Simple 401k Calculator
Your objective is to calculate the compound interest growth and future value of your monthly contributions. This can be achieved simply by entering your beginning balance, an aggregated estimate for all contributions (yours, employer match, catch-up), an estimate for return on investment, and the number of years until retirement, then click the "Compute" button.
Don't be deceived by more complex 401k calculators that include more variables. It might appear more accurate but that accuracy deceives.
For example, many calculators include salary growth but fail to subtract for inflation. Similarly, not all employer 401k contribution limits conform with federal guidelines (which change regularly) but many calculators provide no mechanism to adjust for these alternatives.
In short, it is wiser to keep this calculation very simple by assuming an average annual contribution in today's dollars that balances for future growth in earnings, your unique employer matching situation, catch-up contributions, highly compensated employee limitations, and other variables. Just aggregate these various factors into a simple annual contribution and think exclusively in terms of today's dollars. Otherwise, you complicate the process with variables you can never estimate accurately (future inflation, salary growth, changes in federal contribution limits, changes in employer policy).
While this simplified solution is not perfect, it is no worse than more complex alternatives as explained in this article here.
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What Will Be The Future Value Of Your 401k?
Do you ever wonder if your savings will make you rich at retirement? That’s a normal question.
The last thing you’d want is to reach retirement age realizing that you’re going to need to work for another 20 years.
Proper financial planning results in a secured future. And, your 401k could be the key. Our Simple 401k Calculator can guide you as you plot your path to your golden years.
Not A Math Whiz? Worry Not!
You can find out how much your 401k will grow without the help of a financial wizard – our 401k savings calculator will do the trick. By simply entering your variables and performing a series of “what-ifs,” you can easily arrive at the amount you envision for your future.
Play around with the actuals (for example, the amount you already save each month) and the extras (for example, the additional contribution that you are willing to make to your 401k). The Simple 401k Calculator can be your best tool for creating a secure retirement. Just follow the step-by-step procedure.
Calculating the compound interest growth and future value of your monthly contributions is as simple as entering your beginning balance, the combined contributions (yours, your employer, catch-up), an estimate of your return on investment, and the number of years until retirement.
Anyone Can Be Rich Someday
A middle-aged factory worker, with another thirty years of active service, can easily plan to create an effective saving scheme for his retirement. All he needs to do is to try and raise his contributions to his 401k plan. Whether his employer decides to match his contribution or not will not affect the amount of growth his money will achieve.
Likewise, you can be rich someday by increasing contributions to your 401k.
How can you find extra money to contribute toward your 401k? Here are some places to start:
- Increase your income – Take an extra job or ask for a pay raise. You might find that working as a freelancer or entrepreneur will result in more earnings than working for a business at hourly wages.
- Cut your spending – Many people overspend in these key areas: food, clothing, transportation, shelter, and utilities. Therefore, try cutting out unhealthy snack foods, decrease trips to the mall to shop for the latest styles, opt for a used vehicle over a brand new one, don’t buy a new house unless you really need extra space (better yet, downsize), and find more efficient ways to heat and cool your home.
Variables To Consider – And Not
To many, what matters most is getting a ballpark figure of how much money they will have when they hit their 60s — a simple and matter-of-fact figure in dollars!
While there are only four input variables in this calculator, it’s important to consider how you arrive at each variable. For example, when figuring out your total monthly contributions, include:
- Your average monthly contributions.
- Your employer’s average monthly contributions – sometimes this is a “match.”
- Any catchup contributions in order to reach your desired future goal.
- Limitations due to being a highly-compensated employee.
Only focus on the variables presented in this calculator. Never go into the details of something that is completely out of your control like inflation, salary growth, changes in federal law, or changes in employment policies.
This 401k contribution calculator helps streamline the process of figuring out how much you should contribute toward your 401k to meet your future goal.
I hope you take a few moments to run a couple of scenarios and figure out how much you should be contributing toward your 401k – preparing now will result in a more rewarding retirement later.
Simple 401k Calculator Terms & Definitions
- 401k – a tax-qualified, defined-contribution pension account as defined in subsection 401(k) of the Internal Revenue Taxation Code.
- Inflation – the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
- Federal Contribution Limit – a specified amount set by the Federal government as to the maximum contribution a person can put into, in this case, their 401k account.
- Catchup Contribution – an option given to employees who have reached the age of 50 to put additional contributions into their 401k account – this might also be considered to be simply raising your contribution up, not exceeding the maximum contribution limit, in order to better reach a goal.
- Employer Contribution – the amount employers pay as a match to the contribution of their employees to their 401k account.
- Compound Interest – when interest is added to the principal of a loan or deposit, so that interest earns interest on a recurring basis.
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