Real Rate of Return

The real rate of return is your nominal return minus inflation. If your portfolio grows 7% in a year when inflation runs 3%, your real return is roughly 4% — that's the growth in what your money can actually buy. It's the number that matters for long-term planning, because a plan has to fund real spending, not nominal figures.

Most retirement projections work in real terms precisely so you don't have to mentally deflate huge future numbers. When a plan says a portfolio 'grows at 5%,' check whether that's nominal or real — the difference compounds into very different outcomes over decades.