The episode behind this
This calculator is the interactive half of an episode. The video explains why the number lands where it does.
Watch it on YouTubeTwo people save the exact same amount every month. One starts ten years earlier and ends up with roughly double. Put your own numbers in, then turn on inflation and see what the total is actually worth.
For the first stretch, compounding looks like it is doing nothing. A few per cent of a small number is a small number, so the balance tracks your deposits almost exactly and it feels like a savings account with extra steps.
That flat beginning is not a failure, it is the mechanism. Growth is proportional to the balance, so the balance has to get large before the growth becomes visible. Most people who quit, quit here.
The number that matters is not the total, it is the year your returns start adding more per year than you do. Before that point you are carrying the account. After it, the account carries itself and everything you add is on top.
This is the part most calculators leave out, and it is the reason the inflation field is on by default here. A forty-year projection is quoted in dollars that will not exist by the time you get there. At 3% a year, the money at the end buys roughly a third of what the same figure buys today.
The honest way to read the result is the second number, not the first. Your real return is not the return minus nothing, it is roughly the return minus inflation — an 8% return in a 3% world is about 4.9% of actual progress, not 8%.
A fee is charged on the balance, so it grows exactly as fast as your money does. That is why 1% does not cost 1%: it compounds against you for the entire period, and over thirty years it removes a six-figure sum from a portfolio like this one without ever arriving as a bill.
Monthly compounding. Each month the balance earns one twelfth of the annual return, any fee is taken on the new balance, then the contribution is added. The real figure divides the result by inflation compounded over the same period.
It assumes a steady return, which nothing real provides. Actual returns arrive as good years and bad years, and the order matters, particularly near the end. Tax is not modelled at all.
This calculator is the interactive half of an episode. The video explains why the number lands where it does.
Watch it on YouTube