Retirement Savings Calculator

From your age, retirement age, current savings, monthly contribution and expected annual return, the calculator projects the balance waiting at retirement. The headline figure is the nest egg in future currency. Beneath it sit three companions: the monthly income that balance would support under the 4 percent rule, the total you will have paid in yourself, and — when you supply an inflation rate — what the future balance buys at today's prices. Read the headline and the deflated figure together; the deflated one is the honest measure of whether the plan is enough.

How the projection is worked out

The projection treats your money as two streams growing side by side. The balance you already hold compounds untouched, and each monthly deposit compounds from the month it lands. Both streams use the same monthly rate r, the annual return divided by 1,200, over n months — twelve for every year between your current age and your retirement age. Monthly compounding is this calculator's convention, not a property of the investment:

FV = P(1 + r)ⁿ + PMT × ((1 + r)ⁿ − 1) ÷ r

Here P is the current balance and PMT the monthly contribution. The first term is plain compound growth; the second is the future value of an ordinary annuity, the standard expression for a level series of end-of-month deposits and the relationship the spreadsheet FV function evaluates. When the rate is exactly zero the formula collapses to the balance plus the sum of the deposits. The companion figures derive from the same result: the income line takes 4 percent of the nest egg and divides by twelve, the paid-in line adds the starting balance to every future deposit, and the deflated line divides the nest egg by (1 + the inflation rate) raised to the number of years.

A worked example at the defaults

Take the defaults: age 35, retiring at 67, 50,000 saved, 500 a month, 7 percent. That span is 32 years, so n = 384 months, and the monthly rate is 7 ÷ 1,200 = 0.0058333. The growth factor is 1.0058333 raised to the 384th power, which comes to 9.3324. The existing 50,000 grows to 50,000 × 9.3324 = 466,620. The deposits build up to 500 × (9.3324 − 1) ÷ 0.0058333 = 500 × 1,428.41 = 714,205. Together the projected nest egg is 1,180,825. You will have paid in the 50,000 plus 384 deposits of 500, or 242,000 in total, so growth supplies nearly four-fifths of the final figure. The 4 percent rule turns the balance into 1,180,825 × 0.04 ÷ 12 = 3,936 a month. And at 2.5 percent inflation, prices multiply by 1.025³² = 2.20376 over those years, so the 1,180,825 buys what roughly 535,824 buys today.

Where the idea of a retirement age came from

Funded retirement is a recent invention, and the machinery for paying for it more recent still. The modern institution begins in Germany, whose Reichstag passed an old-age and invalidity insurance law in 1889 under Chancellor Otto von Bismarck, the first national scheme of its kind. The law came into force in 1891 and split the contributions between employees, employers and the state. Germany originally paid its pension from 70, and the history office of the US Social Security Administration notes that Bismarck was 74 at the time and that the age was not lowered to 65 until 1916, eighteen years after his death. The same SSA history is equally firm that America's 65 was its own choice — roughly half of the existing state pension systems used 65 and half used 70, and actuarial studies confirmed the lower figure — not something copied from Bismarck. The United States built its national system with the Social Security Act, signed by Franklin Roosevelt on August 14, 1935, which funded old-age benefits through taxes on wages and payrolls rather than from general revenue. None of these schemes replaced a full working income, which is why a privately compounding balance became the other half of retirement arithmetic — the half this calculator projects.

The account this calculator models

The container most American savers use has a bureaucratic birth certificate. The Revenue Act of 1978, Public Law 95-600, signed by President Carter on November 6, 1978, added section 401(k) to the Internal Revenue Code, and the section took effect on January 1, 1980. The savings plan built on it was the work of Ted Benna, a benefits consultant and co-owner of The Johnson Companies, a small consulting firm in suburban Philadelphia with no connection to Johnson & Johnson. Redesigning a bank client's retirement program, he read the new section as permitting pre-tax salary deferrals and added an employer match as the incentive; the bank's lawyer balked at something nobody had done before, so the first plan went in for The Johnson Companies' own staff. The dating is tangled: Benna's own account places the design on a Saturday afternoon in September 1979, while secondary accounts put it in 1980 and the first plan in operation in 1981, so the honest framing is designed in 1979–80 and running by 1981. Benna himself calls the common claim that Congress enacted the 401(k) in 1978 flatly wrong. IRS regulations issued in November 1981 confirmed that salary-reduction deferrals were permitted, and large employers moved quickly. The pattern it set — an individual balance, regular payroll contributions, growth compounding untouched until retirement — is the arithmetic this page runs, whatever wrapper and tax treatment surround the account.

The 4 percent rule

Turning a lump sum into an income is the harder half of the problem; the usual shorthand is the 4 percent rule. It comes from William Bengen's paper "Determining Withdrawal Rates Using Historical Data", published in the October 1994 Journal of Financial Planning. Bengen replayed retirements beginning in each year from 1926 onward against actual market returns, using a portfolio split evenly between common stocks and intermediate-term Treasury notes. His rule fixes the withdrawal as a dollar amount: 4 percent of the portfolio in the first year, then that sum adjusted for inflation every year after, not 4 percent of whatever the balance happens to be. On that method no historical starting year had exhausted the portfolio in under 33 years, whereas a 4.25 percent start could have run out in as little as 28, and he advised holding 50 to 75 percent in stocks through retirement. In the February 1998 AAII Journal, Philip Cooley, Carl Hubbard and Daniel Walz, finance professors at Trinity University in San Antonio, extended the analysis to more allocations and payout periods in what has been known ever since as the Trinity study. On 1926–1995 data, counting a payout period a success if the portfolio ended with a positive balance, 4 percent inflation-adjusted withdrawals over 30 years had succeeded in 98 percent of periods for a 75/25 stock and bond mix, 95 percent for 50/50 and for all stocks, 71 percent for 25/75, and only 20 percent for all bonds. For stock-dominated portfolios, they concluded, 3 and 4 percent "represent exceedingly conservative behavior". Neither paper guarantees anything; both are backtests of US markets, and the all-bond figure shows how much depends on the asset mix.

The income line applies the rule at its simplest: 4 percent of the projected nest egg divided by twelve, Bengen's first-year figure. On the defaults that is 3,936 a month in future money; deflate the nest egg at 2.5 percent and the present-day equivalent is closer to 1,786. It assumes the portfolio stays invested and says nothing about fees, taxes, or a bad run of markets early in retirement when the balance is largest. Treat the income line as a first sketch of scale, not a budget.

Assumptions worth knowing

Deposits land at the end of each month, the ordinary annuity convention; contributing at the start of each month instead would earn an extra month of growth on every deposit and nudge the figure up slightly. The return and the contribution are held constant — no raises, no pauses, no market swings — so the projection is a smooth curve no real account will follow, and because the order of returns matters, two savers averaging the same rate can retire with different balances. Taxes, fees, contribution limits and employer matching all sit outside the model; a match is effectively a raise to your monthly figure, so add it to the contribution field. The retirement age must exceed the current age — an equal or lower age produces an error rather than a zero-year projection — and balances or contributions above a trillion are rejected. Leaving the inflation field blank shows a dash on the deflated line rather than a zero, because no assumption was made on your behalf.

This is a projection tool, not financial advice — actual returns, inflation, taxes and fees will move every number here. See the site disclaimer.

Frequently asked questions

How much money will I have if I save 500 a month until retirement?

Starting at 35 with 50,000 already saved, 500 a month at a steady 7 percent annual return compounds to about 1,180,825 by age 67. Only 242,000 of that is money you put in yourself; the rest is growth. At 2.5 percent inflation that total buys what about 535,824 buys at today's prices.

What is the 4 percent rule for retirement withdrawals?

It is the rule of thumb that a retiree can draw 4 percent of their savings in the first year of retirement and then raise that dollar amount with inflation each year after, rather than taking 4 percent of whatever the balance is. It traces to William Bengen's paper in the October 1994 Journal of Financial Planning and to a February 1998 AAII Journal study by three Trinity University professors, known ever since as the Trinity study. This calculator applies it at its simplest: 4 percent of the projected nest egg divided by twelve gives the monthly income shown.

When did the 401(k) start?

The Revenue Act of 1978, signed on November 6, 1978, added section 401(k) to the US tax code, and the section took effect on January 1, 1980. Ted Benna of The Johnson Companies is the person usually credited with turning the provision into a workplace savings plan. By his own account he designed the first 401(k) savings plan in September 1979, while secondary accounts date the design to 1980 and the first plan in operation to 1981.

What annual return should I use for a retirement calculator?

Enter the return you genuinely expect from your own mix of investments, not a hoped-for best case. The default of 7 percent is an editorial assumption, not a prediction, and whatever rate you enter is held constant for the whole period. Real portfolios return different amounts each year, so treat the result as a projection rather than a promise.

Does this retirement calculator account for inflation?

Optionally. Leave the inflation field blank and every figure is stated in future currency. Fill it in and the calculator also shows the projected nest egg deflated by that rate over the years until retirement. At 2.5 percent over 32 years, roughly 1,180,825 of future money has the purchasing power of about 535,824 now.

Does the projection include Social Security or a state pension?

No. The calculator projects only the savings you enter and the contributions you plan to make. Public schemes such as US Social Security, created by the Social Security Act signed on August 14, 1935, would pay out on top of these figures, so the result understates total retirement income for anyone entitled to such benefits.