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The value of your savings can be affected by both inflation and taxes. Use this calculator to determine how much your savings will be worth with these two important variables in mind.
Definitions
- Amount currently saved
- Total you have saved to date to be included in this analysis.
- Savings per month
- The amount you will contribute each month to your savings. This calculator assumes that you make your contribution at the beginning of each month.
- Years to save
- The number of years you have to save.
- Annual rate of return
- The annual rate of return for this investment or savings account. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, from June 1982 through June 1993. The lowest 12-month return was -39%, which happened twice, once from September 1973 to September 1974 and again from November 2007 to November 2008. Savings accounts at a bank may pay as little as 1% or less but care significantly lower risk to loss of principal balances.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge. Compound interest is the earnings on an investment's earnings, plus previous interest.
- Federal tax rate
- Your marginal federal tax rate.
- State tax rate
- Your marginal state tax rate.
- Expected inflation rate
- What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2008. The CPI for 2008 was 4.0%, as reported by the Minneapolis Federal Reserve.
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