Real Return Calculator

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-07 · Updated 2026-09-26 · Reviewed 2026-09-26

To adjust a return for inflation, divide rather than subtract. A 7% return with 3% inflation is a real return of 3.88% a year, and $10,000 invested at those rates for 30 years grows to $76,123 on the statement but buys only what $31,361 buys today.

The 3% default is close to the recent record, not a guess. US consumer prices rose 2.55% a year on average over the 30 years to August 2026, and 3.34% a year over the last ten, on the Bureau of Labor Statistics’ CPI-U. Put either figure in the inflation box and the calculator does the rest.

How the number is built

A nominal return is how much the number in the account grew. A real return is how much more the money buys. Those are different questions and only the second one has any consequences.

The correct arithmetic is a ratio:

Real return = (1 + nominal) ÷ (1 + inflation) − 1

The common shortcut is to subtract. 7% minus 3% gives 4%, and the correct answer is 3.88%. The gap is 0.12 percentage points, which sounds like nothing and is the subject of the rest of this page.

A worked example

Take the defaults: 7% nominal, 3% inflation, $10,000 for 30 years.

The real return is (1.07 ÷ 1.03) − 1 = 3.88%.

On the statement, $10,000 growing at 7% for 30 years becomes $76,123.

In purchasing power it becomes $31,361. The same money, the same period, and a figure less than half the size — because everything it will buy has been getting more expensive the whole time.

And using the shortcut instead compounds the error. At 4.00% for 30 years the same $10,000 reaches $32,434 — about $1,073 more than the correct figure. Not a catastrophe, and not nothing either, from a rounding difference of 0.12 points.

Why the gap widens

The subtraction shortcut is accurate when both rates are low and drifts as either rises. At 3% nominal and 2% inflation the error is 0.02 points. At 15% and 10% it is 0.45. At 40% and 30% it is 2.31.

Which means the shortcut fails exactly when it matters most — in high-inflation periods, when people most want to know what their return is actually worth. Those periods are not hypothetical: the twelve-month CPI rate reached 9.0% in June 2022 on the seasonally adjusted index (9.1% on the unadjusted one usually quoted), the highest reading in the 30 years of data below.

The direction of the error is always the same. Subtraction overstates the real return, so the shortcut is optimistic in every case rather than randomly wrong.

The three adjustments, in order

Most people apply none of these. Applying them in the wrong order is almost as misleading as skipping them, because each one operates on the output of the last.

First the fee, because it is taken from the nominal return before anything else happens. A fund returning 7% and charging 0.75% delivers 6.25% to you. That is the number your statement grows by.

Then inflation, as a ratio on what is left. 6.25% against 3% inflation is a real return of 3.16% — not the 3.88% you get by adjusting the gross figure and forgetting the charge.

Then tax, which is charged on the nominal gain rather than the real one. This is the part that surprises people: in a taxable account you are taxed on growth that inflation has already taken, so a year where you exactly kept pace with inflation still produces a tax bill.

Run the default figures through all three and 7% becomes roughly 3.2% before tax and less after. Nothing in that sequence is controversial and almost nobody does it, which is why a plan built on a headline 7% is usually a plan built on a number twice the size of the real one.

What this means for cash

Cash paying less than inflation has a negative real return, and the balance still goes up. That is the most common way people lose money without noticing: the statement shows growth every year and buys less every year.

At 2% interest with 3% inflation the real return is −0.97% a year. Over ten years that is 9.3% of purchasing power gone, from an account that never had a losing month.

And fees come out of the real return, not the nominal one. On the arithmetic of the fee drag calculator, 75 basis points removes 20.2% of a thirty-year pot — applied to the smaller, real figure, which is the one that was going to be spent.

The original data

US consumer prices rose 112.6% in the 30 years from August 1996 to August 2026, on the CPI-U series the Bureau of Labor Statistics publishes and FRED distributes. That is 2.55% a year compounded, so $10,000 of spending power in August 1996 took about $21,255 in August 2026.

Over the last ten years the rate was higher, 3.34% a year, and the peak twelve-month reading was 9.0% in June 2022, seasonally adjusted. The monthly index and every twelve-month change are in the CPI table for this page.

Run those through the page’s own formula. At the 30-year average, a 7% return is a real 4.34% a year. At the June 2022 pace, the same 7% is a real return of −1.82%: the statement says up seven, and the money buys less than it did twelve months earlier.

Of the 24,971 unique videos in this site’s search study, retirement appears in 144 titles at a median of 31,731 views. Titles about a retirement number, retiring early or how much it takes to retire number 17, at a median of 87,636.

The question: The account is up four percent and prices rose five. Gain?

Seventeen videos on the retirement target itself, at a median of 87,636. A retirement number quoted in today’s money and reached in thirty years’ money is two different amounts, and the gap is the whole subject of this page. The retirement number calculator works in today’s money for that reason.

The answer is no, it is a loss. Up 4% while prices rose 5% is a real return of −0.95% — the account grew and it buys less than it did. The statement is accurate and it is answering a question nobody actually has.

When it fails

Over short horizons this adjustment barely matters, and overstating it is the same error in reverse. On a three-year holding at 7% and 3%, the difference between the exact method and the shortcut is a fraction of a percent of the total. Treating every figure as needing an inflation adjustment makes short-term comparisons harder without making them more accurate — the correction earns its place over decades, not over quarters.

The second failure is using a single inflation figure for a long period. Inflation is not constant and a thirty-year average hides the years that did the damage.

A third is using the published index rather than your own costs. A headline rate is a basket, and your basket is not that basket.

A fourth is applying it to a nominal liability. A fixed-rate mortgage is repaid in shrinking money, so inflation works in your favor there.

A fifth is forgetting tax. Tax is charged on the nominal gain, which means the real, after-tax return is lower again than this page’s figure.

And a sixth is treating the result as a forecast. It converts a stated return into today’s money; it does not tell you what either rate will be.

Related

Inflation and savings covers what this does to money held rather than invested. Index funds is where the nominal return usually comes from. And retirement accounts is where the distinction between statement money and spending money matters most.

The inflation figure itself is explained on the consumer price index page, including what the basket leaves out. To see the nominal side on its own, the compound growth calculator runs the same starting amount without the inflation step.

This page is educational, not financial advice. Test every idea on your own charts before risking money.