How is asset growth calculated pre retirement?

[itaos]

I tried to setup a basic example with constant growth to figure it out but am still stumped.

Spending: 0
Portfolio: 1000000
Full Years: 5

What year will you retire?: 2025
How much will you add to your portfolio until then, per year? 50000

How is Your Portfolio Invested? A portfolio with consistent growth of 8%, and an inflation rate of 3.0%

I used an interest calculator https://www.calculator.net/interest-calculator.html?cstartingprinciple=1%2C000%2C000&cannualaddition=50%2C000&cmonthlyaddition=0&cadditionat1=end&cinterestrate=8&ccompound=annually&cyears=1&cmonths=0&ctaxtrate=0&cinflationrate=3&printit=0&x=Calculate#interestresults which resulted in a portfolio value of $1,130,000 in 2025

The FIRECALC graph displays an initial 2025 value of $1,100,559.

Is the difference between the two figures an inflation factor?

 

[Gumby]

I tried to setup a basic example with constant growth to figure it out but am still stumped.

Spending: 0
Portfolio: 1000000
Full Years: 5

What year will you retire?: 2025
How much will you add to your portfolio until then, per year? 50000

How is Your Portfolio Invested? A portfolio with consistent growth of 8%, and an inflation rate of 3.0%

I used an interest calculator https://www.calculator.net/interest-calculator.html?cstartingprinciple=1%2C000%2C000&cannualaddition=50%2C000&cmonthlyaddition=0&cadditionat1=end&cinterestrate=8&ccompound=annually&cyears=1&cmonths=0&ctaxtrate=0&cinflationrate=3&printit=0&x=Calculate#interestresults which resulted in a portfolio value of $1,130,000 in 2025

The FIRECALC graph displays an initial 2025 value of $1,100,559.

Is the difference between the two figures an inflation factor?

If you tell FIREcalc you are retiring in 2025, then you actually only have one year of pre-retirement. Also, FIRECalc reports all numbers in present dollars, which means it subtracts the inflation from the investment growth (so we use 5%). So, let's assume that you have $1 million today and you add a total of $50,000 over the next year in monthly installments of $4166.67 at the end of every month. By next January 1, you should have the inflation adjusted interest on $1 million over the course of the whole year, which is $50,000. You also will have the $50,0000 you added over the course of the year, plus the interest on that, which would not be $2500 (50k x .05) but only $1135.70 if you fund at the end of each month. If instead you put the money in at the first of each month, that interest would be $1375.08

So, by my calculation, you would have in a year either 1,000,000 + 50,000 + 50,000 + (1135.70 or 1344) = $1,101,135 or $1,101,344, depending on whether you put in additional money the first or the last of each month. Even if you added the $50k on 1/1/24, by 1/1/25 you would have a total of only $1,102,500 = (1,050,000 x 1.05)

I don't know exactly how FIRECalc is programmed as to when the money is added through the year or precisely how it compounds. My calculation above assumes monthly compounding. But I do know that $1,130,000 cannot be correct.

 

[itaos]

Thank you