Lost Earnings Formula:
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Definition: This calculator estimates the potential earnings lost when contributions to a 401k plan are delayed or missed.
Purpose: It helps individuals understand the long-term impact of delayed retirement savings and the power of compound interest.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates what the principal would have grown to with compound interest, then subtracts the original principal to show just the earnings that were lost.
Details: Understanding lost earnings helps emphasize the importance of consistent 401k contributions and starting early to maximize compound growth.
Tips: Enter the principal amount (missed contribution), expected annual return rate (default 5%), and the time period in years (default 1). All values must be > 0.
Q1: What's a typical 401k return rate?
A: Historically, 401k plans average 5-8% annual return, but this varies based on investment choices and market conditions.
Q2: How does compounding affect lost earnings?
A: The longer the time period, the more significant the compounding effect becomes, making early contributions especially valuable.
Q3: Should I include employer match in principal?
A: Yes, if you're calculating lost earnings from missing contributions that would have received matching funds.
Q4: How accurate are these projections?
A: They're estimates based on constant returns. Actual returns will vary year to year.
Q5: Can this calculator show multiple missed contributions?
A: For multiple missed payments, calculate each separately and sum the results for total lost earnings.