Real rate of return: how to calculate returns after inflation
The real rate of return is the return on an investment after inflation, the growth in what your money can buy. It is calculated as (1 + nominal return) ÷ (1 + inflation rate) − 1. With a 5 % return and 2.2 % inflation, that is 2.74 %.
Also: real rate of return · inflation-adjusted return · real interest rate · Realrendite
A 5 % return sounds good. If prices rise 3 % in the same year, though, you can only buy about 2 % more at the end of it. That gain in purchasing power is the real return, and for any plan that spans decades it is the number that counts. Status: October 2026.
The formula
real return = (1 + nominal return) ÷ (1 + inflation) − 1
The common shortcut “return minus inflation” is an approximation. For small numbers it is close; for large ones it drifts.
Inflation in Germany
The Federal Statistical Office (Destatis) reports average consumer price inflation of 2.2 % for 2025, the same as in 2024. In September 2026 the rate was 3.3 %, driven mainly by energy prices; excluding food and energy it was 2.4 %. Nobody knows the rate for the next 30 years, so a plan needs an assumption, and it helps to run a higher value as a second scenario.
Examples
| Nominal return | Inflation | Real return |
|---|---|---|
| 5.0 % | 2.2 % | 2.74 % |
| 5.0 % | 3.3 % | 1.65 % |
| 2.0 % (savings account) | 2.2 % | −0.20 % |
Over 30 years: €100,000 grows at 5 % nominal to €432,194. In today’s money, at 2.2 % inflation, that is €224,984, a little over half. Both numbers describe the same outcome, measured in different money.
Tax makes it worse
German flat tax is charged on the nominal return, not the real one. Even the part of your interest that only makes up for inflation is taxed.
Savings account example: 2 % interest, saver’s allowance already used. After 26.375 % tax, 1.47 % remains. At 2.2 % inflation the real return after tax is −0.71 %. The balance grows in euros and still loses purchasing power.
For equity ETFs the effect is smaller, because tax is due only on sale or through the Vorabpauschale, and the Teilfreistellung exempts 30 %.
Common mistakes
- Mixing nominal and real. If your target is in today’s euros, use the real return. If you work in nominal terms, let spending and pensions rise with inflation too.
- Extending today’s inflation. One year at 3.3 % says little about the next 30.
- Treating averages as safe. William Bengen showed in 1994 that a plan built on an average real return would have run out far too early in bad historical periods. See sequence of returns risk.
- Forgetting costs. Fund fees and account charges come straight off the return.
- Using your home country’s inflation. If you live and spend in Germany, German inflation is what matters for your plan.
In your plan
The inflation calculator shows what an amount will be worth in a few years, and the compound interest calculator can show results in nominal terms or in today’s money. The guide inflation and retirement explains how inflation changes a retirement plan. Withdrawal rules such as the 4% rule also work in real terms.