How to Calculate Required Rate of Return

Direct answer

The required rate of return is the annualized growth rate your money needs to achieve to reach a specific savings goal by a specific date. It is calculated using the compound growth formula, solving for the rate.

The formula

$$r = \left(\frac{FV}{PV + PMT \times \frac{(1+r)^n - 1}{r}}\right)^{1/n} - 1$$

Where:

FV = future value (your goal amount)
PV = present value (what you have now)
PMT = monthly contribution
n = number of years
r = required annual rate of return

In practice, this is solved iteratively when monthly contributions are included. Without contributions, it simplifies to:

$$r = \left(\frac{FV}{PV}\right)^{1/n} - 1$$

Step-by-step

Define your goal amount (FV). What will the future cost be? For a home, use a source-backed future cost estimate. For retirement, use your target nest egg.
Count what you have now (PV). Include the assets you would realistically use to reach this goal.
Set your time horizon (n). How many years until you need the money?
Add monthly contributions (PMT). How much can you add each month?
Solve for r. The required rate of return is the annualized growth rate that closes the gap between what you have, what you're adding, and what you need.

Worked example

You want $150,000 for a future goal in 10 years. You have $50,000 today and can add $500/month.

Without contributions: $r = (150,000 / 50,000)^{1/10} - 1 = 11.6%$

With $500/month contributions, the required rate drops significantly because each contribution reduces the gap. The required return calculator handles this calculation automatically, including an optional personal inflation adjustment.

What this doesn't do

This calculation does not predict the future. It does not tell you what to invest in. It does not guarantee that any asset will achieve the required rate. It measures the gap between where you are and where you need to be, at these assumptions.

If your required rate is well above what you realistically expect from your portfolio, the useful response is not to chase higher returns. It is to change the inputs: more time, more savings, a smaller target, or a different goal.

Try the required return calculator →

Questions people ask

What is a good required rate of return?

There is no universal 'good' rate — it depends on your goal, timeline, starting capital, and monthly contributions. A lower required rate is easier to achieve. If your required rate is well above historical stock market returns, the goal may need more time, more capital, or a smaller target.

How is required return different from expected return?

Required return is the rate you *need* to reach your goal. Expected return is the rate you *anticipate* earning based on your portfolio mix. If required return exceeds expected return, the gap is the shortfall you need to close with more savings, more time, or a different goal.

Does this account for inflation?

The base calculation does not adjust for inflation. If your goal amount is in today's dollars, you should grow it by the expected inflation rate (or your goal-specific cost-growth rate) before solving for the required return. The Aspire calculator can adjust for your personal inflation rate.