TL;DR
The historical US equity risk premium over T-bills is approximately 5–7% annualised; over T-bonds about 3–5%. The future premium is widely expected to be lower — probably 3–4% over bonds.
In short
ERP is the most-debated number in finance. Historical averages run higher than what most analysts forecast forward — the consensus 30-year forward ERP is closer to 4% than the historical 6%. For FIRE planning, that means using slightly more conservative real-return assumptions than the 1871-2024 average implies.
We're working on a full deep-dive for this article — including historical data, charts, and worked examples. In the meantime, you can run a free simulation to explore the underlying numbers yourself.
Frequently asked questions
- What's a 'risk-free rate' in practice?
- 3-month T-bills for US, 3-month gilts for UK. Both have small real return after inflation; the equity premium is what you earn above that floor.
- Has the ERP shrunk?
- Yes, modestly. Modern academic estimates of the forward-looking premium are 3-4% vs the 5-7% historical realised. The shrinkage is consistent with rising valuations.
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