Calculate the Future Value of Current Retirement Savings

The next step is to total the amounts that you have already saved for retirement and project that sum to the assumed retirement age, applying an assumed rate of return. The projected future sum is then subtracted from the total accumulation needed at retirement. This result represents the “yet-to be- funded” retirement accumulation.

Continuing with our example of Ted, let’s say that, to date, he and his wife have set aside $80,000 for retirement in various qualified and tax-deferred investment accounts. Based on an assumed 8 percent annual rate of return, those funds will be worth about $254,000 in 15 years when Ted wants to retire. (Because these funds generate tax-deferred earnings, we can use the actual rate of return as the effective rate of return.) Subtracting that amount from the estimated future sum necessary to fund his retirement, Ted will need an additional capital sum of $746,000 to fully fund his retirement:

Estimated retirement savings need:.........................................
Less future value of current retirement savings:....................  Retirement savings goal:..........................................................

$1,000,000
– $254,000
$746,000