How To Project Retirement With Compound İnterest
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The future-value formula
The question “how much will I have at retirement?” has one formula behind it and three variables that matter: how much you start with, how much you add each month, and how long the money compounds. This guide walks through the projection math, the realistic return assumptions to use (and which inflate the number unfairly), and how to translate the scary-big future number into a realistic monthly income.
A realistic scenario
Age 30, $20,000 already saved in a 401(k). Contributing $800/month (employee + match). Target retirement at 65. Assumed 7% real (inflation-adjusted) return.
What return assumption should you use?
Never compare calculators that use nominal returns to ones that use real — the difference over 35 years is roughly 2–3× the ending balance.
The 4% rule — from nest egg to monthly income
For a more conservative target (longer retirement, lower-return environment), some advisors now recommend 3.5% or even 3%. $1.54M × 3.5% = $53,900/year.
The “25× rule” for FI target
The inverse of 4%: multiply your target annual spending by 25 to get the nest egg you need. Want $60k/year in retirement? Target $1.5M. Want $100k/year? Target $2.5M.
The starting-early superpower
Two investors, same $400/month contribution, 7% return. Anna invests ages 25–35 (10 years, $48k contributed), stops, lets it ride to 65. Ends with ~$470k. Ben starts at 35, invests $400/mo for 30 years ($144k contributed), ends with ~$484k. Ben contributed 3× what Anna did and barely beat her. Time dominates amount; front-loading contributions early is worth disproportionately more than catch-up later.
Stress-test the assumptions
Before anchoring on a projection, run it at 3 return rates (5%, 7%, 9%) and 2 contribution rates (current, current + 20%). Your real outcome will land somewhere in the range. The honest way to present a projection to yourself is a range, not a single point.
Taxes and account types
401(k) and traditional IRA contributions are pre-tax — you’ll owe ordinary income tax on withdrawals. A $1.54M traditional 401(k) becomes ~$1.15M net after a 25% effective rate at retirement.
Employer match — the biggest return-on-contribution available
Roth 401(k)/IRA contributions are post-tax — withdrawals are tax-free. $1.54M stays $1.54M.
Project yours
Most calculators (including ours) ignore this — the number projected is pre-tax for traditional accounts, tax-free for Roth. Adjust mentally when comparing to your desired spending.