How Investment Growth Is Calculated
Each year's balance grows by the annual return rate, adds contributions, subtracts fees, and applies any tax drag on gains. The formula compounds monthly: each month the balance earns (annualReturn / 12), adds the monthly contribution, then subtracts fees. Tax drag reduces the effective return by (taxRate × returnRate) — this is a simplified approximation for taxable accounts; tax-deferred accounts like 401(k)s and IRAs should use 0% tax drag here. After calculating the nominal end balance, inflation-adjusted value divides by (1 + inflationRate)^years.
Goal Planning
If you enter a goal amount, the calculator shows whether your projected balance meets it (surplus) or falls short (gap). It also solves for the required monthly contribution to hit the goal and the required annual return needed — both useful for stress-testing assumptions.
Best, Base, and Worst-Case Scenarios
Markets do not return a fixed percentage every year. The scenario range uses base return ±3% as a simple spread. A base return of 7% produces a best case of 10% and worst case of 4%. This is not a Monte Carlo simulation and does not model sequence-of-returns risk. Use it as a rough range, not a prediction.
Inflation and Real Purchasing Power
A $1,000,000 portfolio in 30 years has less purchasing power than $1,000,000 today. Inflation-adjusted value uses real purchasing power at the target rate. Historical US inflation averages roughly 3% annually over long periods, but has ranged from near 0% to over 9% in recent decades.
Fees and Their Impact
A 1% annual fee sounds small but compounds significantly. On a $500,000 portfolio over 30 years at 7% gross return, a 1% fee reduces the final balance by roughly $400,000 compared to a 0% fee. Index funds typically charge 0.03%–0.20%; actively managed funds often charge 0.5%–1.5%.