Capacity is not the same as tolerance
Tolerance is how a drop feels. Capacity is how much of a drop the rest of your plan can absorb without changing the retirement date or the monthly amount you need.
01 Compounding basics
Compound growth means your returns start earning returns of their own. Over long horizons that second layer often outweighs everything you put in.
Educational illustration only. Nothing here is a prediction or a guarantee.
B = P × (1 + r)n + C × [ ((1 + r)n − 1) ÷ r ]
Contributions are the money you add. Growth is what the balance earns after that. In year one they look almost identical. By year thirty the growth line is typically several times taller than the contribution line, which is why the same monthly amount behaves very differently depending on when it starts.
Depositing $400 a month at an assumed 6% annual return for 30 years produces roughly $402,000. You deposited $144,000. The remaining $258,000 is compounded growth. Change the horizon to 20 years and the same $400 a month lands near $185,000, because the final decade does far more work than the first.
Every projection rests on three fixed inputs: a constant monthly contribution, a constant annual return, and no fees or taxes. Real accounts have all three moving. Treat any single result as one point in a range, then test a lower return and a later start to see how sensitive the outcome is.
See the full assumption detail or continue to risk and returns.
02 / Risk and returns
The calculator applies one constant annual return for the whole projection. Real markets do not behave that way. A larger assumed return is a claim on a wider range of results, and that range is what risk means in practice.
The table below gives the broad ranges used in educational material. They are conventions for comparison, not forecasts of any specific year.
| Asset mix | Assumed annual return | Typical yearly swing | Deepest single year |
|---|---|---|---|
| Cash equivalents | 1.5% to 2.5% | about 1% | 0% |
| Investment grade bonds | 3.5% to 5.0% | 6% to 8% | -13% |
| Balanced, roughly 60/40 | 5.5% to 7.0% | 11% to 14% | -31% |
| Broad US equity index | 7.0% to 10.0% | 17% to 20% | -43% |
| A single concentrated holding | highly variable | 35% and up | -80% or worse |
Tolerance is how a drop feels. Capacity is how much of a drop the rest of your plan can absorb without changing the retirement date or the monthly amount you need.
Two savers can share the same average return and finish far apart if one meets poor years just as withdrawals begin. That is sequence of returns risk, and a constant-rate model cannot show it.
Investors accept volatility because they expect to be paid for it over long periods. Any single decade can still fall short of that expectation.
Ranges describe broad historical behaviour across asset classes for illustration only. The projection on this site models no fees, no taxes, and no inflation adjustment.
Continue with compounding basics, check unfamiliar terms in the glossary, or read how it works before running your own numbers in the calculator on the home page.
04 / Glossary
Short definitions for the words you meet while comparing contribution scenarios. For the longer explanation, start with compounding basics or risk and returns.
Definitions are educational only. Figures from any projection depend entirely on the assumptions you enter.