How to project retirement with compound interest

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.

The future-value formula

FV = P × (1 + r)n + PMT × [((1 + r)n − 1) / r]

Where P = starting balance, PMT = per-period contribution, r = per-period return, n = number of periods. For monthly compounding with an annual return rate, use r = annual / 12 and n = years × 12.

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.

FV = $20,000 × 1.0735 + $800 × [(1.0735 − 1) / 0.07]

= $213,000 + $1,326,000 = $1.54 million in today’s dollars at age 65. Not bad on a $20k start and $800/month.

What return assumption should you use?

10% nominal — the raw long-term US stock market average since 1926, not adjusted for inflation. Using this makes your projection look great but the dollars are future dollars that buy less than today’s dollars.

7% real — the same return net of ~3% historical inflation. The output is in today’s purchasing power. Use this for any projection you’ll use to plan your actual life.

5–6% real — a conservative assumption for portfolios with meaningful bond allocation. Useful as a stress test.

4% — what some strategists call the new-normal expected real return after 2020s-era high valuations. Ultra-conservative floor.

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

The Trinity study suggests you can withdraw 4% of your retirement nest egg in year one, adjust for inflation each subsequent year, and have a 95% chance of your portfolio lasting 30 years. $1.54M × 4% = $61,600/year = $5,133/month pre-tax.

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.

One example to be humble about: a 30-year horizon with a bad sequence-of-returns (2000–2010 type decade at the start) produces materially lower ending balances than a smooth 7% assumption, even if the average return ends up the same. Real-world paths are bumpy.

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.

Roth 401(k)/IRA contributions are post-tax — withdrawals are tax-free. $1.54M stays $1.54M.

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.

Employer match — the biggest return-on-contribution available

If your employer offers 50% match on the first 6% of salary, that 6% contribution becomes 9% against your balance — a 50% instant return, which compounds on top of market returns. Always contribute at least enough to get the full match; anything less is leaving pure cash on the table.

Project yours

Enter your starting balance, monthly contribution, expected return (use 7% real for base case), and years-to-retirement into the compound interest calculator. Run it at 5%, 7%, and 9% to see a realistic range. Cross-check the target against the savings goal calculator to back-solve the monthly contribution needed to hit a specific number, and pair with the net worth calculator to track actual progress each year.