after gains. You panic and sell after losses. You think you're being smart.

But you're bleeding time.

And time, unlike money, doesn't compound back.

Sequence of Returns Risk: The Danger Hiding in Plain Sight

Let's talk about something your advisor probably glossed over: sequence of returns risk.

Here's the setup:

Two investors. Both retire with $1 million. Both experience the exact same returns over 20 years: just in a different order.

Investor A retires into a bull market. Big gains early, losses later.

Investor B retires into a bear market. Losses early, gains later.

Same average return. Wildly different outcomes.

Investor A? Still has money at age 85.

Investor B? Runs out at 78.

Same "average." Different reality.

Because when you're withdrawing income during the early loss years, you're pulling money out of a shrinking balance. Those losses hit harder: and the math never recovers, even when the market does.

That's sequence of returns risk. And your retirement income calculator? It doesn't account for it.

It assumes smooth, predictable growth.

The market doesn't work that way.

The Long Flat Periods Nobody Warns You About

Here's another fun fact the "average return" hides:

There are decades-long periods where the stock market produces almost nothing.[2]

The 1970s? Flat.

2000–2010? The "lost decade." Basically zero.

But if you calculate the average over 50 years, those periods disappear into the math. The number looks fine.

Your experience during those years? Not fine.

You're sitting there wondering if your plan is broken. Watching your balance stagnate. Asking yourself, "How much do I need to retire if this thing never grows?"

The average doesn't tell you about the path. It only shows you the endpoint: and only if you held on, never panicked, never withdrew, and had decades to let it play out.

Most retirees don't have that luxury.

Activity vs. Outcome: The Fundamental Difference

Wall Street loves activity.

Quarterly performance reviews. Rebalancing. Tactical allocation shifts. Watching the ticker.

It keeps you engaged. It keeps you paying fees. It makes you feel like something is happening.

But here's the question that matters:

Where does this activity actually lead?

Not where it could lead if everything goes right. Not what the average says should happen.

Where does it lead based on the rules governing your money's behavior?

There's a different approach.

It's called rules-based planning. And it focuses on outcomes, not activity.

Instead of guessing what the market will do, you design a strategy governed by certainty. Contractual growth. Guaranteed income. Protection from sequence risk.

You trade the hope of high returns for the certainty of compounding time: time you don't lose when the market tanks.

Because here's the truth: you don't retire on averages.

You retire on guarantees.

What Engineers and Business Owners Get (That Most Don't)

If you're an engineer, you understand systems.

You know that inputs, processes, and rules determine outputs. You wouldn't build a bridge based on "average" load estimates and hope for the best.

If you're a business owner, you understand cash flow.

You know that revenue projections are useless without predictable, recurring income. You can't pay your team with an "average" month.

So why would you design your retirement around an average return?

Why would you trust a retirement income calculator that ignores volatility, sequence risk, and investor behavior?

You wouldn't.

Not if you saw the real math.

The Million Dollar Hour™: What You'll Actually Discover

This is where most financial planning conversations end.

With a vague promise to "do better" or "stay disciplined."

We do something different.

The Million Dollar Hour™ is a one-on-one educational review that shows you:

✔ Where your money is now : the real picture, not the glossy projection
✔ Where it's actually heading : based on rules and math, not hope and averages
✔ Whether your plan is designed or just directional : and what the difference costs you in time

It's not a sales pitch. It's not a product push.

It's a conversation that reveals what your current path guarantees: and whether that guarantee aligns with the life you want.

You'll see how sequence of returns risk impacts your specific situation. How much time you're losing to volatility. Whether your IRA or 401(k) is positioned for outcomes or just activity.

And you'll walk away with clarity.

Not confusion. Not another average. Clarity.

The Bottom Line

The average return is a mathematical fairy tale.

It hides volatility. It ignores behavior. It erases decades of flat performance. It pretends sequence risk doesn't exist.

And it leaves you asking the wrong question:

"How much do I need to retire?"

The better question?

"How do I design a plan that protects my time, guarantees my income, and leads somewhere certain?"

That's the question the Million Dollar Hour™ answers.

Ready for clarity instead of confusion?
The Million Dollar Hour™ is your educational, one-on-one retirement review that reveals where your plan leads: not just where it's been.
👉 Schedule your session today.