Annual Addition: $'+(annualContrib+annualMatch).toLocaleString()+' (Self: $'+annualContrib.toLocaleString()+', Match: $'+annualMatch.toLocaleString()+')
Total Principal over '+years+' years: $'+(balance+(totalAnnualAddition*years)).toLocaleString();}}
Using the 401 k calculator
A 401 k calculator is an essential tool for retirement planning. It helps you estimate how much money you will have in your retirement account based on your current savings, salary, and contribution levels. By adjusting the variables, you can see how increasing your contribution percentage or receiving a higher employer match can significantly impact your long-term wealth.
Understanding the trajectory of your retirement savings allows you to make informed decisions today. Whether you are just starting your career or are nearing retirement, using this 401 k calculator can provide the clarity needed to ensure your golden years are financially secure.
- Current 401(k) Balance
- The total amount of money currently residing in your 401(k) account.
- Annual Salary
- Your gross annual income before taxes and other deductions.
- Personal Contribution (%)
- The percentage of your gross salary that you contribute to the 401(k) each pay period.
- Employer Match & Cap
- The percentage of your contribution the employer matches and the maximum salary percentage they are willing to match.
How the 401(k) Projection Works
The 401 k calculator uses the power of compound interest to project your final balance. Every year, your balance grows through your contributions, employer contributions, and investment returns. In the following year, you earn returns not just on your original principal, but also on the interest earned in previous years.
FV = PV(1 + r)^n + PMT [ ((1 + r)^n – 1) / r ]
- FV: Future Value (Your final 401(k) balance)
- PV: Present Value (Your current balance)
- r: Annual expected rate of return (interest rate)
- n: Number of years until retirement
- PMT: Total annual contribution (Your savings + employer match)
401 k calculator Example
Scenario: Sarah is 30 years old and plans to retire at 60 (30 years). She currently has $20,000 in her 401(k). Her salary is $75,000. She contributes 6% of her salary, and her employer matches 50% of her contributions up to 6% of her salary. She expects an 8% annual return.
Step-by-step Projection:
- Personal Contribution: $75,000 × 0.06 = $4,500/year
- Employer Match: Sarah contributes 6%, and the cap is 6%. So, the employer matches 50% of that 6%. Calculation: $75,000 × 0.06 × 0.50 = $2,250/year
- Total Annual Addition (PMT): $4,500 + $2,250 = $6,750
- Growth of Current Balance: $20,000 × (1.08)^30 = $201,253
- Growth of Contributions: $6,750 × [ ((1.08)^30 – 1) / 0.08 ] = $764,528
- Total Estimated Balance: $201,253 + $764,528 = $965,781
Common 401(k) Questions
What is a "good" rate of return to use in the 401 k calculator?
Historically, the S&P 500 has returned about 10% annually before inflation. However, most financial planners suggest using a conservative estimate between 6% and 8% to account for market volatility and fees.
How does the employer match work?
An employer match is essentially a "guaranteed return" on your money. If an employer matches 50% up to 6%, and you contribute 6% of your salary, you are effectively getting a 3% bonus from your employer specifically for your retirement. It is highly recommended to contribute at least enough to get the full employer match.
Should I use a Roth or Traditional 401(k)?
A Traditional 401(k) uses pre-tax dollars, reducing your taxable income now but requiring you to pay taxes when you withdraw. A Roth 401(k) uses after-tax dollars, meaning you pay taxes now but withdrawals in retirement are tax-free. Use our 401 k calculator to see how different balances grow, but consult a tax professional for specific tax strategy.