Inflation-adjusted return calculator guide
This calculator converts a nominal investment return into a real return after inflation. It helps estimate purchasing power rather than just future dollars.
How to use it
- Enter the nominal annual return you expect.
- Enter an inflation assumption.
- Compare nominal future value with inflation-adjusted purchasing power.
Calculation method
Real return = ((1 + nominal return) ÷ (1 + inflation)) − 1
This formula is more accurate than simply subtracting inflation from return, especially over long periods.
Common mistake
A portfolio can grow in dollars while losing purchasing power if inflation is higher than the nominal return.
FAQ
Is real return always lower than nominal return?
Usually yes when inflation is positive. Deflation can make real return higher than nominal return.
Should FIRE projections use real return?
Using real return is often cleaner because future spending is already expressed in today’s purchasing power.
What inflation rate should I use?
Use a conservative range. Many long-term models test 2%, 3%, and 4% inflation scenarios.