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Why projections are assumptions, not guarantees

A projection is an if statement wearing a dollar sign. Change the return assumption by two points and the answer moves by hundreds of thousands, which is why one number is never a plan.

2 min readFinancial Assumptions

Key takeaways

  • Every projection is a conditional statement. If these assumptions hold, this happens.
  • Small changes in the return assumption produce large changes in the answer, which is why a single number is misleading.
  • Markets deliver averages over decades and almost never in any particular year.
  • Use projections to compare choices, not to predict balances.

Every projection is an if statement

A projection says: if you contribute this much, for this long, at this return, with this inflation, you end up here. Change any clause and the conclusion changes with it.

The number at the end tends to get remembered. The clauses that produced it tend not to.

How much the assumption moves the answer

$500 a month for thirty years at three assumed returns, in thousandsSAME PLAN, THREE RETURN ASSUMPTIONS$443,369between the gentlest and the most generous assumption$0$540kYear 01020Year 305% · $407,6887% · $584,7269% · $851,056
$500 a month for thirty years at three assumed returns, in thousands. The assumption is doing more work than any decision in the plan. Computed arithmetic.

Same contributions, same thirty years, three plausible return assumptions. The spread between them is enormous, and none of the three is unreasonable.

Anyone who shows you one line and calls it a plan has hidden this picture from you.

The average is not the experience

Long run averages are real and they are also nothing like the ride. The S&P 500 has finished up in roughly three years out of four since 1928, which means one year in four was a loss, and some of those losses were severe. The index fell 49 percent from 2000 to 2002 and 57 percent from 2007 to 2009.

A projection drawn as a smooth curve is describing the destination, not the road.

What projections are good for

They are poor predictors and excellent comparators. The question they answer well is not how much will I have. It is which of these two choices does more, and by roughly how much.

Run the same plan twice, change one variable, and read the difference. That comparison is robust even when both absolute numbers are wrong.

Sources

  • Projection figures are the future value of an annuity at the stated rates, computed with monthly compounding.
  • Historical return frequency and drawdown figures follow the S&P 500 series maintained by Aswath Damodaran at NYU Stern, 1928 to 2025.
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