How the 401k Calculator Works
A 401(k) is a retirement account that you fund from your pay. Many employers also add money, called a match. The money is invested, and it grows for decades. The 401(k) Calculator projects what your account could be worth when you retire. It counts your own deposits, your employer's match, your salary raises and the investment growth.
What you enter
- Your age now and your retirement age: the time between them is how long the money grows.
- Current balance: what is in the account today.
- Salary and yearly raise: your deposits are usually a percent of your pay, so they grow when your pay grows.
- What you contribute: a percent of your salary, or a fixed dollar amount each month.
- Employer match: the share of your contribution that your employer adds, and the limit on it. A common plan is "50% of what you put in, up to 6% of your salary".
- Yearly return and inflation: the growth you expect, and the rise in prices, which is used to show the result in today's money.
How the results are worked out
Each year the calculator finds what you and your employer put in, and adds it month by month while the balance grows:
your deposit for the year = salary x your percent match = the smaller of (your deposit, salary x match limit) x match % each month: balance = balance x (1 + monthly return) + your deposit / 12 + match / 12 next year: salary = salary x (1 + raise)
With a fixed monthly deposit, no match and no raise, this is the classic formula: balance x (1 + r)^n + deposit x ((1 + r)^n - 1) / r, where r is the monthly return and n is the number of months.
value in today's money = value / (1 + inflation)^years yearly income (4% rule of thumb) = value x 4%
A worked example
You are 30, with $25,000 in your 401(k). Your salary is $70,000, and it rises 3% a year. You contribute 8% of it. Your employer matches 50% of what you put in, up to 6% of your salary. The return is 7% a year, and inflation is 2.5%. You retire at 65.
| Result | Amount |
|---|---|
| Your contribution in year 1 (8% x $70,000) | $5,600 |
| Employer match in year 1 (50% x 6% x $70,000) | $2,100 |
| Balance at 65 | $1,922,087 |
| Your own money ($25,000 + your deposits) | $363,588 |
| Employer match over the years | $126,970 |
| Growth | $1,431,529 |
| Value in today's money | $809,912 |
| Yearly income by the 4% rule of thumb | $76,883 ($32,396 in today's money) |
Nearly three quarters of the balance is growth. Your own deposits are less than a fifth of the total.
Chart: how the balance grows
Age 35 █ $84,019 Age 40 ████ $175,423 Age 50 ███████████ $520,775 Age 60 ██████████████████████████ $1,272,673 Age 65 ████████████████████████████████████████ $1,922,087
The calculator draws every year as a bar with three parts: your own money in grey, the employer match in blue, and the growth in green. The green part gets bigger every year, because growth earns growth.
The employer match is free money
The same example, with different contribution rates. The match stops growing at 6%, because that is the limit:
| You contribute | Match in total | Balance at 65 |
|---|---|---|
| 0% of salary | $0 | $287,654 |
| 3% | $63,485 | $956,285 |
| 6% | $126,970 | $1,624,917 |
| 8% | $126,970 | $1,922,087 |
| 10% | $126,970 | $2,219,256 |
| 15% | $126,970 | $2,962,180 |
If you contribute less than the match limit, you leave free money on the table. Contributing at least up to the limit is usually the first step.
What else changes the result
| Change | Balance at 65 |
|---|---|
| Start at 25 instead of 30 | $2,861,491 |
| Start at 30 (the example) | $1,922,087 |
| Start at 35 | $1,272,673 |
| Start at 40 | $826,002 |
| Return of 5% instead of 7% | $1,230,455 |
| Return of 8% instead of 7% | $2,438,978 |
| No salary raises (0% instead of 3%) | $1,443,330 |
The yearly limit
The law limits how much you can put into a 401(k) each year. The limit changes most years, and it is higher from age 50. This calculator uses about $24,500, and $8,000 more from age 50, only to warn you if your contribution is above it. Check the current limits with the IRS or your plan. The limit applies to your own contributions, and the match is counted under a separate, higher limit.
Tips
- Get the full match first. It is an instant return on your money.
- Raise your contribution when your pay rises. Even 1% more a year adds up.
- Try lower returns. A return of 7% is not guaranteed. Test 5% to see a more cautious result.
- Look at today's money. A million dollars in 35 years buys much less than a million dollars now.
- Check the fees on your funds. A high fee takes a large part of your growth over many years.
What this calculator does not include
- Taxes. Money that you take out of a traditional 401(k) is taxed as income. A Roth 401(k) is taxed in a different way.
- Fund fees and plan fees, which lower the return.
- A return that changes from year to year. The calculator uses a steady rate.
- Vesting rules, which may mean you do not keep all of the match if you leave your job early.
- Social Security and other income in retirement. The 4% figure is a rule of thumb, not a promise.
This tool gives an estimate for general information only. It is not financial, tax or investment advice. Your plan sets its own rules, fees and match.