Practical guide
How to Calculate Retirement Savings
Project long-term retirement outcomes using contributions and return assumptions.
Quick Answer
Step-by-Step Method
- Record current retirement savings, monthly contribution including any employer match, and years until retirement.
- Choose a realistic annual return. Historical long-run equity returns are roughly 7–10% nominal; more conservative or bond-heavy portfolios sit lower.
- Convert to a monthly rate (annual ÷ 12) and months (years × 12), then apply the future value formula.
- Sanity-check the result against your target income using a withdrawal rate of roughly 4% per year.
Worked Example
Age 35, $40,000 already saved, $500 contributed monthly, 7% annual return, 30 years to retirement. Monthly rate = 0.00583, months = 360. Existing savings grow to about $325,000; contributions add roughly $610,000. Projected total ≈ $935,000, which at a 4% withdrawal rate supports about $37,400 a year before tax.
Detailed Explanation
The most useful thing these projections reveal is how much of the outcome is driven by time rather than amount. In the example, $500 a month over 30 years is $180,000 of actual contributions producing roughly $610,000 — the remaining $430,000 is compounding. Delaying the same plan by ten years does not cost you ten years of contributions; it costs the ten most heavily compounded years at the end, which is a far larger loss than intuition suggests.
Every projection of this kind assumes a smooth constant return, and no real portfolio delivers one. Actual sequences swing widely, and the order in which good and bad years arrive matters enormously once you begin withdrawing — a severe drop in the first few years of retirement does far more damage than the same drop later, because you are selling assets at depressed prices. This is sequence-of-returns risk, and it is the main reason planners suggest shifting toward bonds as retirement approaches.
Run the numbers in today's money rather than future money. At 3% inflation, $935,000 in thirty years buys roughly what $385,000 buys now, which is a very different retirement from the one the headline figure implies. Either subtract inflation from your return assumption to work in real terms, or inflate your target income to future dollars — just never mix the two. The 4% withdrawal guideline itself comes from US historical data over 30-year retirements and should be treated as a reasonable starting assumption rather than a guarantee.
Use the Calculator
Run your real values in the interactive tool and review assumptions before taking action.
Open related calculatorFAQ
What return rate should I assume?
Many planners use 6–7% nominal for a diversified equity-heavy portfolio, or about 4–5% after inflation. Assuming 10% because recent years delivered it is the most common way these projections mislead.
What is the 4% rule?
A guideline suggesting you can withdraw 4% of your balance in the first year of retirement, adjusted for inflation thereafter, with a low historical risk of depletion over 30 years. It is a planning heuristic drawn from past US market data, not a guarantee.
Does employer matching count toward my contribution?
Yes — include it in the monthly contribution figure, since it compounds identically to your own money. An unclaimed employer match is one of the few genuinely free returns available.