Retirement Calculator

How to Calculate Your Retirement Savings by Hand: Worked Example

You can reproduce the calculator's projection with nothing more than the future value formula. Suppose you are 35 with $50,000 already saved, you contribute $500 per month ($6,000 per year), you expect a 7% average annual return after inflation (so every figure below is in today's dollars), and you plan to retire in 30 years. The Compounding setting controls how often growth is applied and when your deposits are added. The example below uses Monthly, the calculator's default, and the Yearly version follows it.

Step 1: grow the existing balance. Multiply the current savings by (1 + r ÷ 12) raised to the number of months: (1 + 0.07 ÷ 12)³⁶⁰ = 8.1165. So $50,000 × 8.1165 = $405,825. Your existing nest egg alone grows more than eightfold without another dollar added.

Step 2: grow the contributions. Monthly contributions use the future value of an annuity with a monthly rate (0.07 ÷ 12 = 0.005833) over 360 months: $500 × [((1 + 0.005833)³⁶⁰ − 1) ÷ 0.005833] = $500 × 1,219.97 = $609,985.

Step 3: add them together. $405,825 + $609,985 = $1,015,810 projected at retirement. Under the 4% rule, that balance supports roughly $40,632 of annual withdrawals in the first year of retirement. If that income falls short of your target, the formula shows exactly which lever to pull: a larger monthly contribution changes Step 2, while working longer changes the exponent in both steps.

The same example with Yearly compounding

If you choose Yearly, the calculator treats your 12 monthly deposits as one $6,000 deposit at the end of each year, with growth applied once a year. Step 1 becomes 1.07³⁰ = 7.6123, so $50,000 × 7.6123 ≈ $380,613. Step 2 becomes $6,000 × [(1.07³⁰ − 1) ÷ 0.07] ≈ $6,000 × 94.4608 = $566,765. The total is $947,377, which supports about $37,895 in first-year withdrawals at 4%.

Here the two differ by about $68,000, or roughly 7% of the Yearly total, because Monthly compounding applies growth twelve times a year and Monthly deposits start earning sooner. The gap widens the longer the money is invested and the higher the return.

How much difference does starting at 25 instead of 40 make?

The exponent is the most influential term in the formula. Saving $500 per month at 7% from age 25 to 65 (40 years) compounds to about $1,312,407 with Monthly compounding, or $1,197,811 with Yearly. The identical contribution started at age 40 (25 years) reaches only about $405,036 Monthly, or $379,494 Yearly.

The late starter deposits just $90,000 less in total ($150,000 against $240,000), yet retires with roughly $907,000 less under Monthly compounding and about $818,000 less under Yearly: the gap is almost entirely lost compounding, not lost deposits. This is why most planners treat time in the market as more valuable than contribution size. If early retirement itself is the goal rather than a fixed age, the FIRE Calculator models the same compounding math against a spending-multiple target instead of a fixed retirement date.

What Percentage of Income Should You Save for Retirement at Each Age?

A widely used rule of thumb is to save 15% of gross income including any employer match, beginning in your 20s (use the 401(k) Calculator to check your own match and contribution room). Starting later requires more: someone beginning at 35 typically needs around 20–25%, and a 45-year-old starting from zero often needs 30% or more to retire on schedule. Rather than guessing, run your real numbers through the calculator above and adjust the monthly contribution until the projected balance covers 25 times your expected annual spending.

How Social Security and Return Assumptions Fit In

Should you count Social Security in the projection?

Many planners model Social Security as a reduction in the income your portfolio must produce rather than as an asset. If you expect $25,000 per year in benefits and need $60,000 to live on, your savings only need to generate $35,000, which cuts the required nest egg under the 4% rule from $1.5 million to $875,000. Because benefit levels and claiming ages vary, running the projection both with and without benefits (lower the Desired Annual Retirement Income field by your expected annual benefit) brackets your realistic range.

What return assumption is realistic?

The long-run average return of a diversified US stock portfolio has historically been near 10% nominal, or roughly 7% after inflation. Using 7% and today's dollars keeps the projection honest: the output is spending power, not an inflated future number. Conservative planners drop to 5–6% after inflation to build in a margin of safety, especially within ten years of the retirement date when sequence-of-returns risk matters most.

Does the Projection Assume a Constant Contribution?

Yes, the calculator assumes a flat monthly contribution, although most real careers see contributions rise with income. Because every figure is in today's dollars, a flat $500 a month already means contributions that keep pace with inflation. Many savers go further, raising contributions after raises or once a mortgage is paid off. If your $500 a month grows by 3% a year above inflation, the projected balance in the worked example rises from about $1.02 million to about $1.24 million with Monthly compounding (about $947,000 to $1.16 million with Yearly), because each year's larger contribution still has time to compound, while the early contributions grow exactly as before.