Real return calculator: What is your return after inflation?
A larger amount in the account does not necessarily mean you can buy correspondingly more. When prices rise, the purchasing power of money falls. The real return shows how much your investment grows once inflation is taken into account.
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Enter the amount, annual return, inflation and number of years. The result shows both the future amount and its value in today's money.
The real return formula
Real return = (1 + nominal return) / (1 + inflation) − 1. The percentages must be written as decimals in the formula.
With small percentages, the result is close to the return minus inflation. The exact calculation uses the ratio between the two growth factors, though, because both the investment and the price level change over time.
Example with a 7% return and 2% inflation
The annual real return is about 4.90%. An investment of 100,000 grows in nominal terms to about 386,968 after 20 years when the return is 7%.
With 2% annual inflation, the final amount equals a purchasing power of about 260,419 in today's money. The difference is not a fee deducted from the account. It describes that goods and services have become more expensive.
Use the real return for long-term goals
The calculation is useful when you save for something many years ahead. A goal of one million can have different purchasing power depending on when the money will be used.
Both the return and inflation are kept constant in this scenario. Tax is not included. If you want to see how much extra saving is needed for a higher target amount, you can use the monthly savings calculator.