401(k) Growth Calculator

Understanding the 401(k) Growth Calculator

A 401(k) is a powerful retirement savings vehicle offered by many employers. This calculator is designed to project the future value of your 401(k) account, helping you visualize your potential nest egg at retirement. It demonstrates the impact of your contributions, your employer's match, and the power of compound returns over time.

How It Works

The calculator simulates the year-by-year growth of your 401(k) balance until your specified retirement age.

• Your Contributions: Calculated as a percentage of your annual salary.
• Employer Match: Many employers match a portion of your contributions, which is essentially free money. This calculator accounts for common matching formulas (e.g., 50% of your contributions up to 6% of your salary).
• Annual Return: The estimated average annual growth rate of your 401(k) investments.
• Time Horizon: The number of years between your current age and your planned retirement age.

The Power of Compounding

The calculation for each year is as follows:

New Balance = (Old Balance + Your Annual Contribution + Employer Match) * (1 + Annual Return)

The chart generated by the calculator visually represents this exponential growth. In the early years, the growth is mostly driven by contributions. In the later years, the growth is dominated by the returns generated on your large existing balance. This illustrates why starting to save early and contributing consistently are the most critical factors in building a substantial retirement fund.

Frequently Asked Questions