44% Per Year

I saw an interview a couple days ago with Virginia Governor Bob McDonnell regarding his plan to require state employees to contribute 5% (they currently contribute nothing) of their salaries towards pension costs. The most interesting part was what the annual investment returns would need to be in order for the Virginia pension system to be fully funded . The answer: 44% per year!! The S&P 500 has never achieved a 44% return in any year (37% a couple times is the closest). Obviously, you can't get there from investment returns alone. We sometimes see individuals make this same mistake, thinking that if only they could obtain a bit more return all would be fine. Usually, the math simply doesn't work.