can you afford to retire

Student Handout

How Much Will You Have When You Retire?

Part One:
When you are young, it's almost impossible to think ahead to next month, much less to retirement. But the following exercise will show you how saving each month will grow to a large sum.

  1. Go to this link.
  2. Working with a partner, and consulting the link, calculate what you might have in your 401(k) retirement account if you start working at age 25 and finish at 65.

Note: The chart below gives a projection of what a 401(k) might be worth at retirement. It allows you to see the impact of increases in the amount contributed and the dramatic difference in accumulation when you save for 20 rather than 40 years. (The chart does not take into account the taxes you will eventually pay as you withdraw funds from your account.)

IMPORTANT NOTE: Be sure to click "clear all" after you finish one calculation and before you start another.

401(k) Growth Chart
Monthly SalaryPercent of Salary You Contribute to Your 401(k) each month
Percent of Salary Your Employer Contributes to Your 401(k) Rate of Return You ExpectNumber of Years to RetirementPROJECTED AMOUNT IN YOUR 401(k) AT RETIREMENT
(before taxes)
$20003% ($60)0%6%40 
$20007% ($140)3%6%40 
$30007% ($210)0%6%20** 
$30007% ($210)0%6%40 
$30007% ($210)7%6%40 
$40007% ($280)7%6%40 
$40007% ($280)7%6%20** 

** Note especially what happens when you save for 20 rather than 40 years.

Part Two
The 401(k) Growth Chart provides a long-term plan with results based on a fixed rate of interest. But what if you have been saving and financial markets become unstable just before or just after you retire? How would that affect the return on your investment?

  1. Look at the Retirement Danger Zone chart.
  2. Go to this link and click on "Retirement Red Zone Calculator."
  3. Working with a partner, calculate what would happen to the projected accumulation in your 401(k) account if financial markets fluctuate around the time you retire. For this simulation, assume that the markets go up the first two years and down the second two years.
  4. Write your findings in the chart below.

Retirement Danger Zone Chart
Portfolio Value Five Years Before RetirementFirst Year:
Positive return 6%
Second Year:
Positive return 6%
Third Year:
Negative return 15%
Fourth Year:
Negative return 8%
Ending Portfolio Value

Part Three
After you have completed both charts, write answers to the following questions. Be prepared to share your answers in class discussion.

  1. Were you surprised by your findings? Why or why not? What was most surprising?
  2. What did you discover was the effect of saving for 20 years rather than for 40 years?
  3. Do your findings make you more or less secure with the idea that, at the moment, it looks as if most of your retirement income will come from 401(k)s or retirement accounts of this sort? Why or why not?
  4. Is it necessary to plan for possible fluctuations in financial markets?
  5. What do you think you will need to learn and/or do to maximize your retirement income?