Return Rate Questions
Investment calculator return rate FAQ quick reference
| Question | Answer |
|---|---|
| What return rate for retirement? | 7% nominal for a diversified stock portfolio; 5% for stress testing |
| What return rate for 60/40 portfolio? | 6% nominal at current stock and bond return expectations |
| Does the calculator use CAGR or average return? | CAGR (compound annual) which is the accurate representation of what you actually earn |
| What is the difference between nominal and real return? | Nominal includes inflation in the number; real excludes it. Use 4.5% real for inflation-adjusted projections |
| How much do fees reduce returns? | Every 1% fee reduces effective return by exactly 1% per year, compounding over decades |
Compound Growth Questions
Compound growth works by earning returns on both your original contributions and all previous returns. In the early years, contributions dominate growth. In the later years, investment returns dwarf new contributions. The crossover point, where annual investment returns exceed annual new contributions, typically happens after 12 to 18 years of consistent investing at 7% returns. After that crossover, the portfolio begins accelerating on its own momentum.
Investing $500 per month at 7% returns: in year 1, your $6,000 in contributions generate $234 in investment returns. In year 15, your portfolio of $152,000 generates $10,640 in returns on the same $6,000 in contributions. In year 25, your portfolio of $380,000 generates $26,600 in returns, more than four times your annual contributions. The portfolio is accelerating under its own power as contributions become a smaller fraction of total growth.
Account Type and Tax Questions
Tax treatment by account type and appropriate investment calculator rate adjustment
| Account Type | Tax on Contributions | Tax on Growth | Tax on Withdrawals | Calculator Rate Adjustment |
|---|---|---|---|---|
| Roth IRA or Roth 401k | After-tax (no deduction) | None | None (qualified) | Use full rate, no adjustment |
| Traditional IRA or 401k | Pre-tax (deductible) | None while invested | Ordinary income rate | Use full rate; plan for taxes at withdrawal |
| Taxable brokerage account | After-tax (no deduction) | Taxed annually (dividends, cap gains) | Long-term capital gains rate | Reduce rate by 0.5 to 1.0% for tax drag |
| HSA (qualified medical) | Pre-tax | None | None (medical) or ordinary income (other at 65+) | Use full rate, no adjustment |
Contribution and Goal Questions
For the monthly contribution input, use the amount you will actually automate, not the amount you hope to contribute. People consistently overestimate future contributions when planning. A realistic approach: enter your current automated contribution, not a target you have not yet achieved. The calculator produces the most actionable projection when inputs reflect actual behavior, not aspirations.
Practical Usage Questions
- How often should I update the projection? At minimum annually; immediately after a raise, major expense change, or shift in retirement timeline
- Should I include Social Security? Model it separately: estimate SS benefit, subtract from annual spending need, calculate required portfolio for the remainder
- What if I miss months of contributions? The calculator assumes consistent contributions; occasional gaps reduce the projection slightly but do not derail long-term plans
- Can I use it for college savings? Yes: enter the number of years to college as the time horizon and use 5% to 6% return if in a 529 plan with conservative allocation
- Should I model pre- or post-retirement in one calculation? Better to model separately: accumulation phase to retirement, then a separate withdrawal phase projection
Always run the projection three times: once at your target return rate (7%), once at a conservative rate (5%), and once with contributions 25% lower than planned to model real-world behavior. A retirement plan that works under all three scenarios is robust. A plan that only works at the optimistic scenario is fragile. Design for the 5% plus reduced contributions scenario, and the 7% plus full contributions scenario will be a bonus.
Get Your Complete Investment Projection
Enter your balance, monthly investment, and years to see three scenarios at once.