function calculate401k() {
var currentAge = parseFloat(document.getElementById('ageCurrent').value);
var retireAge = parseFloat(document.getElementById('ageRetire').value);
var balance = parseFloat(document.getElementById('currentBalance').value);
var salary = parseFloat(document.getElementById('annualSalary').value);
var contrib = parseFloat(document.getElementById('contribRate').value) / 100;
var mLimit = parseFloat(document.getElementById('matchLimit').value) / 100;
var mRate = parseFloat(document.getElementById('matchRate').value) / 100;
var expectedReturn = parseFloat(document.getElementById('annualReturn').value) / 100;
if (isNaN(currentAge) || isNaN(retireAge) || currentAge >= retireAge) {
alert('Please enter valid ages. Retirement age must be greater than current age.');
return;
}
var years = retireAge – currentAge;
var months = years * 12;
var monthlyReturn = expectedReturn / 12;
// Calculate effective employer match
var effectiveMatchRate = Math.min(contrib, mLimit) * mRate;
var monthlyContribution = (salary / 12) * (contrib + effectiveMatchRate);
var futureValue = balance;
var totalSelfContrib = 0;
for (var i = 0; i < months; i++) {
futureValue = (futureValue * (1 + monthlyReturn)) + monthlyContribution;
totalSelfContrib += (salary / 12) * contrib;
}
document.getElementById('result-area').style.display = 'block';
document.getElementById('totalValue').innerText = '$' + futureValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
var summary = "Over " + years + " years, you will have contributed approximately $" +
totalSelfContrib.toLocaleString(undefined, {maximumFractionDigits: 0}) +
" of your own income. Thanks to employer matching and compound interest, your portfolio is estimated to grow to " +
"$" + futureValue.toLocaleString(undefined, {maximumFractionDigits: 0}) + ".";
document.getElementById('summaryText').innerText = summary;
}
How Does a 401k Work?
A 401k is a tax-advantaged retirement savings plan offered by many American employers. It allows employees to contribute a portion of their pre-tax salary into individual investment accounts. The primary power of a 401k lies in two areas: Employer Matching and Compound Interest.
Understanding Employer Matching
Many companies offer to "match" a percentage of your contributions. For example, if your employer matches 50% of your contributions up to 6% of your salary, and you contribute 6%, they effectively add an extra 3% of your salary to your account for free. This is often described as a 100% return on your investment immediately.
Example Calculation
Let's look at a realistic scenario for a mid-career professional:
Current Age: 35
Retirement Age: 65 (30 years of growth)
Current Balance: $100,000
Annual Salary: $80,000
Your Contribution: 10% ($8,000/year)
Employer Match: 50% up to 6% ($2,400/year)
Expected Return: 7%
In this example, after 30 years, the account would grow to approximately $1,732,000. Of that total, only $240,000 came from your direct contributions; the rest came from employer matches and the compounding growth of the market.
Maximizing Your 401k Results
To ensure your 401k reaches its full potential, consider these strategies:
Start Early: Even small amounts saved in your 20s can outperform much larger amounts saved in your 40s because of the time value of money.
Capture the Full Match: Never contribute less than the amount required to get the full employer match. It is essentially part of your compensation package.
Increase with Raises: Every time you get a salary increase, consider bumping your contribution percentage by 1% until you hit the annual IRS limit.
Watch the Fees: Pay attention to the expense ratios of the mutual funds or ETFs within your 401k. High fees can eat away hundreds of thousands of dollars over a 30-year career.