6% or 15%? Buffett, the S&P 500 and Your Retirement Plan

If the S&P 500 has earned roughly 14%–15% annually over a recent decade, why would a financial planner use something closer to 6%? Because a retirement plan needs a defensible assumption about the future, not a repeat of the best-looking recent past.

Warren Buffett’s support for low-cost index funds is worth taking seriously. But copying a stock-heavy portfolio and assuming double-digit returns are two very different decisions. For Canadians approaching retirement or already drawing income, the best starting point is to invest for growth while planning for disappointment.

What Buffett actually recommended

In Berkshire Hathaway’s 2013 shareholder letter, Buffett described instructions for the trustee managing money he would leave to his wife: 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund.

This was an estate instruction, not an announcement that he was transferring all his own investments, or Berkshire Hathaway’s assets, into an ETF. Nor was it a promise of a particular return.

His central message was about simplicity, low costs and long-term ownership. Those principles travel well. A 90% stock allocation does not automatically suit every retiree, particularly someone who depends on portfolio withdrawals to pay essential bills.

Has the S&P 500 really returned 14%–15%?

For a clearly defined example, Vanguard’s April 2026 S&P 500 ETF prospectus reports that the S&P 500 Index returned 14.82% annualized over the 10 years ended December 31, 2025, before fees, expenses and taxes. That is a U.S.-dollar total return, including reinvested dividends, not an annual cash payment.

So the figure has a factual basis for that particular period. But “the last decade” changes every day, and not all quoted returns measure the same thing:

• Total return versus price return: Total return includes reinvested dividends; price return does not.
• Annualized versus arithmetic average: Annualized return describes the actual compounded growth rate. A simple average of yearly percentages can overstate compounded growth.
• U.S. dollars versus Canadian dollars: Exchange-rate changes affect an unhedged Canadian investor’s result. Buying an ETF listed in Canadian dollars does not, by itself, remove currency exposure.
• Index versus investor return: Fund costs, trading costs, taxes and investor timing can reduce what reaches your account.

A successful decade is evidence of what happened, not a reliable spending promise for the next 30 years.

Why planners may use a number closer to 6%

There is no universal 6% rule. A reasonable assumption depends on the portfolio’s mix of stocks, bonds and cash, its fees, and whether the stated return is before or after inflation and tax.

FP Canada and the Institute of Financial Planning publish annual Projection Assumption Guidelines for long-term planning. Their approach combines historical evidence with forward-looking inputs rather than simply extending recent stock-market performance. Their 2026 guidelines explicitly require investment and administrative fees to be deducted from the published return assumptions.

A diversified retirement portfolio is also not the same investment as 100% U.S. large-company stocks. Comparing its planning assumption with the S&P 500’s recent historical return is not an apples-to-apples comparison.

For illustration, a 6% nominal return before a 0.5% annual fee leaves approximately 5.5% before personal taxes. With 2.1% inflation, that is about 3.3% in real purchasing-power growth, calculated as 1.055 ÷ 1.021 − 1. The inflation figure matches the 2026 guidelines; the return and fee figures here are illustrative, not a recommended forecast.

Ask your planner: “Is this assumption nominal or real, before or after fees, and appropriate for the investments I actually hold?”

Retirement changes the importance of bad timing

While you are saving, falling prices can let new contributions buy more shares. Once you start withdrawing, the same decline may force you to sell more shares to fund the same lifestyle.

This is sequence-of-returns risk: the order of returns matters when money is leaving the portfolio.

Consider two hypothetical portfolios starting with $100,000. Each withdraws $10,000 at the end of each year, after that year’s investment return:

Without withdrawals, both return sequences would leave the original $100,000 unchanged after two years. With withdrawals, the early loss leaves less money available to recover. These simplified figures ignore fees, taxes and inflation, and use a large withdrawal solely to make the effect visible.

A smooth 6% projection does not capture this risk either. A useful plan should examine difficult return sequences, not just a lower average.

If you are planning to retire

Build the plan around your spending needs, then choose the investments.

1. Estimate the income gap. Separate essential expenses from discretionary spending, then estimate how much CPP or QPP, OAS and any pension will cover after tax.
2. Match risk to when money will be needed. Someone retiring in two years faces different risks from someone with 20 working years remaining. Keep an appropriate growth allocation for long-term needs without relying on selling stocks at a favourable price on your retirement date.
3. Diversify beyond one recent winner. A low-cost S&P 500 ETF can be part of a portfolio, but it concentrates exposure in U.S. large companies. Consider Canadian and other international equities alongside suitable fixed income.
4. Test a less favourable retirement. Examine lower returns, higher inflation, an early market decline and a longer life. If the plan only works at 14%–15%, it needs revision, not a more optimistic assumption.
5. Keep the adjustable levers visible. Saving more, retiring later, reducing fixed expenses or changing discretionary spending can be more dependable than pursuing extra investment risk.

An equity-heavy portfolio may be appropriate for some people with strong risk capacity, a long horizon and flexible goals. That does not make its historical return an appropriate baseline forecast.

If you are already retired

Focus on sustainable after-tax income, not the highest headline return.

• Protect near-term withdrawals. Consider cash, a GIC ladder or suitable high-quality short-term fixed income for planned portfolio withdrawals. Size this reserve around the gap after dependable income, not automatically around all household spending. There is no universally correct number of years to hold.
• Keep some long-term growth where appropriate. Retirement can last decades. Moving everything to cash introduces inflation and longevity risks. Conversely, bonds and bond funds are not all risk-free; their prices can fall.
• Adopt a rebalancing and refill policy. A reserve can reduce pressure to sell stocks during a decline, but it does not eliminate losses or guarantee recovery before the reserve runs out. Excessive cash can reduce long-term growth.
• Use spending flexibility deliberately. Agree in advance which optional expenses could be reduced after a poor market period instead of reacting in panic.
• Coordinate account withdrawals. RRSP/RRIF withdrawals, TFSA withdrawals and non-registered sales have different tax consequences. RRIF minimums and potential OAS recovery tax can affect the best sequence. A required RRIF withdrawal does not mean the entire amount must be spent; unused after-tax proceeds can be reinvested, subject to available TFSA room where applicable.
• Evaluate dependable income options. CPP/QPP or OAS deferral, and in some cases a life annuity, may strengthen an income floor. Suitability depends on health, longevity, liquidity needs and survivor circumstances; no single option wins for everyone.

Someone whose pension already covers essential costs may be able to accept more portfolio volatility than someone funding nearly every bill from investments. Age alone cannot determine the right allocation.

A return assumption is not a withdrawal rate

A portfolio projected to earn 6% does not automatically support withdrawing 6% of its starting value every year, adjusted for inflation. Market variability, fees, taxes, retirement length and the timing of losses all matter.

Likewise, a decade of 14.82% annualized index returns does not establish a safe double-digit withdrawal rate. Dividends are part of total return, not an extra payment on top of it.

The best strategy: borrow Buffett’s principles, not an assumed return

For many Canadians, a sensible starting framework is low costs, broad diversification, an allocation they can stick with, realistic assumptions and a tax-aware withdrawal plan. The precise mix should reflect their income needs and ability to withstand losses.

You can believe in long-term equity investing and still plan conservatively. Those positions are complementary: the portfolio seeks growth, while the plan protects against the possibility that growth arrives late or falls short.

Before choosing between “6%” and “15%,” ask a more useful question: “Will my retirement still work if markets disappoint early?”

Use the Retirement Planning Tools to compare savings, spending and income-sequencing scenarios. Treat constant-return projections as illustrations, not substitutes for a sequence-of-returns stress test or a personalized financial plan.

Sources and important context

• Berkshire Hathaway: 2013 shareholder letter, Buffett’s instructions for his wife’s trust.
• Vanguard S&P 500 ETF prospectus, April 28, 2026, average annual total returns for periods ended December 31, 2025. The cited 14.82% is the index’s 10-year return, not a forecast or a Canadian investor’s after-tax result.
• FP Canada and Institute of Financial Planning: 2026 Projection Assumption Guidelines, long-term assumptions, fee adjustments and sensitivity analysis.

Published October 23, 2026. Educational information only, not individualized investment, tax or financial advice. Historical returns do not guarantee future results. Discuss allocation and withdrawal decisions with a qualified professional familiar with your circumstances.