You have a 401(K) savings plan with your current employer. You receive your paychecks twice a month. You decide to contribute 5% of your gross income to your 401(K) plan, which is equivalent to $200 per paycheck. You expect your salary will be raised 3% every year and you would like to keep the 5% contribution ratio. You select smooth growing mutual funds as your investment markets. The average annual rate of return for these funds is about 8%. Assuming you will retire 15 years later, by that time how much money will be in your account?
Go to the Annuity Savings tab. Select Percentage Increase as the Type of Deposits. Enter 3% as the increase rate per year. Select Twice a Month as the Deposit Period (24 deposits per year). Enter deposit amount $200, interest rate 8%, Number of Years 15, then click Calc button. You get the answer. Go to the Schedule tab to check how your savings grow annually. You can have a better idea by going to view the graphics. Also, from the pie chart of the Summary tab of the chart window, you will find that of this amount, almost 50% comes from the interest accrued.
Try different scenarios. For example, assume you just rolled up $25,000 to this 401(K) account from your previous employer, see how much you can have at that time. (Answer: $248,180.00)