How this is worked out
Two things are happening at once, and separating them is what makes the result intelligible. The starting amount grows on its own:
A = P(1 + r/n)^(nt)
where P is what you start with, r is the annual rate, n is how many times a year interest is added, and t is years. Separately, each contribution grows from the moment it lands, which is a future value of an annuity:
FV = C · ((1 + i)^m − 1) ÷ i
with C the contribution, i the rate for one contribution period and m the number of contributions. The calculator walks the balance period by period rather than applying the closed form, because that is the only way to keep the two rates honest when contributions are monthly but compounding is daily.
The inflation adjustment divides the final balance by (1 + f)^t. That converts a future dollar into today's purchasing power, which is the only figure worth comparing to your current salary.
A worked example
- Starting amount
- $10,000
- Added each month
- $500
- Return / term
- 7% over 25 years
- Total paid in, including the start
- $160,000
- Growth on top
- $302,290
- Final balance
- $462,290
- In today’s money at 2.5%
- $249,355
The crossover is the number that matters
Every projection here has a year in which the growth on the account first exceeds the total you have paid into it. Before that year you are the engine. After it, the account is. The calculator finds that year and names it, because it is far more useful than the headline balance.
On the worked example above it lands in year seventeen. That is a long time to see very little happen, and it is precisely why most people stop. The first decade of compounding is genuinely unimpressive — $500 a month at 7%, starting from nothing, is worth about $86,500 after ten years, of which only $26,500 is growth. The second decade is where the shape changes.
This is also the argument against pausing contributions. A gap in year three does not cost you three years of payments; it costs those payments plus twenty-two years of compounding on them.
Seven per cent is an average, not a schedule
The S&P 500 has averaged roughly 10% nominal and 7% after inflation over long periods, which is where the default in this calculator comes from. What that average conceals is the distribution: individual years have ranged from roughly −37% to +38%. The average is real; the smoothness is not.
The practical consequence is sequence risk. If a bad run arrives while you are still contributing, it is close to harmless — you are buying at lower prices. If it arrives in the first few years after you stop contributing and start withdrawing, it does real damage to the same portfolio with the same average return.
Run this at 5% as well as 7%. If the plan only works at the higher figure, it is not a plan.
Where the money sits changes the result more than the rate does
A 401(k) with an employer match is not a 7% return; the match itself is an immediate 50% or 100% on the matched portion before any market movement. No investment decision available to you competes with that, which is why the match is the first thing to capture and the last thing to give up.
After the match, the choice is broadly between a Traditional 401(k) or IRA — contributions deducted now, withdrawals taxed later — and a Roth, funded with taxed money and withdrawn tax free. The right answer depends on whether your tax rate in retirement is likely to be higher or lower than it is today, which is a genuine unknown rather than a solved problem.
Money in a taxable brokerage account compounds more slowly than this calculator shows, because dividends and realised gains are taxed along the way. That drag is small in any one year and substantial across twenty-five.
Fees compound too, in the wrong direction
A 1% annual fee does not cost you 1% of the final balance. It costs roughly a quarter of it over twenty-five years, because the fee is charged on the whole balance every year including the part that would have been growth on previous years’ growth.
On the worked example above, moving from a 0.05% index fund to a product charging around 1% reduces the final balance from $462,290 to $391,147 — over $70,000, none of which had anything to do with your contributions. To model it here, subtract the fee from the return: 7% less 1% is 6%.
Assumptions and sources
- Compounding formula
- Standard compound interest with periodic contributions, walked period by period. Verified in tools/test/finance.mjs.
- Inflation adjustment
- Real value = nominal ÷ (1 + inflation)^years. You supply the inflation rate; the long-run US average is close to 2.5–3%.
- Default return
- Approximate long-run real return of a broad US equity index. It is a default, not a recommendation, and past performance is not a forecast. checked 2026-08
- Contribution limits
- Not modelled. 401(k) and IRA limits change annually — check current IRS figures.