<prompt> Human: Two recent posts in rpersonalfinance and rinvesting illustrate, to me, the vast divide between understanding both the power and limitations of compound returns. In Roth can only grow so much, seems almost inconsequential... ulooseshoes states:It seems like Roth IRAs are so incredibly limited by the 5500 annual contribution that their growth is almost inconsequential if you dont start very early. Am I right or am I missing something? My wife started around age 40 and should retire at 56. Thats 16 years and around 88k of contributions before any earnings. I mean thats nothing to sneeze at, but in reality as far as how long that will carry you into retirement... it will be a very short time.In The importance of investing early and compound interest, this usually blows people away link, uGreza links to a chart showing yearly balances at an absurd 12 annual return.I hope to properly calibrate expectations using some realistic numbers. While Im using the IRA example, the math is no different for a 401k.Scenario 1: Constant contributions, constant returnsTo start, lets assume an entirely unrealistic scenario of the Roth IRA contribution limit remaining at its 2014 level: 5,500 per year. Lets also assume that the investors asset allocation doesnt change from a 100 stock allocation, which should give a long-term return around 8. After 30 years and 165,000 in contributions, the investor has a balance of 672,902.27 460,909.23 in 2014 dollars, adjusted with 2 inflationScenario 2: Constant contributions, glidepath returnsA balance of 672k on an investment of 165k sounds pretty good to me, but what if I dont want to keep a 100 stock allocation for 30 years? Lets adjust the model to try to account for a gradually decreasing exposure to stocks. Using this model, after 30 years and 165,000 in contributions, the investor has a balance of 369,424.68 256,471.64 in 2014 dollars, adjusted with 2 inflationScenario 3: Inflation-adjusted contributions, glidepath returns369k still sounds pretty good to me, but its just a little more than half of what scenario 1 gave us. Can we do better? Of course. The IRA contribution limit is almost certainly not going to freeze at 5500 per year. Since the glidepath seems like a reasonable assumption for the smart investor, if the IRA contribution limit increases by 500 every 3 years, after 30 years and 232,500 in contributions, the investor has a balance of 475,008.41 340,311.07 in 2014 dollars, adjusted with 2 inflationScenario 4: Dave Ramseys Fantasy World: Inflation-adjusted contributions, constant returnsDave Ramsey has helped a large number of people right their financial ship, for which he should be commended. Unfortunately his investment advice is not so great, mostly because of the 12 return figure he repeatedly cites on his show and elsewhere. That sounds great, Dave! After 30 years and 232,500 in contributions, Dave Ramsey has a balance of 1,773,696.58 1,213,517.27 in 2014 dollars, adjusted with 2 inflationCaveats Things to Think AboutClearly these are drastically simplified. Some factors I did not include are: Age - Current rules with IRAs allow for catch-up contributions to the tune of an additional 1000 per year if youre over age 50. This can have a significant effect on the ending balance. Taxes - Keep in mind that in a Roth account youve already paid taxes. In a traditional account youd be taxed at your marginal rate upon distribution. Volatility - Returns are never nice numbers like I used. To see the effect of a 2008-like event or a 2013-like recovery, I suggest creating a spreadsheet of your own and playing around with the numbers.ConclusionsIn conclusion, I offer the following observations:1. Many people use unrealistic expectations when calculating their future retirement balances, both in this subreddit and elsewhere. Future return expectations should be tempered by whatever plans you have if any to move away from stocks and hold a larger portion of your portfolio in fixed income securities. If you are not planning on decreasing your stock exposure, beware that a market downturn at the wrong time can put a severe dent in your next egg and can potentially ruin your retirement plans. 2. Saving 5,500 in your IRA is not inconsequential. Even in the constant contributionglidepath return scenario, you get 1.50 out of your IRA for every 1 you put in.3. The only thing worse than getting a late start is not starting at all when it comes to retirement saving. Obviously, the longer you have to wait out downturns the better off you are, but you can mitigate the effect of downturns with smart asset allocation and a savers mentality. Do not use your lack of savings as an excuse not to start.4. I used a 2 adjustment for inflation. Inflation could just as well include investment expenses as well. Since theres no evidence that actively managed mutual funds are capable of outperforming index funds in the long run, tack on another 1 to the inflation figure to see how much that reduces your returns to represent the difference between index investing and actively managed investments.5. Any toy model, like those I presented here, are heavy on assumptions. Nobody can predict the future. Like any such example, either posted anonymously on the internet or found in a paid publication from a well-known personal finance personality, you should question what assumptions are being made and if they make sense.Heres a screenshot of the formulas I used if anyone wants to perform a similar calculation.Take these calculations for what they are - examples based on a set of assumptions. They are certainly open to interpretation and criticism. Dont miss the forest for the trees while doing so, though.  <response>: Great post. Too often, people have unrealistic return expectations about their money. Ive spoken to people who HONESTLY BELIEVE they can DOUBLE their money within 2 years without contributing additional funds. The US stock market returned around 30 in 2013, AFTER it lost about 40 in 2008. Over longer time periods is how this averages out to 6-9. 