By Jason Heath, CFP on May 22, 2026 Estimated reading time: 4 minutes
What are reasonable long-term financial planning assumptions?
By Jason Heath, CFP on May 22, 2026 Estimated reading time: 4 minutes
What inflation, investment return, and life expectancy assumptions should Canadians use for retirement planning? Here’s what financial planners recommend.
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Retirement projections are only as reasonable as the assumptions behind them. If your inflation, investment return, or life expectancy estimates are unrealistic, your financial plan may give you a false sense of security.
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Studies often show that investors are overly optimistic about future rates of return. This is particularly true coming off a strong showing for stocks like we have seen over the past year.
The total return for the S&P/TSX Composite Index over the last 12 months has been 34%. The S&P 500, in Canadian dollars, has returned 24%. Over the past decade, annualized returns for these indices were 13% and 16% respectively—but financial planners are not counting on the same success going forward.
The FP Canada Standards Council and Institute of Financial Planning update their Projection Assumption Guidelines each April. These guidelines apply to Certified Financial Planners (CFPs) and Québec Planificateur financiers (Pl. Fin.). They are worth considering for Canadians who are making assumptions about their own financial futures.
Inflation
Inflation got a little interesting in Canada in 2022, with the year-over-year annual average Consumer Price Index (CPI) inflation rate hitting 6.8%. For most of the last 30 years, it has been steady in the 1% to 3% range, which is the Bank of Canada’s target.
When you are running long-term projections, you cannot forget these cost-of-living increases. This impacts expenses, salaries, government pensions, and some private pensions.
Canada’s current inflation rate is 2.4% over the past year. The Guidelines suggest an assumption of 2.1% long-term. Salary increases should be inflation plus 1%, thus 3.1%.
Investment returns
Long-term projections also need to account for the possibility that markets perform poorly early in retirement, which can have an outsized impact on portfolio sustainability. Professionals call this sequence of returns risk—that is, if stocks fall early on in your projection. The following financial assumptions consider this risk.
3.2% Fixed income (bonds) 6.3% Canadian equities (stocks) 6.4% U.S. equities (stocks) 6.6% International developed-market equities (stocks) 7.5% Emerging markets equities (stocks)
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If you are running Monte Carlo analyses—mathematical simulations using variable market returns—you can add back 0.5% to the equity (stock) assumptions above. But investors should be aware that financial planners are assuming future stock returns in the 6.5% to 7.5% range, not the double-digit returns we have seen as of late.
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It is also important to note that these returns are before investment fees, which can range from negligible for a self-directed investor to 2% or more for an investor in mutual funds. Most investors working with advisors should reduce their return assumption by 1 to 1.5%.
These are so-called nominal rates of return, so they ignore inflation. A real rate of return that considers inflation would therefore be reduced by a 2.1% inflation adjustment. They also ignore income taxes, which can vary significantly.
Real estate price growth
This is the first year that shelter costs have been included in the Guidelines. The suggestion is to assume inflation plus 1%, therefore 3.1% for real estate prices and rents.
So, despite the strong appreciation in real estate prices until recently, it is more prudent to count on just 3.1% going forward. Of note is that a rental property investor can count on earning rental income in addition to this capital appreciation rate.
Rents should be assumed to increase at the same rate of 3.1%.
Mortgage rates
The suggested borrowing rate assumption is 4.4%. This is higher than mortgage rates that are currently available for fixed and variable mortgages, suggesting rates are a little below the long-term trend.
This may surprise young borrowers who may have become accustomed to 2% to 3% mortgage rates, but we are now back closer to a neutral rate.
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Life expectancy
According to Statistics Canada, “life expectancy is the average number of years a person is expected to live, while the probability of survival is the statistical likelihood that a person will survive to a specific target age.”
Most people think of life expectancy when they are considering the length of their own retirement. What they really should be thinking about is their probability of survival, not the age at which the average Canadian died last year.
A 60-year-old woman has a 50% probability of living to age 91. For a 60-year-old man, it is 89.
To be safe, one should probably consider what age they have a 25% probability of living to from their current age. That would be 96 and 94 for a 60-year-old woman and a 60-year-old man, respectively. For a couple, there is a 25% probability that one partner in a male-female couple lives to age 98. For a same-sex female-female couple, it is age 99, and for a male-male couple, it is 97.
How to use the Guidelines
The Projection Assumption Guidelines “are intended as a guide and are appropriate for making realistic and defensible long-term (10+ years) financial projections.” Financial projections are not predictions; their value comes from helping people make prudent decisions despite the uncertainty of the long run.
It is one thing to hope for the best, but when making decisions today, be careful about the assumptions you make. Conservative assumptions may not make for exciting projections, but they can help avoid unpleasant surprises later in life.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. and Objective Tax & Accounting Inc. in Toronto. He does not sell any financial products whatsoever.
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