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Inflation-adjusted return calculator
Convert a yearly return into a real, inflation-adjusted return and see a future balance in today's dollars. Formula and worked example included.
Inflation-adjusted return calculator
Result
- Real (inflation-adjusted) yearly return
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- Ending balance in future dollars
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- Ending balance in today's dollars
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- Quick estimate (return − inflation)
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Quick answer
The real return is the growth in buying power after inflation: (1 + return) ÷ (1 + inflation) − 1. Enter an amount, a yearly return, a yearly inflation rate and a number of years to see the ending balance in future dollars and in today's dollars.
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What is a real return?#
Amounts measured in current prices are called nominal; amounts adjusted to constant prices are called real[1]. A real return tells you how much more you can buy, not just how many more dollars you have. The Bureau of Labor Statistics notes that the Consumer Price Index is used to find the purchasing power of the consumer's dollar[2].
How is the result calculated?#
- Real yearly return = (1 + nominal return) ÷ (1 + inflation) − 1.
- Future balance in future dollars = amount × (1 + nominal return)^years.
- Future balance in today's dollars = future balance ÷ (1 + inflation)^years.
Worked example
$10,000 at 6% a year with 3% inflation for 10 years
The real return is 2.91% a year (the shortcut says 3%). The balance grows to $17,908.48 in future dollars, which buys about what $13,325.59 buys today.
| Measure | Result |
|---|---|
| Real yearly return | 2.91% |
| Shortcut (6% − 3%) | 3.00% |
| Ending balance, future dollars | $17,908.48 |
| Ending balance, today's dollars | $13,325.59 |
Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.
Which inflation rate should you enter?#
No one knows future inflation. You can look at past CPI figures from the BLS[2] and then try a few assumptions above and below them. Read how inflation is measured and how inflation affects investments for the background.
What mistakes do beginners make?#
Celebrating a nominal gain
A balance that rose 3% in a year when prices rose 4% buys less than before. Always ask what the gain is after inflation.
Using one inflation guess
Inflation changes from year to year. Try a low, middle and high assumption to see how sensitive the result is.
Mixing nominal and real numbers
Compare like with like: a future balance in future dollars should not be set against a cost quoted in today's prices.
What else do beginners ask?#
Why is the real return lower than return minus inflation?
Because inflation also erodes the gain itself, not just the original amount. The exact formula divides instead of subtracting, which gives a slightly lower number when rates are positive.
Can a real return be negative?
Yes. If prices rise faster than your money grows, your balance can rise in dollars while what it buys falls. Cash earning less than inflation is the common example.
Sources
Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).
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