Investment Return Calculator — With Inflation Adjustment

Watch the two lines on the projection: total contributed, and total balance. The gap between them is investment growth.

In year one, growth is a rounding error. Around year 8 on a typical plan, annual growth first exceeds annual contributions. Around year 14, cumulative growth overtakes cumulative contributions. By year 30, growth is three or four times what you put in.

The practical reading: in the first decade, your savings rate is what matters and the rate of return barely does. In the third decade, the reverse. Someone in their twenties should optimise for how much they can put in; someone in their fifties is mostly along for the ride on what is already invested.

This is also why starting early beats saving more. Someone contributing $200 a month from age 25 ends up ahead of someone contributing $400 a month from age 40, despite putting in less money — the first person's money has fifteen more years to compound.

A projection is only as good as the rate you feed it, and a constant rate is a simplification that hides real risk.

US stocks have returned roughly 10% a year nominally over the very long run, about 7% after inflation. Those figures come from a century of data and any individual twenty-year window can look very different — the decade from 2000 to 2009 returned close to nothing.

For planning purposes, 6% to 7% for a stock-heavy portfolio and 4% to 5% for a balanced one are defensible working assumptions in real terms. Using 10% because that is the historical nominal average, and then not adjusting for inflation, is the most common way projections end up 40% too optimistic.

Run the projection at several rates rather than one. The spread between a 5% and a 9% assumption over thirty years is enormous, and seeing that spread is more useful than any single point estimate.

A constant-rate projection assumes the order of returns is irrelevant. While you are contributing, that is roughly true. Once you are withdrawing, it stops being true and becomes the dominant risk.

Two retirees with identical average returns can have completely different outcomes depending on when the bad years arrive. Poor returns in the first few years of withdrawals, while the balance is at its largest and you are selling into a fall, do damage that later good years cannot undo.

This is sequence-of-returns risk, and it is the reason retirement planning uses withdrawal-rate rules rather than simple average-return projections. The commonly cited 4% rule exists precisely because a naive average-return calculation would suggest you could safely withdraw much more.

While you are accumulating, sequence risk works mildly in your favour: a falling market means your monthly contributions buy more units. It is the phase after that a projection like this does not model.

401(k) match —

the only guaranteed 100% return available. Contributing enough to capture a full employer match comes before every other consideration in this list.

Tax-advantaged accounts —

a 401(k) or IRA shelters growth from annual tax drag. The difference against a taxable account compounds over decades and is frequently larger than the difference between good and mediocre fund selection.

Roth versus traditional —

Roth pays tax now and withdraws free; traditional deducts now and taxes on withdrawal. The choice turns on whether your tax rate will be higher now or later, which for most people means Roth early in a career and traditional later.

Fund costs —

broad index funds are available at expense ratios under 0.10%. Over thirty years the difference between 0.05% and 1.00% is roughly a quarter of the final balance.

Tax drag —

in a taxable account, dividends and realised gains are taxed annually, so the money removed never compounds. This is why account type matters as much as fund choice.