Retirement Earnings & Growth Calculator
Understanding Your Retirement Earnings Potential
Projecting your retirement earnings is one of the most critical steps in financial planning. Unlike a simple savings account, retirement portfolios rely heavily on the power of compounding—where your investment earnings generate their own earnings over time.
How Retirement Compounding Works
The Retirement Earnings Calculator uses the time value of money formula. It calculates the future value of your current nest egg plus the future value of a series of monthly contributions. The mathematical formula used is:
FV = P(1 + r)^n + PMT × [((1 + r)^n – 1) / r]
- P: Your initial balance.
- PMT: Your monthly contribution.
- r: Monthly growth rate (Annual return / 12).
- n: Total number of months until retirement.
Example Calculation
Suppose you are 35 years old and plan to retire at 65. You have $25,000 saved and contribute $800 monthly. If you expect an average annual return of 8%:
- Years to Grow: 30 years
- Total Invested: $313,000 (Initial $25k + $288k in monthly contributions)
- Estimated Retirement Fund: ~$1,418,000
- Earnings from Growth: ~$1,105,000
As you can see, in this scenario, the majority of the final balance comes from market earnings rather than direct contributions, highlighting the importance of starting early.
Frequently Asked Questions
What is a realistic annual return? Historically, the S&P 500 has averaged around 10% annually before inflation. Many conservative planners use 6% to 7% to account for market volatility and fees.
Should I account for inflation? Yes. To see your results in "today's dollars," subtract the expected inflation rate (usually 2-3%) from your expected annual return before entering it into the calculator.