What Are Reasonable Long-Term Financial Planning Assumptions?

Why It Matters

Using conservative, guideline‑based assumptions reduces the risk of underfunded retirements and helps Canadians make defensible financial decisions.

Key Takeaways

• FP Canada advises 2.1% long‑term inflation, 3.1% salary growth.
• Equity return assumptions range 6.5%‑7.5% after fees.
• Real‑estate and rent growth capped at inflation + 1% (3.1%).
• Borrowing rate assumption set at 4.4%, above current mortgage rates.
• 60‑year‑old Canadians should plan for 25% survival to age 96‑98.

Pulse Analysis

The latest FP Canada Projection Assumption Guidelines underscore a shift toward prudence in Canadian retirement planning. After a year of unusually strong equity performance, many investors remain overly optimistic about future returns. By anchoring long‑term inflation at 2.1% and salary growth at 3.1%, the guidelines provide a realistic baseline that aligns with the Bank of Canada's target range and historical wage trends. This disciplined approach helps advisors avoid the common pitfall of projecting unrealistic portfolio growth that can mask underlying sequence‑of‑returns risk.

Investment return assumptions have been calibrated to 6.5%‑7.5% for equities, reflecting a modest premium over historical averages once fees and inflation are accounted for. Fixed‑income expectations sit at 3.2%, while emerging‑market exposure is set at 7.5%, acknowledging higher volatility. Real‑estate and rental income are also tempered, with a 3.1% growth rate—essentially inflation plus one percentage point—mirroring the new inclusion of shelter costs in the guidelines. Mortgage borrowing assumptions at 4.4% sit above current rates, reminding younger borrowers that low‑rate environments may be temporary and that long‑term debt costs should be evaluated conservatively.

Perhaps the most consequential shift is the emphasis on longevity. Rather than relying on average life expectancy, the guidelines encourage planners to model scenarios based on a 25% probability of survival, pushing retirement horizons to the mid‑90s for many Canadians. Coupled with Monte Carlo simulations that add a modest 0.5% buffer to equity returns, these assumptions equip both advisors and individuals with a defensible framework. The result is a more resilient retirement strategy that balances optimism with the hard realities of market cycles, inflation pressures, and increasing life spans.