How do you calculate an inflation-adjusted return?

Divide (1 + nominal return) by (1 + inflation) and subtract 1. 10% nominal with 4% inflation: 1.10 ÷ 1.04 = 1.0577, so 5.77% real. The shortcut 10 − 4 = 6% is a little too generous, and the gap grows with higher rates.

Why not just subtract inflation from the return?

Because inflation applies to the whole balance including the gains, the exact relationship multiplies rather than adds. Subtraction is fine as a mental estimate at low rates — 7% − 2% ≈ 4.9% real — but at 12% and 6% the error is a third of a percentage point every year, which compounds.

What is a good real return?

Anything above zero beats inflation; long-run broad equity indexes have delivered real returns in the mid-single digits in most developed markets, and cash and government bonds close to zero or negative after tax. Judge a figure against the risk taken, and always after tax.

What is the Fisher equation?

(1 + nominal) = (1 + real) × (1 + inflation), named for the economist Irving Fisher. It links the three rates exactly; the common approximation nominal ≈ real + inflation drops the small cross term. OpenStax's Principles of Finance §7.4 gives the example of 6% real and 2% inflation requiring 8.12% nominal.

Can a real return be negative?

Yes, whenever inflation is higher than the nominal return: a 4% account with 5% inflation loses about 0.95% of its buying power a year, even though the balance grows.

Inflation-Adjusted Return Calculator (Real Return, Fisher Equation)

The real return after inflation from a nominal return, by the Fisher equation, and what 100,000 becomes in today's money.

Inputs

CurrencyAuto (USD)

Nominal return(%)

0 %30 %

Inflation rate(%)

0 %15 %

Investment period(years)

1 years40 years

Include CalculateEveryday mark

Real annual return

5.66%

Nominal FV310,584.821

Real purchasing power173,428.942

-44%

Nominal value of 100,000: 310,585
Inflation-adjusted value: 173,429
Nominal return: 12%
Inflation rate: 6%

Real return = (1 + nominal) / (1 + inflation) − 1. The value rows show what 100,000 in any currency becomes, nominally and in today's purchasing power.

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What each Inflation-Adjusted Return input means

Nominal return: The return as quoted, before inflation — an account's rate or an investment's average yearly return.
Inflation rate: The yearly inflation rate you expect, such as the central bank's 2% target or recent CPI figures.
Investment period: How many years to project the value of 100,000 forward.

Inflation-Adjusted Return formula

real return = (1 + nominal) ÷ (1 + inflation) − 1 · approximation: real ≈ nominal − inflation · purchasing power after t years = amount × ((1 + nominal) ÷ (1 + inflation))^t

1 + r_{\text{real}} = \frac{1 + r_{\text{nominal}}}{1 + \pi}

A nominal return is the growth in the number on the statement; the real return is the growth in what that money can buy. Inflation eats part of every nominal return, and the exact relationship — the Fisher equation — is multiplicative: one plus the nominal rate equals one plus the real rate times one plus inflation. Rearranged, the real rate is (1 + nominal) ÷ (1 + inflation) − 1. Subtracting inflation from the nominal rate is close for small numbers but overstates the real return: 12% nominal with 6% inflation is not 6% real but 5.66%, and the gap widens as the rates rise. The page gives the exact real rate, then shows what 100,000 becomes over the years both nominally and in today's purchasing power, which is the number that says whether the investment actually made you better off.

Inflation-Adjusted Return worked example

A 12% nominal return with 6% inflation: (1.12 ÷ 1.06) − 1 = 1.0566 − 1 = 5.66% real, not the 6% that subtraction gives. Over ten years, 100,000 grows nominally to 100,000 × 1.12¹⁰ = 310,585, but in today's purchasing power it is worth 100,000 × 1.0566¹⁰ = 173,429 — the rest of the growth just kept pace with prices. OpenStax's example runs the other way: a 6% real rate in 2% inflation needs a nominal 1.06 × 1.02 − 1 = 8.12%.

More Inflation-Adjusted Return examples

A 7% return with 3% inflation: 1.07 ÷ 1.03 − 1 = a real annual return of 3.88%. Over 20 years 100,000 grows to 386,968 on paper but buys only what 214,255 buys today.

A 4% savings rate when prices rise 5% a year: 1.04 ÷ 1.05 − 1 = −0.95% real, shown as -0.95%. After five years 100,000 has become 121,665, worth 95,328 in today's money — the balance grew, but what it can buy shrank.

Where the Inflation-Adjusted Return calculator can give the wrong answer

The inflation rate is an average over the period, and the official index may not match your own basket — rent, school fees and medical costs often rise faster than the headline figure. A real return computed against the wrong inflation rate is still a nominal number in disguise.
Taxes come out of the nominal return before inflation does, which makes them harsher than they look: at 12% nominal, 6% inflation and 30% tax on the gain, the after-tax real return is (1 + 0.084) ÷ 1.06 − 1 = 2.26%, not 5.66%.
A nominal return below inflation gives a negative real return — the money grew but buys less. A 4% deposit in 6% inflation is −1.89% real.
The purchasing-power rows use a notional 100,000 in whatever currency you think in; they are not converted, and the page does not ask for an amount.
This compares rates, not the path. Inflation that spikes and falls back gives a different result from a steady average if the returns were also uneven; use the average of each over the whole period.

Spotted a mistake? Tell us

Inflation-Adjusted Return FAQ

: Divide (1 + nominal return) by (1 + inflation) and subtract 1. 10% nominal with 4% inflation: 1.10 ÷ 1.04 = 1.0577, so 5.77% real. The shortcut 10 − 4 = 6% is a little too generous, and the gap grows with higher rates.
: Because inflation applies to the whole balance including the gains, the exact relationship multiplies rather than adds. Subtraction is fine as a mental estimate at low rates — 7% − 2% ≈ 4.9% real — but at 12% and 6% the error is a third of a percentage point every year, which compounds.
: Anything above zero beats inflation; long-run broad equity indexes have delivered real returns in the mid-single digits in most developed markets, and cash and government bonds close to zero or negative after tax. Judge a figure against the risk taken, and always after tax.
: (1 + nominal) = (1 + real) × (1 + inflation), named for the economist Irving Fisher. It links the three rates exactly; the common approximation nominal ≈ real + inflation drops the small cross term. OpenStax's Principles of Finance §7.4 gives the example of 6% real and 2% inflation requiring 8.12% nominal.
: Yes, whenever inflation is higher than the nominal return: a 4% account with 5% inflation loses about 0.95% of its buying power a year, even though the balance grows.