A good rate of return on a 403(b) plan generally falls between 5% and 8% per year over the long term, after accounting for fees. That range reflects a diversified mix of stocks and bonds, which is how most 403(b) participants invest. Your actual return in any single year will swing widely, but over 20 or 30 years of saving for retirement, that long-term average is the number that matters most.
What counts as “good” depends on your investment mix, the fees your plan charges, how close you are to retirement, and whether you’re comparing yourself to a useful benchmark or just a headline number. Here’s how to think about each of those factors.
Long-Term Averages by Investment Mix
The S&P 500, which tracks large U.S. companies, has returned roughly 10% per year on average over the past several decades before inflation. Adjusted for inflation, that drops to about 7%. Bonds have historically returned around 4% to 5% per year before inflation. Most 403(b) participants hold a blend of both, so a realistic long-term return falls somewhere between those two figures.
If you’re in your 20s or 30s and investing heavily in stock funds, averaging 7% to 9% annually over a long career is a reasonable expectation, though some years you’ll see 20% gains and others you’ll see 15% losses. If you’re in your 50s or 60s with a more conservative mix that leans toward bonds, 4% to 6% is a solid result. Target-date funds, which automatically shift from stocks to bonds as you approach retirement, typically aim to deliver returns that fall between these ranges based on your expected retirement year.
Why Fees Matter More Than You Think
Your rate of return on paper means less than your rate of return after fees. A plan that earns 8% but charges 1.5% in annual expenses delivers the same result as one earning 6.5% with no fees, and over decades that drag compounds significantly.
403(b) plans can carry several layers of costs: a recordkeeping fee (sometimes a flat annual charge, sometimes a percentage of your balance), the expense ratio on each fund you invest in, and potentially distribution-processing fees, commissions, or surrender charges. Some low-cost providers charge as little as $100 per year in recordkeeping fees plus modest fund expense ratios. Others, particularly older plans heavy on insurance products, can stack fees that total 2% or more annually.
To put that in dollar terms: on a $200,000 balance, the difference between a 0.5% total fee and a 2.0% total fee is $3,000 per year leaving your account. Over 20 years of compounding, that gap can cost you six figures in retirement savings. If you’re evaluating whether your return is “good,” always look at your net return after all plan costs are deducted.
Annuity-Based Plans vs. Mutual Fund Plans
403(b) plans come in two main flavors, and the type you have affects your expected returns. Custodial account plans invest in mutual funds, just like a 401(k). Annuity-based plans, offered through insurance companies, wrap your investments inside an annuity contract. Many 403(b) plans, particularly at schools and hospitals, still use the annuity structure because that was originally the only option available to nonprofits.
Variable annuities in a 403(b) invest in underlying funds that fluctuate with the market, similar to mutual funds, but they add an extra layer of insurance-related charges. These “mortality and expense” fees typically range from 0.5% to 1.25% per year on top of the fund expenses. That means a variable annuity holding essentially the same stock portfolio as a mutual fund will deliver a lower net return every single year.
Fixed or guaranteed annuities, like TIAA Traditional, work differently. They pay a minimum guaranteed interest rate with the potential for additional credited amounts. Returns tend to be modest but stable. If your plan includes a guaranteed annuity component, comparing it to the S&P 500 isn’t the right benchmark. It’s functioning more like a bond or savings vehicle, and a return in the 3% to 5% range may actually be competitive for that role.
If your employer offers a choice between an annuity-based provider and a mutual fund provider, comparing the total annual costs of each is the single most important step you can take to improve your long-term returns.
How to Benchmark Your Own Returns
Rather than chasing a single “good” number, compare your returns to a benchmark that matches your investment mix. If you’re invested 70% in a U.S. stock index fund and 30% in a bond index fund, blend the returns of those two indexes in the same proportion and see how your account stacks up. Most 403(b) plan statements show your personal rate of return alongside fund performance, making this comparison straightforward.
If your returns consistently trail the benchmark by more than 1% per year, fees are likely the culprit. Check your plan’s fee disclosure document, which your employer is required to provide, and add up the total annual cost as a percentage of your balance. Anything under 0.5% total is excellent. Between 0.5% and 1.0% is reasonable. Above 1.5% and you’re paying significantly more than you need to, which directly reduces your rate of return.
What a Single Year’s Return Tells You
Stock markets are volatile in the short term. In a strong year, a stock-heavy 403(b) might return 20% or more. Goldman Sachs projected a 12% rally for the S&P 500 in 2026 alone. In a bad year, the same portfolio might lose 15% to 30%. Neither result tells you much about whether your plan is performing well.
What matters is the annualized return over five, ten, or twenty years. If you’ve been invested for a decade and your annualized return after fees is in the 6% to 8% range with a balanced portfolio, you’re doing well. If it’s below 4% over a long stretch and you’re mostly in stock funds, something is off, whether that’s high fees, overly conservative fund choices, or both.
One useful exercise: plug your current balance, your annual contribution, and a 6% or 7% assumed return into a retirement calculator. That gives you a realistic projection of where you’ll end up. If the number falls short of your goals, increasing your contribution rate by even 1% or 2% of your salary will likely have a bigger impact than trying to squeeze an extra percentage point out of your investment returns.