Part of planning for retirement is knowing how much money you will have through Social Security, pension and IRA income. A IRA is an account structure given tax-deferred status by the Internal Revenue Service. In the structure you can have any number of investments including savings, stocks, bonds or mutual funds. Unless you have the specific rate of return from now until your retirement, you can only estimate the IRA value using the formula for Future Value.
Things You'll Need
- IRA statement
Write down the formula for Future Value: FV = P(1+i)^n.
"FV" stands for future value, "P" stands for existing principal, "i" is the annual interest rate with "n" being the number of years you get that interest. The symbol, "^" represents raising to the "n" degree.
Choose an average rate of return that is realistic based on historical performance of your existing investments. You can use sources such as Yahoo! Finance or MSN Money to view a 10-year history to develop a realistic expectation.
Assume you have $10,000 in your IRA and hope to average 6 percent annually for 20 more years before you retire.
Calculate the Future Value.
FV = P(1+i)^n
FV = $10,000 (1+0.06)^20
FV = $10,000 (1.06)^20
FV = $10,000 (3.2071)
FV = $32,071.35
Tips & Warnings
- Financial advisers often use a money estimating formula that is simple to do you in your head. It's called the Rule of 72. You divided the average rate of return into 72 to determine the number of years it takes to double your money. For example, 72 divided by 6 is 12. If you get 6 percent per year, you should expect your money to double every 12 years.
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