Future Value

The formula, pointed forward

Future value (FV) answers the forward-looking question: if I have this much today, what will it become? The formula is FV = PV x (1 + r)^n, where PV is the amount today, r is the return per period and n is the number of periods. It is the exact mirror of present value, which runs the same math backwards.

Worked example: $10,000 invested at 6% for 25 years. Since 1.06 to the power of 25 is about 4.29, the future value is about $42,919. Notice what did the work: the original $10,000 earned returns, then the returns earned returns, which is compound interest doing its thing. More than three quarters of the final balance is growth, not deposit.

Regular contributions: the version that matters

Few people invest one lump sum and walk away. The more useful version of future value asks what a stream of regular contributions grows into, where each monthly deposit gets its own runway of compounding. The formula is clumsier, but the result is the point: modest, boring, automatic contributions grow into surprisingly large sums, especially inside a TFSA or RRSP where the growth compounds without tax. Rather than wrestle with the algebra, put your own numbers into our Future Value Calculator and let it do the arithmetic.

Why starting earlier beats contributing more

Because the earliest dollars compound the longest, time in the plan routinely beats size of contribution. Compare two savers earning 7% per year. Ava invests $300 a month from age 25 to 65 and contributes $144,000 in total; she ends with about $787,000. Ben waits until 35, then doubles the contribution to $600 a month until 65, putting in $216,000; he ends with about $732,000.

Ben contributed $72,000 more and still finished behind, because Ava's first decade of deposits had forty years to compound. The lesson is not that late savers are doomed; it is that every year of delay is expensive, and that "I will save more later" is a genuinely worse plan than "I will save something now".

The honest caveats

Future value projections are only as good as their assumptions, and three cautions apply. First, the r you assume dominates the answer: over 40 years, the gap between assuming 5% and 7% is not a rounding error, it is hundreds of thousands of dollars, so favour conservative assumptions. Second, real-world returns are not smooth; markets deliver their average through good and bad stretches, and the order of those stretches matters, especially near retirement, which is sequence of returns risk.

Third, future dollars are smaller dollars: inflation means the purchasing power of a balance decades from now is well below its face value. For retirement planning, the cleanest fix is to project in real terms: use a return net of inflation, say 4% instead of 6.5%, and the answer comes out directly in today's dollars.