Convert nominal (stated) return to real (inflation-adjusted) return. See purchasing power growth and optional future value in today's dollars.
Inflation-Adjusted Return (Real Return)
Convert nominal (stated) return to real (inflation-adjusted) return. Enter nominal return %, inflation %, and optionally years and initial amount to see future value in today's dollars.
FV in real terms = Initial × (1 + real return)^years
The exact formula divides (1 + nominal) by (1 + inflation); the approximation real ≈ nominal − inflation works when both rates are small. Real return is the growth rate of purchasing power.
When both nominal and inflation are expressed as decimals (e.g. 0.07 and 0.03), real return = (1.07 ÷ 1.03) − 1 ≈ 0.0388, or 3.88%. Multiply by 100 for percentage. For negative nominal or deflation, the same formula applies.
Inflation-Adjusted Return Calculator (Real Return): Nominal to Real Return
Nominal return is the stated return (e.g. 7%); real return is the return after inflation and shows how much your purchasing power actually grows. This calculator converts nominal to real return and, optionally, shows future value in today's dollars.
Real return is the return on an investment after adjusting for inflation. It measures how much your purchasing power grows—how much more (or less) you can buy with your money over time. Nominal return ignores inflation; real return does not.
Nominal vs Real
Nominal return is the headline number (e.g. 7% per year). If inflation is 3%, your money grows 7% in dollar terms but prices rise 3%, so your purchasing power grows at roughly 4% per year—that 4% is the real return (approximately; the exact formula is below).
Purchasing Power
Real return = purchasing power growth. When real return is negative (inflation > nominal return), your balance may go up in dollars but you can buy less with it. Use real return to plan retirement and long-term goals in today's dollars.
Nominal 5%, inflation 6%: Real return is negative—purchasing power shrinks.
How It Is Calculated
Real return = (1 + nominal return) ÷ (1 + inflation rate) − 1. Express as a percentage by multiplying by 100. The approximation real ≈ nominal − inflation works when both rates are small (e.g. under 10%); for larger rates use the exact formula.
Why Divide by (1 + Inflation)
Because inflation compounds: if prices rise 3% per year, a dollar next year buys 1 ÷ 1.03 ≈ 0.97 of what it buys today. So nominal growth (1 + nominal) must be deflated by (1 + inflation) to get growth in purchasing power. That gives (1 + nominal) ÷ (1 + inflation) − 1 = real return.
The Formula
Real return = (1 + nominal) ÷ (1 + inflation) − 1
Future Value in Today's Dollars
FV in nominal terms = P × (1 + nominal)^n. FV in real terms (today's purchasing power) = P × (1 + real)^n. When you enter years and optional initial amount, the calculator shows both nominal FV and real FV so you can see how much inflation erodes the nominal gain.
Why It Matters
Planning in nominal terms can overstate how much you will have in buying power. A 7% nominal return with 3% inflation gives only about 4% real growth; over 30 years that difference is large. Use real return for retirement and long-term goals.
Comparing Investments
When comparing two investments, compare real returns if they have different inflation assumptions, or use the same inflation for both. Real return levels the playing field.
Negative Real Return
When inflation exceeds nominal return, real return is negative. Your money loses purchasing power (e.g. cash in a low-yield account during high inflation). This calculator shows when that happens.
Approximation vs Exact Formula
The approximation real ≈ nominal − inflation is easy to remember and works when both rates are small (e.g. under 10%). For 7% nominal and 3% inflation, approximation gives 4%; exact (1.07 ÷ 1.03) − 1 ≈ 3.88%. For higher rates or precision, always use the exact formula.
When the Approximation Fails
When nominal or inflation (or both) are large (e.g. 15% nominal, 10% inflation), the approximation real ≈ nominal − inflation = 5% is noticeably off. The exact (1.15 ÷ 1.10) − 1 ≈ 4.55%. For high-inflation regimes or volatile periods, always use the exact formula to avoid overstating real return.
Using Real Return in Portfolio Planning
When building a retirement or long-term plan, project future wealth in real (today's) dollars so you know how much purchasing power you will have. Use expected nominal return and expected inflation to get real return, then compound with (1 + real)^n. This avoids the common mistake of assuming a 7% nominal return means 7% growth in buying power—with 3% inflation it is only about 4% real.
Using This Calculator
Enter nominal return (%), inflation rate (%), and optionally years and initial amount. The calculator shows real return (%), purchasing power growth (same as real return), and if years/amount are provided, future value in nominal and real (today's dollar) terms.
What to Enter
Use the nominal return you expect (e.g. 6–8% for equities) and an inflation assumption (e.g. 2–3% long-term). For historical real return, use historical nominal and inflation. Years and initial amount are optional for FV in today's dollars.
Typical Use Cases
Use this calculator when planning retirement or long-term goals in today's dollars, when comparing investments that assume different inflation, or when assessing whether a low-yield savings account is losing purchasing power (negative real return). It is also useful for converting historical nominal returns to real returns for backtests.
Sensitivity to Inflation
Real return is very sensitive to the inflation assumption. A 7% nominal return with 2% inflation gives about 4.9% real; with 4% inflation it gives about 2.9% real. Over long horizons that difference compounds: use a range of inflation assumptions (e.g. 2%, 3%, 4%) to see how your real FV and purchasing power change.
Conclusion
Inflation-adjusted (real) return shows how much your purchasing power grows after inflation. It is (1 + nominal) ÷ (1 + inflation) − 1. Use it to convert nominal returns to real, to plan in today's dollars, and to compare investments fairly.
This calculator gives the exact real return for your nominal and inflation inputs and, with optional years and amount, future value in nominal and real terms. Use real return for retirement and long-term planning so you don't overstate your future buying power.
When inflation is high or uncertain, the exact formula matters more than the simple subtraction. Bookmark this tool to quickly convert any nominal return and inflation assumption to real return and to see FV in today's dollars for your planning horizon.
Frequently Asked Questions
Common questions about inflation-adjusted (real) return
What is real return?
Real return is the return on an investment after adjusting for inflation. It measures purchasing power growth. Formula: (1 + nominal) ÷ (1 + inflation) − 1. When inflation is zero, real return = nominal return.
What is the difference between nominal and real return?
Nominal return is the stated return (e.g. 7%); it does not account for inflation. Real return is after inflation and shows how much your buying power grows. If nominal is 7% and inflation is 3%, real return is about 3.9%.
Why not just subtract inflation from nominal return?
The approximation real ≈ nominal − inflation works when both rates are small. The exact formula is (1 + nominal) ÷ (1 + inflation) − 1 because returns compound. For 7% nominal and 3% inflation, exact real = 3.88%; approximation gives 4%.
When is real return negative?
When inflation is higher than nominal return. For example, 5% nominal and 6% inflation gives negative real return—your money grows in dollars but loses purchasing power. Cash in a low-yield account during high inflation often has negative real return.
What inflation rate should I use?
Use a long-term expected inflation rate (e.g. 2–3% in many developed markets) or historical average. For retirement planning, 2.5–3% is common. You can also use current inflation for a snapshot.
What is "FV in today's dollars"?
Future value in real terms—how much purchasing power you will have. FV real = P × (1 + real return)^n. It answers: "How much will my money be worth in today's buying power?" Nominal FV is the dollar amount; real FV is the purchasing-power equivalent.
Does this work for negative nominal return or deflation?
Yes. The formula (1 + nominal) ÷ (1 + inflation) − 1 works for any nominal and inflation. If inflation is negative (deflation), real return can be higher than nominal. Enter negative rates as negative numbers (e.g. −2 for −2%).
Why use real return for retirement planning?
Because you care about buying power, not just dollar balance. A $2M nest egg in 30 years with 3% inflation has much less purchasing power than $2M today. Planning in real terms (today's dollars) avoids overstating how much you will have.
How do I get historical real return?
Use historical nominal return (e.g. S&P 500 return) and historical inflation (e.g. CPI). Plug both into the formula. Many sources publish historical real returns for stocks and bonds.
Is real return the same as after-tax return?
No. Real return adjusts for inflation only. After-tax return adjusts for taxes. For a full picture you can compute real after-tax return: use after-tax nominal return and inflation in the real return formula.
When should I use the exact formula instead of nominal − inflation?
Use the exact formula whenever nominal or inflation is above roughly 5–10%, or when you need precise numbers for planning. The approximation real ≈ nominal − inflation is fine for quick mental math when both rates are small (e.g. 3% and 2%).
Usage of this Calculator
Practical applications and real-world context
Who Should Use This Calculator?
Investors & Retirement PlannersTo convert nominal return to real return and to plan in today's dollars so you don't overstate future buying power.
Anyone Comparing InvestmentsTo level the playing field by comparing real returns when inflation matters (e.g. bonds vs stocks, or different time periods).
Financial Advisors & EducatorsTo show clients the difference between nominal and real return and how inflation erodes nominal gains.
Savings & Cash HoldersTo see when low nominal return (e.g. savings account) plus inflation gives negative real return—losing purchasing power.
Limitations & Accuracy nuances
Constant rates: Assumes the same nominal return and inflation every year. Real rates vary; use for planning, not exact prediction.
Inflation measure: Use CPI or your preferred inflation measure; personal inflation may differ (e.g. healthcare, housing).
No taxes: Real return here is inflation-adjusted only; after-tax real return requires applying taxes to nominal first.
Single inflation rate: Assumes the same inflation every year. For multi-period planning with varying inflation, use year-by-year or average inflation.
Geographic and time period: Use inflation data that matches your currency and planning horizon (e.g. US CPI for US dollar planning). Historical real returns vary by country and period.
Real-World Examples
Example: 7% nominal, 3% inflation
Real return = (1.07 ÷ 1.03) − 1 ≈ 3.88%. So your purchasing power grows at about 3.9% per year, not 7%. Over 20 years, $100 grows to $387 nominal but only $211 in today's dollars (real).
Example: 4% nominal (savings), 5% inflation
Real return = (1.04 ÷ 1.05) − 1 ≈ −0.95%. Negative real return—your money loses purchasing power even though the balance grows. You need higher nominal return to keep up with inflation.
Real return = (1.10 ÷ 1.02) − 1 ≈ 7.84%. Purchasing power grows at about 7.8% per year. Over 20 years, $100 grows to $673 nominal but only $452 in today's dollars (real terms).
Takeaway
Always convert nominal returns to real when planning in today's dollars. A 7% nominal return with 3% inflation is only about 4% real—over decades that gap compounds. Use this calculator to set realistic expectations for purchasing power growth.
Summary
Quick recap
This calculator converts nominal (stated) return to real (inflation-adjusted) return using the formula (1 + nominal) ÷ (1 + inflation) − 1. You enter nominal return %, inflation %, and optionally years and initial amount to see future value in nominal and real (today's dollar) terms. Real return is your purchasing power growth; use it for retirement and long-term planning so you don't overstate future buying power.
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Convert nominal (stated) return to real (inflation-adjusted) return. See purchasing power growth and optional future value in today's dollars.
How to use Inflation-Adjusted Return Calculator (Real Return)
Step-by-step guide to using the Inflation-Adjusted Return Calculator (Real Return):
Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided
Frequently asked questions
How do I use the Inflation-Adjusted Return Calculator (Real Return)?
Simply enter your values in the input fields and the calculator will automatically compute the results. The Inflation-Adjusted Return Calculator (Real Return) is designed to be user-friendly and provide instant calculations.
Is the Inflation-Adjusted Return Calculator (Real Return) free to use?
Yes, the Inflation-Adjusted Return Calculator (Real Return) is completely free to use. No registration or payment is required.
Can I use this calculator on mobile devices?
Yes, the Inflation-Adjusted Return Calculator (Real Return) is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.
Are the results from Inflation-Adjusted Return Calculator (Real Return) accurate?
Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.