How the projection works
Your current savings and monthly contributions grow at the annual return you enter, converted to an equivalent monthly rate. Contributions are added at the end of each month until your retirement age.
i = (1 + R)^(1/12) − 1 Balance = S(1 + i)ⁿ + C × ((1 + i)ⁿ − 1) / i Income ≈ 4% × Balance
Where S is your current savings, C is the monthly contribution, R is the expected annual return and n is the number of months until retirement.
Worked example
You are 40, plan to retire at 65, have $50,000 saved and put in $600 a month. You assume a 5% yearly return.
- Years to go: 65 − 40 = 25, which is 300 months.
- Monthly rate: 1.05^(1/12) − 1 ≈ 0.4074% a month. Over 25 years the growth factor is 1.05²⁵ ≈ 3.3864.
- Current savings: 50,000 × 3.3864 ≈ $169,318.
- Contributions: 600 × (3.3864 − 1) ÷ 0.004074 ≈ $351,441.
- Projected balance: about $520,758. You paid in $230,000, so about $290,758 is investment growth.
- Income estimate: 4% of $520,758 ≈ $20,830 a year, or about $1,736 a month, before tax.
Balance by monthly contribution and years
| Monthly | 10 years | 20 years | 30 years | 40 years |
|---|---|---|---|---|
| $250 | $40,618 | $113,360 | $243,628 | $476,919 |
| $500 | $81,237 | $226,719 | $487,256 | $953,839 |
| $1,000 | $162,473 | $453,439 | $974,513 | $1,907,678 |
Doubling the contribution doubles the result. In this table, each extra ten years roughly doubles it or more, so time is the input that does the most work.
The return you assume also has a large effect. $500 a month for 30 years grows to about $342,635 at 4%, $487,256 at 6% and $704,275 at 8%. Because nobody knows future returns, it is sensible to plan with a range rather than one number.
Why starting early matters
Compare two savers at a constant 6% return. One invests $500 a month from 25 to 35, then stops and leaves the money alone until 65. The other starts at 35 and invests $500 a month all the way to 65.
- Early starter: pays in $60,000 and ends with about $466,582 at 65.
- Later starter: pays in $180,000 and ends with about $487,256 at 65.
The later saver contributes three times as much money to finish only slightly ahead. Saving from 25 to 65 without stopping would give about $953,839 at the same return.
About the 4% rule
The 4% rule is a rule of thumb, not a guarantee. It suggests withdrawing about 4% of your savings in the first year of retirement, then adjusting that amount for inflation each year. It came from studies of historical US stock and bond returns over 30-year retirements.
Whether 4% is right for you depends on how long your retirement lasts, how your money is invested, market returns early in retirement, fees and taxes. Treat the income figure as a rough starting point.
Inflation and returns
Results are in future money. If you enter a return before inflation (a nominal return), the balance will buy less than the same amount today. To see the result in today's money, enter a return with expected inflation subtracted, for example 7% − 3% = about 4%.
All figures are estimates based on a steady return. Real portfolios go up and down from year to year, so your actual balance will differ.