What kind of return can we expect from a 401(k)?

Five golden eggs

How much can we realistically expect our 401(k) retirement plans to earn each year?

We asked Christine Benz, director of personal finance for Morningstar, a respected provider of independent investment research.

She said 5% a year is a good conservative estimate to use for planning purposes.

Of course, your actual return depends on the plan you have, the fees you pay and the performance of the stock and bond markets.

But 5% is not unrealistic and a good figure to use in judging how well your account is doing.

When we looked at 10 of the biggest mutual funds — funds that are widely available in 401(k) plans — we found the stock funds averaged significantly more than that over the past five years as they bounced back from losses suffered during the recession. But you can't expect those outsize returns to continue.

A 401(k) plan is one of the best options you have to save and build financial security.

First, it allows you to make pretax contributions to a savings plan and grow your money. Second, if your employer offers matching contributions, that's free money to add to the pot.

"What you don't want to do is not contribute or let money sit in a savings account earning nothing," Benz says.

Brightscope, a financial information company that provides analytics on investments and retirement plans, provided us with this list of mutual funds, and Morningstar provided the performance data as of June 30.

Returns and Expenses

The Biggest Mutual Funds Commonly Found In 401(k) Plans

Mutual Fund Ticker Symbol Description Average Annual 5-Year Return Management Expenses
PIMCO Total Return PTTRX World's largest fund holds intermediate-term, investment-grade bonds 4.03% 0.46%
Vanguard Institutional Index VINIX Large-blend domestic stock fund that tracks performance of the S&P 500 17.31% 0.04%
American Funds EuroPacific Growth AEPGX Foreign large-cap blend fund with stocks in European and Pacific rim companies. 9.74% 0.83%
Fidelity Contrafund FCNTX Large-cap growth fund that seeks capital appreciation 17.11% 0.64%
Vanguard Total Bond Market Index VBMFX Intermediate-term bond fund 3.12% 0.20%
Fidelity Spartan 500 Index FUSEX Low-cost large-blend fund with 80% of assets tracking the S&P 500 17.24% 0.09%
Vanguard 500 Index VFIAX Very low-cost index fund that tracks the performance of the S&P 500 17.31% 0.05%
Fidelity Growth Company FDGRX Large-cap growth fund that seeks capital appreciation 20.72% 0.82%
Vanguard Wellington VWELX Moderate allocation fund with 60% of assets in dividend-paying stocks 12.07% 0.26%
American Funds Growth Fund of America RGAEX Large-growth fund with $145 billion in assets. 16.49% 0.68%
5-year returns as of June 30, 2015

Mari Adam, president of Adam Financial Associates in Boca Raton, Florida, says what you can expect to earn is also highly dependent on how you invest.

Ideally, you'll want a mix of stocks and bonds in your plan. You'll generally want to be invested up to 90% in equities when you're in your 30s, then move more into bonds as you get closer to retirement.

"I think 6% is a reasonable expectation for retirement planning purposes if you're investing properly for your age," says Adam.

You can get a good asset allocation through a balanced fund or target date fund.

We've had an amazing run in equities over the past five years, but you can't expect that to continue indefinitely. You need bonds to help provide some stability when stocks are down.

One of the most common balanced funds found in 401(k) plans is the Vanguard Wellington, which holds roughly 60% in stocks and the other 40% in bonds.

Wellington owns a lot of large-cap stocks such as Exxon Mobil, Verizon, Wells Fargo & Co., Microsoft and Merck, and a variety of government and corporate bonds.

It's a decent pick for a single-fund 401(k) plan. Its expense ratio is a mere 0.26%, and over the past five years it has produced a return of about 12%.

The PIMCO Total Return (PTTRX) is another fund you're likely to find in your 401(k) plan.

It holds intermediate-term investment-grade bonds and seeks to maximize total return while preserving capital.

Total Return has produced an annualized return of 5.72% over the past 10 years (and headlines in the financial media after Bill Gross, its outspoken manager, decamped in 2014 for a competitor).

Because it's strictly a bond fund, you'll want to pair it with an equities fund.

Benz says you can easily create your own balanced fund in most 401(k) plans.

If you wanted a traditional 60/40 mix, you would simply direct 60% of your contributions to a stock fund and 40% to a bond fund. Or you could be more aggressive and use a 70/30 mix or even more in equities.

"It's not very difficult to create a diversified and balanced portfolio with the funds in most plans," Benz says. "It could be the next-best option for someone trying to find their way in a 401(k) plan without a lot of information."

A couple of solid equities funds you may find in your plan include the Vanguard Institutional Index Fund (VINIX) and the Fidelity Spartan 500 Index (FXISIX).

Both of these are low-cost funds designed to track the performance of the S&P 500 and provide exposure to the broad stock market.

Over the past five years, these funds have averaged a return of about 17%.

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Other popular bond and equities funds, including the Fidelity Contrafund, Vanguard Total Bond Market Index and Vanguard 500 Index, have all produced solid returns in recent years.

It's important to note that past performance should never be seen as an indicator of future returns.

Just because a fund averaged a 17% return over the past five years doesn't mean it will continue to do so over the next five years.

We've experienced abnormally high stock appreciation in recent years, and that is unlikely to continue indefinitely.

But in the absence of other complex measures, it's one of the two most common factors savers use to pick mutual funds for their 401(k) plans.

And as the chart shows, savers who had these funds in their retirement accounts over the past five years did pretty well.

One of the most important things, and the only controllable factor that can influence your returns, are expenses.

Choosing mutual funds with the lowest management fees can make a big difference in how much you wind up with.

And seemingly small fees can add up to big amounts of money over the course of a career.

Consider that if you invested $5,000 annually for 30 years and averaged a 6% return with a 1% management fee, you'd pay $71,000 in fees during that time.

But if you managed to earn the same return from a fund with a 0.25% management fee, you'd only have paid $19,000 in fees.

That 0.75% difference could mean an extra $50,000 in your account when you retire.

As you can see from the chart, there are lots of funds that earned average annual returns of more than 10%, or even 15%, over the past five years, with expenses well under 1% a year.

That's the combination you want to look for — a history of solid returns with low expenses.

Those are the mutual funds that can help your retirement account grow.

Adam says that none of the money your employer contributes to your account is included in those calculations and could be another big boost to your balance.

"Your actual performance could be higher in the long run,” Adam says. “It's why you need to take (full) advantage of matching contributions if you have them at work.”