First Person: Calculating the Future Value of My Retirement Account

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I'll admit that for as much as I like to plan, calculate, recalculate, and plan some more when it comes to my retirement future, I still get down sometimes about my progress or lack thereof. Sometimes the numbers going toward my retirement seem so minuscule in the grand scheme of things that I wonder what the point to it all is.

This is when I find that it's important to try to look at my retirement glass as half full rather than half empty. To do so, I often find myself converting my current retirement numbers to future value numbers to help keep my thinking positive.

Why the Conversion Helps

So why does converting my retirement contributions or present values into future values make a difference to me? Well, I guess it's really just a mental thing, making my smaller current numbers more relevant. By understanding their future values -- what they could grow into over time -- it works as more of an incentive to start my saving with lower values now.

For example, let's say I can only make a $2,000 annual contribution to my retirement account this year. See? I'm getting negative about that smaller amount already by saying "only", but in future value numbers that amount might not be something to scoff at. If I can invest that $2,000 at a 6 percent interest rate over the next 35 years, it could grow to more than $15,000. And if I make that amount an annual contribution over the next 35 years, I could be looking at more than $235,000. Now we're talking!

Picking Numbers that Work

However, it's easy to throw around numbers like 6 percent returns. In this day and age, and with safe investments in things like savings accounts and certificates of deposit returning next to nothing, it can be difficult to pull in any decent returns on my investments. And while we get quarterly statements from retirement accounts, getting a good feel for overall returns on all investments across the board can be more difficult.

This is why I tend to gauge all our assets to get a good feel for our overall investment returns. I've been doing this for over four years now, and I plan to continue for the foreseeable future. This tracking provides us with more than just a one-and-done number for a single year. It gives us a rolling investment return percentage that we can use for an overall number by which to determine our future value estimates.

Potential Hazards

Of course there are always potential hazards to my financial forecasting. Should I come up with a number such as 5 or 6 percent investment returns over that four-year period and then somewhere down the road the stock market suddenly tanks, losing half its value, then my future values moving forward can be skewed. This can lead to missing the mark and coming up short down the road. Therefore, I tend to project a little lower than my tracking numbers are currently running just to err on the side of caution. This way, if I overachieve on my number then fine, all the better and we have some room to splurge with in retirement, but if I'm not on target, we won't be left destitute in our golden years.

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