How Can I Calculate the Expected Size of My Retirement Account?
Some people refer to "your number" as the amount you need to have saved for retirement to live the way you want. Being able to estimate how much you'll have at retirement helps you project whether you'll have enough to support your desired lifestyle. If you plan early enough, you can also adjust your annual retirement contributions to meet your savings goals. However, investments don't always perform as expected, so your retirement account could end up significantly larger than you anticipate if your investments do well, but it could also end up significantly smaller if they do poorly.
Divide your estimated annual return by 100 to convert it to a decimal. For example, if you expect your retirement investments to generate an annual return of 6.5 percent, divide 6.5 by 100 to get 0.065.Step 2
Add 1 to your expected annual return expressed as a decimal. In this example, add 1 to 0.065 to get 1.065.Step 3
Raise the result to the power of the number of years you have until retirement. In this example, if you expect to retire in 14 years, raise 1.065 to the 14th power to get 2.414874185.Step 4
Subtract 1 from the result. In this example, take away 1 from 2.414874185 to get 1.414874185.Step 5
Divide the result by the expected annual return expressed as a decimal. In this example, divide 1.414874185 by 0.065 to get 21.76729515.Step 6
Multiply the result by the amount you plan to contribute to your retirement plan each year to find the value of your anticipated contributions at retirement. Continuing the example, if you expect to put aside $7,000 each year, multiply 21.76729515 by $7,000 to get $152,371.07.Step 7
Multiply the present value of your retirement account by the result of the interest rate plus one raised to the power of the number of years until retirement (the step 3 result) to find the value of your current account at retirement. In this example, if you have $160,000 in your retirement account, multiply $160,000 by 2.414874185 to get $386,379.87.Step 8
Add the future value of your contributions to the future value of your current account to find the expected size of your retirement account at retirement. In this example, add $152,371.07 to $386,379.87 to find your expected retirement account value is $538,750.94.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."