Compound Interest & Wealth Growth Simulator
Simulate your long-term stock portfolio, 401(k), and Roth IRA growth with monthly contributions, inflation purchasing power adjustments, and 4% FIRE retirement payouts.
* Withdrawing 4% annually leaves your starting principal intact historically with 95%+ probability over 30 years.
Annual Growth Schedule (Amortization Table)
Watch compound interest surpass your annual contributions over time.
| Year | Starting Bal | Contribution | Interest Earned | Total Interest | Ending Balance |
|---|
The Compound Interest Formula & The Rule of 72
Compound interest is interest calculated on initial principal plus accumulated interest from previous periods. Albert Einstein reportedly named it "the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
A mental shortcut to determine how many years it will take for your investment to double at a given annual growth rate:
Years to Double ≈ 72 ÷ Annual Return (%)
At an 8% return rate, your investment doubles roughly every 9 years (72 ÷ 8). At 10% (the long-term S&P 500 average), it doubles in just 7.2 years!
Simple vs. Compound Interest: 20-Year Reality Check ($10,000 + $500/mo at 8%)
See how dramatically compound growth outpaces simple interest when your returns are continuously reinvested over a 20-year horizon.
| Timeline | Total Contributed | Simple Interest | Compound Interest | The Compound Advantage |
|---|---|---|---|---|
| 5 Years | $40,000 | $48,000 | $51,452 | +$3,452 |
| 10 Years | $70,000 | $98,000 | $119,386 | +$21,386 |
| 15 Years | $100,000 | $160,000 | $220,578 | +$60,578 |
| 20 Years (Final) | $130,000 | $234,000 | $378,541 | +$144,541 |
Frequently Asked Questions (FAQ)
Why should I use a Roth IRA or 401(k) over a regular taxable account?
In a taxable brokerage account, you owe capital gains taxes (typically 15%) and dividend taxes whenever assets are sold or distributions occur. Tax-advantaged accounts like a Roth IRA or 401(k) allow your investments to grow entirely tax-free or tax-deferred. Over 20 to 30 years, saving 15% on compound returns easily results in tens of thousands of dollars in extra wealth.
How does the FIRE 4% rule calculate my retirement target?
The 4% rule states that you need 25 times your annual living expenses to retire comfortably. If your goal is to spend $40,000 per year, your nest egg target is $1,000,000 ($40,000 × 25). Withdrawing 4% ($40,000 / 12 = $3,333/mo) leaves the principal intact over historical 30-year economic cycles.
Why is inflation adjustment critical for financial planning?
A dollar today will buy more goods than a dollar in 20 or 30 years due to inflation. Assuming a standard 2.5% inflation rate, $1,000,000 in 20 years will have the purchasing power of roughly $610,000 in today's money. Factoring in inflation helps you set realistic savings goals that protect your future lifestyle.