A 401(k) is a powerful retirement savings tool offered by many employers. It allows you to contribute a portion of your salary pre-tax, which can lower your current taxable income. The money invested in your 401(k) grows over time, typically through market investments, and the growth is tax-deferred until you withdraw it in retirement.
This calculator helps you project the future value of your 401(k) based on several key factors: your current savings, how much you contribute annually, how your contributions might increase over time (due to raises or increased savings rates), the assumed rate of return on your investments, and the number of years you plan to invest.
How the Calculation Works:
The calculator uses a compound interest formula, adjusted for regular contributions that can also grow. It projects the balance year by year.
For each year, the calculation proceeds as follows:
Starting Balance: The balance from the end of the previous year.
Investment Growth: The starting balance is multiplied by the annual rate of return (e.g., `Starting Balance * (Annual Rate of Return / 100)`).
Contribution Increase: If you've set an annual contribution increase, your contribution for the current year is adjusted upwards. For example, if you contribute $10,000 this year and set a 3% annual increase, next year you'll contribute $10,300.
New Contributions: The adjusted annual contribution is added to the balance.
Ending Balance: The sum of the starting balance (plus growth) and the new contributions becomes the ending balance for the year, which then serves as the starting balance for the next year.
The formula for each year (let's denote year `n` with `B_n` as beginning balance, `C_n` as contribution for year `n`, and `r` as annual rate of return) is conceptually:
`B_{n+1} = B_n * (1 + r) + C_{n+1}`
This iterative process is applied for the specified number of years.
Key Factors to Consider:
Rate of Return: This is an assumption. Historical market returns vary, and future returns are not guaranteed. Lowering your assumed rate of return will result in a lower projected balance.
Contribution Increases: A small annual increase in your contribution rate can significantly boost your long-term savings due to the power of compounding.
Time Horizon: The longer your money has to grow, the more impact compounding will have. Starting early is crucial.
Taxes: This calculator projects the gross future value. Withdrawals in retirement may be subject to income tax, depending on whether your 401(k) is traditional or Roth.
Use this calculator to explore different contribution scenarios and understand the potential growth of your retirement nest egg.
function calculate401k() {
var currentSavings = parseFloat(document.getElementById("currentSavings").value);
var annualContribution = parseFloat(document.getElementById("annualContribution").value);
var annualRaise = parseFloat(document.getElementById("annualRaise").value) / 100; // Convert percentage to decimal
var annualRate = parseFloat(document.getElementById("annualRate").value) / 100; // Convert percentage to decimal
var years = parseInt(document.getElementById("years").value);
// Validate inputs
if (isNaN(currentSavings) || isNaN(annualContribution) || isNaN(years) ||
currentSavings < 0 || annualContribution < 0 || years < 1) {
document.getElementById("finalAmount").innerText = "Please enter valid positive numbers.";
return;
}
var projectedBalance = currentSavings;
var currentAnnualContribution = annualContribution;
for (var i = 0; i < years; i++) {
// Calculate growth on existing balance
projectedBalance += projectedBalance * annualRate;
// Add current year's contribution
projectedBalance += currentAnnualContribution;
// Increase contribution for the next year
currentAnnualContribution += currentAnnualContribution * annualRaise;
}
// Format the result to two decimal places and add currency symbol
document.getElementById("finalAmount").innerText = "$" + projectedBalance.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}