We’ve increased the default investment return/discount rate for risky investments/discretionary spending from 8% to 10%. All other assumptions are unchanged from those used last year. As with all the default assumptions in the spreadsheet, you can change them if you want by following the assumption change override process. You can also change them to stress test your plan.
As indicated in our post of December 13, 2025, we encourage you to visit www.longevityillustrator.org to help you select potentially more appropriate lifetime planning periods than the default LPPs for you and/or you spouse.
From time to time, we get questions about the use of two discount rate/investment return assumptions for determining present values of streams of income or expenses. In addition, users of the model are frequently confused by the requirement to estimate the “% Upside” for certain household assets (the ones that are not clearly non-risky like Social Security) and the “% Essential” for household spending liabilities (the ones that are not clearly labeled as “essential” or “discretionary”). We don’t do this to torture you, but rather to try to get you to determine how much of your household assets are risky (upside) and how much are non-risky (floor) and how much of your spending liabilities are essential and how much are discretionary so that these present values of your non-risky assets and essential spending liabilities can be matched if so desired by you.
We realize that it may not be easy for you to assign these percentages. For example, some believe that investment in high quality non-laddered bonds is riskier than investment in life annuities but not as risky as investment equities. Perhaps we can help you select these % assumptions in this post by discussing the investment return/discount rate implications of your choice.
The default investment return for non-risky assets and discount rate for essential expenses in the 2026 planner is 5% and the default investment return for risky assets and discount rate for discretionary expenses (as noted above) is 10%. This means that if you believe an inputted asset is 70% non-risky (or 30% risky or upside), it’s assumed annual investment return (using the default assumptions) is 6.5% (.7 x 5% + .3 X 10%). If you expect to earn a greater return than 6.5% per annum on this investment, then you might wish to input a higher upside percentage than 30%.
All return/discount rate assumptions used in the AFP are nominal returns and are not real rates of return.
If you have other questions about the AFP, you might want to revisit the FAQs in our post of February 8, 2025.
Summary
We hope that you will use the AFP again in 2026. Remember to use your best estimates to input your expected assets and expected spending, including taxes, and to try to be as granular as possible as discussed in our post of December 25, 2024.
Happy Holidays and Happy Planning!
