Compound Interest Calculator

Compound interest is what happens when the interest you earn starts earning interest itself. Each compounding period, your balance is multiplied by (1 + r/n), where r is the annual rate and n is the number of compounding periods per year. If you also contribute money during the period, it gets added in and starts compounding alongside the rest of the balance. That's the entire engine.

The reason this feels like sorcery in year 25 even though it's algebra in year 1 is that the function is exponential. A 7% return doubles money every ~10 years, so $10,000 invested today becomes roughly $20K in 10 years, $40K in 20, $80K in 30, $160K in 40. The first decade looks unimpressive. The fourth decade is when most people's retirement balances actually do their work. Anyone who tells you to start saving young isn't making a moral argument about discipline — they're pointing at the curve.

Three knobs change the shape of the curve, in roughly this order of importance. Time horizonis the biggest by far, because it's the exponent. Rate of returnis next, because it's the base. Amount contributed is third, because it's linear. A young investor putting $200/mo away for 40 years usually beats a high-earner putting $800/mo away for 20 — even though the second person contributed twice as much. The math doesn't care which one of you is being more responsible.

Compounding frequency matters surprisingly little. Annual vs monthly vs daily compounding on the same nominal rate produces final values that differ by only a few percent at typical investment horizons. Don't optimize for it. Brokerage accounts compound continuously in practice anyway; what shows up as "annual return" is already a time-weighted blended figure.

Consider two savers, both putting $500/month into an investment earning 7% annually. Saver A starts at 25 and contributes for 10 years, then stops entirely and lets the balance compound until 65. Saver Bdoesn't start until 35 and then contributes faithfully every month until 65 — three times as many years.

At 65, Saver A has roughly $605,000. Saver B has roughly $610,000. They're essentially tied — and Saver A contributed only $60,000 in total while Saver B contributed $180,000. That's the compound-interest version of "time in the market beats timing the market." The 10-year head start was worth $120,000 of saved contributions.

The numbers get more dramatic when both savers keep contributing. Save $500/month from 25 to 65 at 7%: about $1.3M. Save the same from 35 to 65: about $610K. The 10 extra years cost more than half of the final balance. Most of the gap isn't contributions — it's the compounding on the early dollars, which had the most time to multiply.

Practically, this means three things. First, dollars contributed in your 20s are worth several times the same dollars contributed in your 40s. Front-load your savings rate when income allows. Second, if you're behind, don't despair — the curve doesn't stop being exponential because you started late. A 35-year-old with 30 years still ahead is in a vastly better position than a 50-year-old with 15. Third, if you have a windfall, the math nearly always favors investing it over paying down low-interest debt: the return on the windfall compounds, the savings on the debt don't.

Nominal return is the headline number — what your statement says. Real return is what that money will actually buy when you spend it, after inflation has had decades to erode purchasing power. The difference is the most under-appreciated variable in retirement projections.

A 7% nominal return at 3% inflation is approximately a 3.9% real return (the precise math is (1.07 / 1.03) − 1, not 0.07 − 0.03). Over a 30-year horizon, $10,000 compounding at 7% nominal becomes about $76,000 nominal — but only $31,000 in today's purchasing power. The nominal number more than doubles every decade; the real number less than doubles every two decades.

This matters most when you're comparing future projections to current expenses. "Will $1.2M be enough for retirement?" depends entirely on what year you're retiring. $1.2M in 2025 dollars supports a $48,000 annual withdrawal at the 4% rule. $1.2M in 2055 dollars, after 3% inflation, supports a withdrawal equivalent to $19,800 of today's spending power. Same nominal balance, completely different lifestyle.

The practical takeaway: when you're setting target retirement balances, work in today's dollars and inflate them forward. If you need $80,000 of annual income in 2025 dollars and you're retiring in 2055, the equivalent 2055 income is about $194,000. Multiply by 25 (the inverse of the 4% rule) to get the nominal target: $4.85M. The "real" line on the chart above shows whether you're on track in today's dollars — the nominal line shows the statement-balance target.

One subtlety: contributions you make in future years also get cheaper in real terms. $500/month today buys more than $500/month will in 2055. Toggling on the "annual contribution increase" slider is the cleanest way to keep real contributions constant — typically set it to your expected inflation or salary-growth rate.

Return assumptions are where most retirement projections go wrong. It's tempting to plug in the average return of the last decade and extrapolate, but US equities just ran through one of the longest bull markets in history. Long-run averages are more honest.

US stocks

Roughly 10% nominal / 7% realannualized over the past century (S&P 500, dividends reinvested). That's a long-run figure that hides extreme variance: a 60% drawdown is possible, multiple double-digit annual losses have occurred. For retirement planning, 7% nominal is conservative and 10% is optimistic; 8% is a common middle-ground default. International stocks have averaged 1–2 points lower with similar variance.

US bonds

Roughly 5% nominal / 2% real for intermediate-term Treasuries over the past century, with much lower variance than stocks. Returns have been below the historical average for the last decade because rates were depressed. A 60/40 stock-bond portfolio averages around 7–8% nominal, with less volatility than 100% stocks.

High-yield savings, CDs, money market

Tracks short-term interest rates. As of 2024–25, around 4–5% nominal, but typically near 0% real once inflation is netted out. These are not investments — they're savings products for short-term capital preservation. Don't use them for compound projections beyond a few years.

Real estate (REITs)

Listed REITs have averaged ~8–9% nominal over the past 50 years, with volatility somewhere between stocks and bonds. Direct real estate is harder to model — leverage from mortgages amplifies returns and losses, and rental cash flow varies wildly by market.

The 4% / 7% / 10% mental shortcut

For quick estimation: cash earns about 4% nominal, balanced portfolios about 7%, all-stock portfolios about 10%. Subtract 3% for inflation to get real returns. Anything materially above 10% sustained is either short-horizon, lucky, or risky enough that you could lose everything. Anything materially below 4% is being out-paced by inflation — that's not investing, that's slowly losing money.

A salaried employee with a 401(k) contributes a fixed percentage of each paycheck, every two weeks, automatically. Predictable cadence, boring math. A freelancer's income arrives in lumps — a $20,000 deposit one month, a $2,000 deposit the next, nothing for eight weeks because the client's AP department is slow. The compounding math is identical; the mechanics of getting money into the right account are the harder problem.

The accounts that work for self-employed savers

Three account types are designed for irregular income. The Solo 401(k) is usually the winner for full-time freelancers: contribution limits at the highest individual level ($69K combined in 2024), Roth option, loan provision, and you can skip contributions in a slow year without penalty. The SEP-IRA is simpler administratively but caps at 25% of net SE earnings, which means lower contributions at the same income. The traditional or Roth IRA is available to anyone but has a $7K limit (2024) — too small to be the only retirement account for most freelancers.

The annual sweep, instead of monthly contributions

Many freelancers find it easier to model their retirement contributions as a single annual sweep instead of monthly. At the end of the year, after you know your net SE income, you transfer the year's contribution to your Solo 401(k) in one lump. Mechanically simpler, mathematically nearly identical — annual vs monthly contributions at 7% compound to within 4% over 30 years. The calculator above accepts either pattern in the contribution frequency dropdown.

The "feast or famine" buffer

The hardest part of self-employed investing is psychological, not mathematical. After a great quarter, the temptation is to spend the windfall. After a slow quarter, the temptation is to skip retirement contributions to fund living expenses. Both decisions compound — in the wrong direction. The discipline that beats both traps: separate your tax-and-retirement money from your operating cash on payment day, before you see the balance in your main account. The "Profit First" framework popularized this idea, but any auto-transfer rule works.

The contribution-increase slider, applied to freelance income

The "annual contribution increase" slider on this calculator is especially useful for freelancers. Your contract rates will rise over a 30-year career — typically faster than inflation in the first 10–15 years, then closer to inflation afterward. Modeling a 3–5% annual contribution increase reflects this reality and produces meaningfully larger projected balances than assuming flat contributions for three decades.