What is a real return?

A real return is your investment return after tax and inflation are taken out. It is what your money actually gains in buying power, which is the figure that matters, rather than the headline rate before tax and rising prices.

How do tax and inflation affect my return?

Tax takes a share of your earnings, and inflation erodes what each dollar buys. A 5% return taxed and then adjusted for inflation can leave a real return close to zero, which is why looking past the headline rate is so important.

Why does the real return matter?

Because it tells you whether your money is truly growing in buying power or just keeping up. An investment with a high headline return but a low real return may not be building wealth as much as it seems.

Real Return Calculator

This New Zealand calculator works out your investment return after tax and inflation, the figure that actually matters. A headline return can shrink or even vanish once tax takes its share and rising prices erode what each dollar buys. You enter the return, your tax rate and inflation, and the tool shows the after-tax return and the real return in buying power, so you can tell whether your money is truly growing.

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Nominal return

Tax rate on earnings

Inflation

real return, after tax and inflation

After-tax return0%

On $10,000, real gain a year$0

The tax rate might be your PIR for a PIE fund or your marginal rate for other income; use the one that applies. Inflation is what you expect over the period. A real return near zero means your money is only holding its value. Estimate only, not financial advice.

How it works

The calculator first takes tax off the nominal return to give the after-tax return, then adjusts that for inflation to give the real return in buying power. It uses the proper relationship, dividing by inflation rather than simply subtracting, so the figure is accurate. It also shows the real gain on a $10,000 investment over a year, to make the result concrete rather than just a percentage.

Worked example

A 5% return taxed at 28% leaves about 3.6% after tax. With inflation at 2.5%, the real return is only about 1.07%. On $10,000 that is roughly $107 of genuine gain in buying power for the year, far less than the 5% headline rate suggests.

Related calculators

Inflation Calculator: the effect of inflation.
Compound Interest Calculator: growth over time.

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