If you do not know how much money your 401(k) plan will be worth at retirement, you cannot figure out if you are on track with your retirement savings goal or if you are falling behind. Because of compounding interest, you want to start putting money aside sooner rather than later to make sure that you have enough. The longer you wait to start saving, the more you will have to put aside every year. However, because investments are speculative, you can only estimate the future value of your 401(k) plan. If your investments overperform you could end up with more, but if they underperform you could end up with less.
1. Convert the anticipated rate of return on your 401(k) plan to a decimal by dividing by 100. For example, if you expect a 5.75-percent return, divide 5.75 by 100 to get 0.0575.
2. Add 1 to the anticipated rate of return on your 401(k) plan. In this example, add 1 to 0.0575 to get 1.0575.
3. Raise the result to the number of years you have until you retire. In this example, if you have 16 years until retirement, raise 1.0575 to the 16th power to get 2.446166514.
4. Multiply the result by the present value of your 401(k) plan to calculate the value of the plan at retirement. If you do not plan to make any further contributions, stop here. In this example, if your 401(k) plan is presently worth $150,000, multiply $150,000 by 2.446166514 to get $366,924.98.
5. Divide 1 by the expected annual rate of return on your 401(k) plan. In this example, divide 1 by 0.0575 to get 17.39130435.
6. Calculate the Step 3 result minus 1. In this example, take away 1 from 2.446166514 to get 1.446166514.
7. Multiply the Steps 5 and 6 results by each other. In this example, multiply 17.39130435 by 1.446166514 to get 25.15072198.
8. Multiply the Step 7 result by the amount you plan to add to your 401(k) plan each year until you retire. In this example, if you plan to add $7,000 per year, multiply 25.15072198 by $7,000 to get $176,055.05.
9. Add the Step 4 result to the Step 8 result to calculate your 401(k) plan value at retirement. In this example, add $366,924.98 to $176,055.05 to find your 401(k) plan's estimated value at retirement equals $542,980.03.
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