How do I calculate real rate of return?

Use the Fisher approximation: real return ≈ (1 + nominal) / (1 + inflation) − 1. The calculator applies this to your compounded balance for each period.

What inflation rate should I use?

Test multiple scenarios (e.g., 2%, 3%, 4%). Use a conservative rate for retirement planning and a range when stress-testing outcomes.

What is the difference between nominal and real returns?

Nominal returns exclude inflation. Real returns adjust for inflation to reflect the change in purchasing power.

Can I include monthly deposits or withdrawals?

Yes. Add recurring cash flows (monthly, quarterly, annually) and choose ordinary or due timing to model SIPs or pension withdrawals.

Does the calculator handle different compounding frequencies?

Yes. Select annual, quarterly, monthly, or daily compounding to match your product terms.

No. Real, after-tax returns may be lower. Consider tax-advantaged accounts and consult a professional for complex situations.

Investment Inflation Calculator

Calculate how inflation affects your investment returns over time. Compare nominal vs real returns and see the true purchasing power of your future investments.

Initial Investment Amount*($)

Starting balance for your investment

Number of Years*

How long will you invest

Interest Rate*(% per year)

Expected annual return

Compounding Frequency*

How often interest compounds

Inflation Rate*(% per year)

Expected average inflation rate

Cash Flows

Cash Flow Type

DepositsWithdrawals

Payment Timing

End of periodBeginning of period

Amount($)

Regular contribution amount

Frequency

of Contributions

Results

Enter values and click Calculate to see results

Methodology

This calculator uses compound interest formulas to calculate future investment value with exact period-by-period calculations. Inflation adjustment uses the precise formula: Real Value = Nominal Value / (1 + periodic inflation rate)^exact_periods, where exact_periods includes fractional periods for precise timing. It supports both ordinary annuities (end-of-period payments) and annuity due (beginning-of-period payments), handles periodic contributions or withdrawals with various compounding frequencies, and provides comprehensive investment projections adjusted for purchasing power using exact timing calculations.

Important Disclaimers:

Investment returns and inflation rates can vary significantly from projections
This calculator assumes constant rates of return and inflation, which may not reflect reality
Market volatility, taxes, fees, and other factors are not included in calculations
Results are estimates for planning purposes only and should not be considered guaranteed
Consult with a financial advisor for comprehensive investment planning
Past performance does not predict future results

About This Calculator

1. How does the Investment Inflation Calculator work?

This calculator computes the future value of your investment using compound interest formulas, then adjusts that value for inflation to show you what your money will actually be worth in today's purchasing power. It accounts for your initial investment, regular contributions or withdrawals, compounding frequency, and inflation to give you both nominal and real returns.

2. What's the difference between nominal and real returns?

Nominal returns are the actual percentage gain on your investment without considering inflation. Real returns are adjusted for inflation and show your actual purchasing power gain. For example, if you earn 8% but inflation is 3%, your real return is approximately 5%. This difference is crucial for long-term financial planning.

3. How accurate are the inflation projections?

The calculator uses the inflation rate you specify as a constant annual rate. However, actual inflation varies year to year. Historical average inflation in the US has been around 3% annually, but it can range from negative (deflation) to over 10% in extreme circumstances. Use different inflation scenarios to see how they impact your results.

4. Should I use this for retirement planning?

This calculator provides a good starting point for retirement planning by showing how inflation erodes purchasing power over time. However, retirement planning involves many other factors like taxes, changing expense needs, Social Security, and varying market returns. Consider this as one tool in a comprehensive retirement planning approach.

5. How do different compounding frequencies affect my returns?

More frequent compounding generally leads to slightly higher returns due to earning interest on your interest more often. However, the difference between monthly and daily compounding is usually minimal for typical interest rates. The calculator supports both ordinary annuities (payments at end of period) and annuity due (payments at beginning of period). Annuity due typically results in slightly higher returns due to additional compounding time.

6. What's the difference between ordinary annuity and annuity due?

Ordinary annuity assumes payments occur at the end of each period (e.g., end of month), while annuity due assumes payments at the beginning of each period (e.g., start of month). Annuity due typically results in higher future values because each payment has more time to compound. For example, if you make monthly deposits at the beginning of each month rather than the end, each deposit earns an extra month of interest.

7. What investment returns should I assume?

Investment returns vary by asset class and time period. Historically, stock markets have averaged 7-10% annually, bonds 3-5%, and savings accounts 1-3%. However, past performance doesn't guarantee future results. Conservative estimates help avoid disappointment, while optimistic scenarios help with goal setting. Consider using multiple scenarios to plan for different outcomes.