When budgeting for retirement, it helps to know how much your current retirement plan will contribute to your financial needs. To estimate your 401k plan value at some point in the future, such as when you retire, you need to know your current balance, how much you will contribute in each year in the future, the expected rate of return and how many years you have until retirement. This formula assumes all your variables remain constant, so it is only an estimate, subject to change.
1. Divide the expected annual rate of return by 100 to find the rate expressed as a decimal. For example, if you anticipate a 6.5 percent annual return, divide 6.5 by 100 to get 0.065.
2. Add 1 to the expected annual rate of return. In this example, add 1 to 0.065 to get 1.065.
3. Raise the result to the power of the number of years until you retire. For example, if you plan to retire in 40 years, raise 1.065 to the 40th power to get 12.41607453.
4. Multiply the result in Step 3 by the amount you currently have in your 401k plan to determine how much it will be worth at retirement. In this example, if you start with $20,000 in your retirement account, multiply $20,000 by 12.41607453 to find your current account balance will be worth $248,321.49 at retirement.
5. Subtract 1 from the Step 4. In this example, subtract 1 from the result to get 11.41607453. .
6. Divide 1 by the annual interest rate expressed as a decimal. In this example, divide 1 by 0.065 to get 15.38461538.
7. Multiply the Step 5 result by the Step 6 result by the amount you plan to contribute each year in the future. In this example, if you plan to contribute $5,000 per year to your 401k account, multiply 11.41607453 by 15.38461538 by $5,000 to find your future contributions will add $878,159.58 to your 401k plan value at retirement.
8. Add the value of your current account balance at retirement from Step 4 to your future contributions balance at retirement from Step 7 to find your total 401k plan value at retirement. Finishing the example, add $878,159.58 to $248,321.49 to find your 401k plan will be worth $1,126,481.07 at retirement.
- Comstock Images/Comstock/Getty Images