Inflation-Adjusted vs Nominal Investment Returns
**Nominal returns** are what your statement shows. **Real (inflation-adjusted) returns** subtract purchasing power loss—critical for retirement horizons over 20+ years.
Step by step
1. Pick a consistent inflation assumption
Use long-run CPI or stress +2–3% above your base case.
2. Convert ending balance
Real value ≈ nominal / (1 + cumulative inflation).
3. Plan withdrawals in real dollars
Retirement spending goals should be inflation-linked.
Nominal vs real
7% nominal with 3% inflation ≈ 4% real—still good, but not 7% spending power.
- Nominal: Easy to read from statements; overstates buying power.
- Real: Better for goals; requires inflation estimate.
Use our calculators
Common mistakes
- Retirement target in today's dollars without inflating expenses
FAQ
Should I use CPI or personal inflation?
CPI for broad planning; add buffer for housing/education if relevant.