Real Return Calculator
Subtracting inflation is not the same as dividing by it.
Work out Real Return. Subtracting inflation is not the same as dividing by it. Free, with no account and nothing to install.
Real return
3.88%
The subtraction shortcut says 4.00% — out by 0.117%
Real return is (1 + nominal) ÷ (1 + inflation) − 1, not nominal minus inflation. At ordinary rates the shortcut is close enough to pass unnoticed; at high inflation it is badly wrong, which is exactly when people reach for it. The error always runs the same way — the shortcut overstates the real return — so it flatters every projection it appears in. Over a long horizon, compounded, that overstatement is worth a substantial share of the final result. The purchasing power row is the one worth sitting with. At 3% inflation money halves in value every 23 years, which means a pension pot projected in nominal terms is showing roughly twice what it will actually buy.
How the Real Return Calculator works
Real return by the Fisher relation, with the subtraction shortcut alongside so the error is visible. The shortcut always overstates, which means it flatters every projection it appears in.
Also known as: return after inflation · is my savings rate beating inflation · inflation adjusted return calculator · how fast does inflation halve money
Not financial advice. This calculator is for planning and illustration, not financial advice. Real products carry fees, taxes, and terms it does not model. Confirm figures with your lender or a qualified adviser before committing.
Frequently asked questions
How do you calculate real return?
(1 + nominal) ÷ (1 + inflation) − 1. Not nominal minus inflation, though the two are close at low rates — which is precisely why the shortcut survives.
How wrong is the shortcut?
At 7% and 3% it overstates by about 0.12 points. At 20% and 15% it overstates by nearly a point. The error grows with both rates, and always in the same direction.
Why does real return matter more than nominal?
Because only real return tells you whether you can buy more than before. A 5% return during 5% inflation has gained you nothing, however good the statement looks.
How quickly does inflation erode money?
At 3% a year, purchasing power halves in 23 years. At 5% it halves in 14. Over a working lifetime that is the single largest factor in whether a savings plan works.
Should I use headline or personal inflation?
Your own, if you can estimate it. Headline inflation is an average basket, and someone paying rent in a hot market or running a car has a very different rate from the published figure.
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