Projecting your retirement savings helps you answer the most important question: "Am I saving enough?" Here's how to create realistic projections.
The Basic Formula
Your future balance depends on three things:
- What you have now (current balance)
- What you'll add (future contributions)
- What it will earn (investment returns)
Key Variables to Consider
Current Age and Retirement Age
- The gap between these is your accumulation period
- More time = more growth from
Current Savings
- 401(k), IRA, and other retirement accounts
- Don't forget HSAs (they're retirement accounts in disguise)
Monthly Contributions
- Your contributions
- Employer match (free money!)
- Expected increases over time
Expected Return Rate
| Investment Mix | Historical Average | Conservative Estimate |
|---|---|---|
| 100% Stocks | 10% | 7-8% |
| 80/20 Stocks/Bonds | 9% | 6-7% |
| 60/40 Stocks/Bonds | 8% | 5-6% |
Pro Tip
Use 7% as a reasonable long-term estimate for a stock-heavy portfolio. This accounts for inflation historically averaging 3%.
Inflation
Inflation erodes purchasing power. $1 million in 30 years won't buy what $1 million buys today.
- Nominal projections: Don't adjust for inflation (bigger numbers, less useful)
- Real projections: Adjusted for inflation (smaller numbers, more useful)
For real projections, subtract expected inflation (2-3%) from your return rate.
Running Your Projection
Example: Sarah's Projection
Starting point:
- Age: 30
- Current 401(k): $50,000
- Monthly contribution: $500
- Employer match: $250/month
- Total monthly: $750
Assumptions:
- Retirement age: 65 (35 years)
- Return rate: 7% (inflation-adjusted)
The Math:
- Current $50,000 growing for 35 years at 7% = $534,000
- $750/month for 35 years at 7% = $1,230,000
- Total: $1,764,000 (in today's dollars)
What-If Scenarios
Small changes have huge impacts over time:
| Scenario | Final Balance |
|---|---|
| Base case ($750/mo) | $1,764,000 |
| Add $200/mo more | $2,173,000 |
| Start 5 years earlier | $2,360,000 |
| Start 5 years later | $1,302,000 |
| 1% higher returns | $2,220,000 |
Watch Out
Starting 5 years late costs nearly half a million dollars. Time is your most valuable asset.
How Much Do You Need?
The 4% Rule suggests you can withdraw 4% of your portfolio annually in retirement.
| Portfolio | Annual Withdrawal (4%) | Monthly Income |
|---|---|---|
| $500,000 | $20,000 | $1,667 |
| $1,000,000 | $40,000 | $3,333 |
| $1,500,000 | $60,000 | $5,000 |
| $2,000,000 | $80,000 | $6,667 |
Add Social Security to get your total retirement income.
Monte Carlo Simulations
Real returns vary wildly year to year. Monte Carlo simulations run thousands of scenarios to show the probability of success.
| Success Rate | What It Means |
|---|---|
| 95%+ | Very likely to succeed |
| 80-95% | Good odds, minor adjustments may help |
| 60-80% | Consider saving more or working longer |
| Below 60% | Significant changes needed |
Many retirement calculators include Monte Carlo analysis.
Common Projection Mistakes
Mistake 1: Ignoring Inflation
A projection showing "$3 million by retirement" sounds great—until you realize that's only worth $1.5 million in today's dollars.
Mistake 2: Using Unrealistic Returns
12% average returns aren't realistic for a balanced portfolio. Use 5-7% after inflation.
Mistake 3: Forgetting Expenses Decrease
Many retirees spend less as they age. The "go-go" years cost more than the "slow-go" years.
Mistake 4: Not Updating Projections
Run new projections annually. Life changes, and so should your plan.
The Bottom Line
Quick Win
Run a retirement projection today using our Retirement Projector tool. Then run it again with an extra $100/month contribution. See the difference time and compound interest make.
Retirement projections aren't predictions—they're planning tools. Use them to make informed decisions about how much to save and when you might be able to retire.