Want to know how much money you'll have in your Roth IRA when you retire?
If you have Microsoft Excel or almost any other popular spreadsheet programme running on your computer, you can use the FV function to estimate how much your Roth IRA or Roth 401(k) will be worth in the future (k).
The FV function figures out how much an investment will be worth in the future based on its interest rate, the number of payments, the amount of each payment, the present value of the investment, and, if you want, the type-of-annuity switch. (More on the change in the type of annuity in a bit.)
This is the syntax for the function:
=FV(rate,nper,pmt,pv,type)
I agree that this little bit is pretty hard to understand. But let's say you want to figure out how much your individual retirement account will be worth in the future. It already has $20,000 in it, and you put $400 into it every month. Also, let's say you want to know what the account balance, or its future value, will be in 25 years and you expect to earn 10% interest each year.
In this case, you enter the following into a worksheet cell to use the FV function to figure out how much the IRA will be worth in the future:
=FV(10 percent /12,25*12,-400,-20000,0)
The value that the function gives back is 771872.26. This is about $772,000.
A few things to keep in mind: the formula divides the annual interest rate by 12 to turn the 10% annual interest rate into a monthly interest rate. In the same way, the formula multiplies 25 by 12 to turn a term of 25 years into a term of months.
Also, notice that both the monthly payment and the initial present value are negative because they represent cash outflows. And the function gives you a positive value for the future value amount because it represents money you will get in the future.
The type-of-annuity switch is that 0 at the end of the function. If you set the type-of-annuity switch to 1, Excel assumes that payments happen at the start of the period (month in this case), which is when annuity payments are usually made. If you set the annuity switch to 0 or don't include the argument, Excel assumes that payments happen at the end of the period, as is typical for annuities.
