What is retirement savings and why does planning matter?

Retirement savings refers to the money you set aside during your working years to fund your lifestyle after you stop working. Unlike regular savings, retirement funds are designed to grow over decades through compound interest and investment returns, turning modest regular contributions into substantial wealth.

The power of compound interest means that money saved early grows exponentially over time. For example, $10,000 invested at age 25 with a 7% annual return becomes approximately $150,000 by age 65, while the same amount invested at age 45 only grows to about $38,000. This dramatic difference illustrates why starting early is one of the most important factors in retirement planning.

What is inflation and how does it affect retirement savings?

Inflation is the gradual increase in prices over time, which reduces the purchasing power of money. If inflation averages 3% per year, something that costs $100 today will cost approximately $243 in 30 years.

When planning for retirement, it's crucial to account for inflation because:

  • Your future expenses will be higher than today's
  • Your savings need to grow faster than inflation to maintain purchasing power
  • The "real" return on investments is the nominal return minus inflation

A retirement calculator that adjusts for inflation shows you the purchasing power of your savings in today's dollars, giving you a more realistic picture of your retirement readiness.

What is the expected rate of return?

The expected rate of return is the anticipated annual percentage gain on your investments. Historical data shows different asset classes have different average returns:

Asset Class Historical Average Return
Stocks (S&P 500) 10-11%
Bonds 5-6%
Balanced Portfolio (60/40) 7-8%
Savings Accounts 1-3%

A commonly used benchmark is 7% annual return, which represents a moderate growth assumption for a diversified portfolio after accounting for some inflation. However, actual returns vary year to year, and past performance doesn't guarantee future results.

Tool description

This retirement savings calculator helps you project how much money you'll have accumulated by retirement age based on your current savings, regular contributions, expected investment returns, and inflation rate. It provides a comprehensive view of your retirement readiness by showing total savings, contributions made, and interest earned over time.

The calculator uses real-world financial formulas to compute compound growth, adjusting for the eroding effect of inflation to show you purchasing power in today's terms. You can customize contribution frequency (monthly or yearly) and toggle advanced options for expected returns and inflation adjustments.

Examples

Example 1: Young professional starting early

  • Current age: 25
  • Retirement age: 65
  • Current savings: $5,000
  • Monthly contribution: $500
  • Expected return: 7%
  • Inflation: 2.5%

Result: Approximately 665,889.74 in today's purchasing power

Features

  • Age-based projections: Calculate years to retirement based on current and target retirement age
  • Flexible contribution options: Support for both monthly and yearly contribution schedules
  • Compound interest calculations: Accurate future value projections using standard financial formulas
  • Inflation adjustment: Optional real purchasing power calculations that account for inflation erosion
  • Customizable return rates: Toggle expected investment returns on/off with adjustable percentage

Use cases

  • Early career planning: Young professionals determining how much to save monthly to reach retirement goals
  • Mid-life assessment: Evaluating whether current savings trajectory will meet retirement needs
  • Contribution optimization: Finding the right balance between contribution amount and investment returns
  • Scenario comparison: Testing different retirement ages or contribution levels to see their impact on final savings
  • Financial education: Understanding how compound interest and inflation affect long-term wealth building