How this projection works
The projection combines two formulas: the future value of your current capital, FV = P · (1 + i)ⁿ, and the future value of monthly contributions, FV = C · ((1 + i)ⁿ − 1) / i. Summed together, they give the nominal balance at retirement. We then divide by (1 + inflation)ʸ to express it in today's dollars — what you can actually buy with it.
Worked example
You are 35 with $15,000 saved, contribute $400/month until 65 at 7% return with 2.5% inflation. After 30 years you accumulate about $603,000 nominal, worth roughly $288,000 in today's dollars. You will have contributed $159,000 and earned $444,000 in compound interest. Starting 10 years later (at 45) with the same contribution leaves you with less than half.
Common mistakes
- Ignoring inflation. $500,000 in 30 years buys roughly $240,000 of today's goods at 2.5% inflation. Budget in today's dollars.
- Overestimating returns. A 10% annual return is the exception, not the norm. Plan around 5–7% net for a diversified stock portfolio.
- Overrelying on Social Security. Replacement rates are shrinking in many countries. Treat public pensions as a supplement, not the base.
- Waiting to start compounding. The first 10 years matter more than the last 20 if used well.
- Selling during crashes. Cashing out during downturns locks in losses and forfeits the recovery.
Frequently asked questions
How much do I need to retire? A common rule is 25 times your expected annual spending (the 4% rule).
What return should I assume? 5%–7% net for a globally diversified portfolio. Be conservative to avoid surprises.
401(k), IRA or brokerage? Depends on your country's tax rules. Tax-advantaged accounts usually win first; taxable accounts add flexibility.
Is it too late at 45? No, but you will need to contribute more and take less risk near retirement.
Pay off the mortgage first or invest? If your mortgage rate is below expected net returns, invest. If above, pay it down.