How to use this calculator
- Enter the Nominal return your investment earns per year before inflation.
- Set the Inflation rate you expect and the Tax on returns as a percentage of the gain (use 0 for a tax-free account).
- Add the Amount invested and the number of Years.
- Read the Real return per year, then compare the future value with the value in today's money.
Nominal versus real return
The nominal return is the percentage printed on your statement. The real return measures how much your purchasing power grows once prices have risen. If your account grows 7% while prices rise 3%, you can buy roughly 3.9% more goods than a year ago, not 4%.
real = (1 + nominal × (1 − tax)) / (1 + inflation) − 1- nominal = yearly return before tax and inflation
- tax = tax rate on the return, as a fraction (20% = 0.20)
- inflation = yearly rise in prices
- real = yearly growth in purchasing power
The calculator first removes tax from the nominal return, then divides by inflation using the exact Fisher relationship instead of simple subtraction.
Example: $10,000 for 10 years
At a 7% nominal return and 3% inflation with no tax, the real return is 3.88%. The account grows to $19,672, but that is only worth $14,637 in today's money.
Add a 20% tax on gains and the return after tax drops to 5.6%, so the real return becomes 2.52%. Ten years later you hold $17,244, which buys what $12,831 buys today.
When returns lose to inflation
Take a 4% nominal return with 5% inflation. The real return is -0.95%: after ten years $10,000 becomes $14,802 on paper but only $9,087 in today's money. You have more dollars and less buying power.
This is why holding long-term savings entirely in low-yield cash can quietly lose value. Use the inflation calculator to see how prices have changed over a period, and the compound interest calculator to project nominal growth.
How to use the result
Set long-term goals in today's money. If you need $1,000,000 of buying power in 25 years, work with the real return and today's prices rather than nominal figures. Then check whether your chosen mix can realistically deliver that real return.
Run the calculator with a few inflation values, for example 2%, 3% and 5%. The spread tells you how fragile your plan is.
Ways to protect your real return
- Use tax-advantaged accounts where available so less of the return is lost each year.
- Keep fees low; see the investment fee calculator for the long-term effect.
- Match assets to the time horizon: short-term cash needs safety, long-term goals need growth that can outpace prices.
- Review the plan every year as inflation and rates change.
Assumptions and limits
The return, inflation and tax rate are treated as constant every year, and tax is applied to the full yearly return as if paid annually. Real markets are uneven, and tax rules differ by account and country. Results are an illustration, not a forecast.
Frequently asked questions
How do you calculate real rate of return?
Divide one plus the after-tax nominal return by one plus inflation, then subtract one. Subtracting inflation directly gives a close approximation at low rates.
Why is the real return slightly different from nominal minus inflation?
Because inflation also reduces the value of the growth itself. The exact formula divides rather than subtracts, and the gap widens as rates rise.
What is a good real return?
Any positive real return grows purchasing power. What counts as good depends on your goal and the risk you accept.
Which inflation rate should I use?
Use a long-run average you consider reasonable, such as the central bank's target, and test higher values for safety.