Retirement Savings Calculator
How This Calculator Works
Future Value = PV(1 + r)^n + PMT x [((1 + r)^n - 1) / r]
Where:
PV = Present value (current savings)
r = Monthly interest rate (annual rate / 12)
n = Total months until retirement ((retirement age - current age) x 12)
PMT = Monthly contribution
Inflation-Adjusted Value = Future Value / (1 + inflation_rate)^years
Total Contributions = Current Savings + (Monthly Contribution x n)
Total Growth = Future Value - Total ContributionsThe retirement savings calculator projects how your savings will grow between now and your target retirement age. It factors in your current savings, monthly contributions, expected investment returns, and inflation to give you a realistic picture of your retirement readiness.
The Power of Compound Growth
Compound interest is the most powerful force in long-term investing. When your investments earn returns, those returns are reinvested and themselves begin earning returns. Over decades, this compounding effect can turn modest monthly contributions into a substantial nest egg. For example, saving $500/month starting at age 25 with a 7% average return grows to approximately $1.2 million by age 65 — even though you only contributed $240,000 out of pocket.
How the Calculation Works
The calculator uses the future value formula for compound interest with regular contributions. It takes your current savings balance and compounds it forward at the expected annual return rate, then adds the accumulated value of your monthly contributions (also compounded over time). The formula accounts for monthly compounding to give you the most accurate projection.
The inflation adjustment is equally important. A million dollars in 30 years will not buy what a million dollars buys today. If inflation averages 3%, $1,000,000 in 30 years has the purchasing power of about $412,000 in today's dollars. The inflation-adjusted value shown in the results gives you a more realistic sense of your future purchasing power.
Understanding the Growth Chart
The area chart displays two stacked regions: your total contributions (the money you actually put in) and your investment growth (returns earned on your money). In the early years, contributions make up the majority of your balance. But as compounding takes effect, investment growth begins to dominate. For long time horizons (30+ years), growth often exceeds total contributions by a factor of 2-3x or more.
Choosing Your Expected Return Rate
The expected annual return rate depends on your investment allocation. Historically, the S&P 500 has returned approximately 10% annually before inflation (about 7% after inflation). A balanced portfolio of 60% stocks and 40% bonds has historically returned about 8-9% before inflation. Conservative estimates (6-7%) are appropriate if you want a margin of safety or are closer to retirement with a more conservative allocation.
What This Calculator Does Not Include
This is a simplified projection tool. It does not account for variable returns (markets do not return a steady rate every year), taxes on investment gains, Required Minimum Distributions (RMDs), Social Security benefits, pension income, or changes in contribution levels over time. For comprehensive retirement planning, consider consulting a fee-only financial planner who can model multiple scenarios and income sources.
Frequently Asked Questions
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What You Should Know
Building Your Retirement Plan
Retirement planning is one of the most important financial exercises you can undertake. The decisions you make today about saving and investing will determine your quality of life for potentially 20-30+ years of retirement.
The Three-Legged Stool
Retirement income traditionally came from three sources: Social Security, employer pensions, and personal savings. Today, pensions are rare in the private sector, making personal savings and Social Security the primary sources for most Americans. Social Security replaces roughly 40% of pre-retirement income for average earners, meaning personal savings need to fill the remaining gap.
Asset Allocation by Age
A traditional rule of thumb suggests holding your age as a percentage in bonds (a 30-year-old would hold 30% bonds, 70% stocks). Many modern advisors suggest a more aggressive approach, such as "age minus 20" in bonds, especially given longer life expectancies and low bond yields. The key principle is that younger investors can tolerate more risk (and higher expected returns) because they have decades to recover from market downturns.
As you approach retirement, gradually shifting toward more conservative investments protects your nest egg from a major market downturn right when you need the money. This process, called a "glide path," is automatically managed by target-date funds, which are popular 401(k) options.
Common Retirement Planning Mistakes
The biggest mistake is not starting early enough. Every year of delay costs you significantly due to lost compounding. Other common errors include: not contributing enough to get the full employer 401(k) match (leaving free money on the table), being too conservative with investments when young, not accounting for healthcare costs in retirement ($315,000 estimated for a 65-year-old couple in 2025), and underestimating how long retirement will last.