How the sums work
The real return isn't the nominal return minus inflation. Because both rates compound, the correct conversion divides:
Subtracting is a rough approximation, and the error grows with the rates. At 8% and 3% the honest answer is 4.85%, not the 5% subtraction gives you, and that 0.15% a year compounds. The future value sums then run your amount forward twice: once at the nominal rate to show the statement figure, and once at the real rate to show what it buys in today's money. The gap between the two is what inflation quietly takes.
Worked example
With the defaults, 8% nominal with 3% inflation is a real return of 4.85%, not 5%; $10,000 at 8% for 20 years shows $46,609.57 on the statement but buys what $25,806.59 buys today.
Frequently asked questions
Why divide instead of just subtracting inflation?
Because returns and prices both compound. Subtraction is a shortcut that ignores the interaction between the two, and the error grows as the rates do. At 8% and 3% the gap is 0.15 percentage points a year, which compounds into a serious difference over decades. At higher inflation the shortcut gets much worse.
Which inflation number should I use?
For long-term planning, use a long-run average or your central bank's target, roughly 2 to 3%. Last month's headline rate is too noisy to project decades forward. If you want to stress-test, run the calculator again with a higher figure and see what it does to the result.
Do bonds and savings accounts have positive real returns?
Sometimes barely, sometimes not at all. A savings account paying 2% during 3% inflation has a negative real return: the balance grows while its buying power shrinks. That's exactly why checking the real figure matters more for cautious assets than for anything else.