Real vs nominal returns

The short answer

A nominal return is what your investments earn in dollars. A real return is what's left after inflation, so it measures how much more you can actually buy. If your FIRE spending is in today's money, plan with a real return: 7% nominal with 2.5% inflation is 4.39% real, not 7%.

The difference isn't a rounding detail. Using 7% with today's spending would tell our example saver, Alex, that they can stop saving today. With the correct real return, Alex needs another 7 years 7 months.

Nominal, real and inflation

• Nominal return: the growth you see on your statement, in the dollars of each year. A fund that goes from $100,000 to $107,000 earned 7% nominal.
• Inflation: how fast prices rise. If prices rose 2.5%, $107,000 next year buys about what $104,390 buys today.
• Real return: the growth in what your money can buy. Here, 4.39%.

Fees come off too. A 0.5% fund fee takes 7% down to 6.5% before inflation does its part. Our guide to how fees delay FIRE covers that side.

Over long periods the gap gets large. $100,000 growing at 7% for 28 years becomes $664,884 in future dollars. At 2.5% inflation, that's worth $333,026 in today's money. Both figures are correct. Only the second one can be compared with a budget you wrote in today's prices.

FIRE planning leans on real returns for a second reason too. The 4% rule already assumes your withdrawals rise with inflation every year, so a FIRE number of 25 times spending is a figure in today's money. To know when you'll reach it, your portfolio has to be measured the same way.

The exact conversion

Returns and inflation compound, so you divide rather than subtract:

Why divide? After a year, each dollar has grown to $1.07, but the things you buy now cost $1.025 for every dollar they used to cost. What you can buy has grown by 1.07 ÷ 1.025, or 4.39%. Subtraction ignores that inflation also eats into the growth itself, not just the original dollar.

The quick shortcut is to subtract: 7% − 2.5% = 4.5%. It's close, but it always comes out a little high, and the error grows with higher returns and inflation:

A tenth of a point sounds like nothing, but it compounds. Over 28 years, $100,000 grows to $333,026 in today's money at the exact 4.39%, and to $342,970 at the shortcut's 4.5%. For Alex, the shortcut moves the coast date from 7 years 7 months to 6 years 11 months, 8 months too early. Our calculators always use the exact formula, as the methodology page shows.

The costly mistake: mixing the two

The most common error in FIRE spreadsheets is putting spending in today's money and growing the portfolio at a nominal return. The portfolio is measured in future dollars, which are worth less, while the target stays at today's prices. Progress looks better than it is.

Here's Alex: 32, retiring at 60, $185,000 invested, $1,500 a month, $40,000 a year of spending and a $1,000,000 FIRE number at a 4% withdrawal rate.

The mixed version says Alex could stop saving today. If Alex did, and returns really averaged 4.39% after inflation, the portfolio would reach $616,097 in today's money by 60, about 62% of what's needed. In our simulation of 1,000 markets, stopping today reaches $1,000,000 by 60 in only about 28% of them.

There are two consistent ways to do the math. Keep everything nominal (inflate your spending and FIRE number to future dollars), or keep everything real (spending in today's money, real returns). Most FIRE planning, including ours, uses the second because today's prices are the ones you understand.

A few signs that a spreadsheet or online calculator is mixing the two:

• It asks for your spending in today's money but never asks about inflation.
• It grows your portfolio at 7% to 10% a year and compares the result with a FIRE number that never changes.
• Its projected balance at 60 looks surprisingly large compared with what that balance would buy at today's prices.

One more subtlety: in a real-terms plan, a level monthly contribution means a level amount in today's money. In practice that means raising your $1,500 a month in line with inflation each year. If you keep it fixed in dollars instead, you're saving a little less each year in real terms, and your coast date will come slightly later than the calculator shows.

What returns have been historically

The most widely used free dataset is maintained by Aswath Damodaran at NYU Stern. In his historical returns data, updated in January 2026, US returns from 1928 to 2025 were:

The 75/25 row is our own calculation from the same yearly data. Bonds pull the average down, but they also soften the swings: that mix moved by about 15% a year (its standard deviation), which is the volatility our calculators use for their odds. Any single year can easily land 15 points or more above or below the average, so these figures only describe long stretches.

Three things to keep in mind before you use these numbers:

• Use the compound average. It's the rate that actually turns a starting amount into the ending amount. The simple average is higher because ups and downs don't cancel out: a 50% fall followed by a 50% gain leaves you 25% down.
• They're nominal. To compare them with today's spending, convert them with the formula above. As an illustration, a 10% nominal return with 3% inflation is 6.80% real.
• They're one country's past. They include no fees and no taxes, and the future doesn't have to look like the last century.

What inflation to assume

Central banks give a useful anchor. The Federal Reserve aims for inflation of 2% over the longer run, measured by the personal consumption expenditures price index. The Bank of Canada targets 2% consumer price inflation, the midpoint of a 1% to 3% range. Actual inflation can sit above or below target for years.

Your own inflation can also differ from the official index. The index tracks an average basket of spending. If a large share of your retirement budget goes to things whose prices have risen faster than average for you, such as rent or health care, a slightly higher inflation figure in your plan is a reasonable hedge.

Our calculators default to 2.5%, a little above those targets for margin. What matters is the gap between your return and inflation, not either number alone. Holding a 7% return fixed:

In practice, high inflation often comes with higher nominal returns, so it's more realistic to pick the real return you believe in and keep the gap steady than to raise inflation alone.

How the return moves your coast date

Coast FIRE depends entirely on growth, so the return assumption has a big effect. Here is Alex with nominal returns from 5% to 8%, 2.5% inflation and no fees:

Each point of return moves the coast date by roughly 5 to 9 years, but the full FIRE date by only 2 to 4. When you're still saving, contributions do much of the work. When you coast, growth does all of it.

The odds don't improve with an optimistic return. At every row in the table, stopping exactly on the coast date reaches the target in about half of our 1,000 simulated markets, because the coast date assumes the middle outcome. A higher assumption simply moves the date and the risk earlier. Our guide to Monte Carlo odds explains why.

Choosing a planning return

There's no correct number, only reasonable ones. A sensible process:

1. Start from your mix. More bonds or cash means a lower expected return. The 75/25 history above is a ceiling for a stock-heavy portfolio, not a forecast.
2. Take off a margin. Our default of 7% nominal sits about two points below that history. Planning a little low costs you some extra saving if things go well. Planning high can cost you years if they don't.
3. Subtract your real fees. Add up fund expense ratios and any advisory fee, and enter them separately.
4. Convert with the exact formula. Or let the calculator do it: enter the nominal return, fees and inflation. If you'd rather think in real terms, work backwards: a 4% real return with 2.5% inflation is a 6.6% nominal return.
5. Run a range. Look at your plan at 6% and at 7%. If the coast date only works at the higher number, build in a buffer by saving a little longer.

Why not simply plan with the 9.1% history? Because a plan built on the long-run average assumes you'll get at least an average century, after fees and with no change in how you invest. Real investors pay costs, often hold more bonds as they age, and may not stay fully invested through every crash. A lower planning figure absorbs some of that without you having to model each piece.

Then revisit once a year. If markets do better than you assumed, your coast date moves closer. If they do worse, you'll see it early, while you still have time to adjust. Our guide on reaching Coast FIRE faster covers the other levers.

Sources

The worked examples are our own calculations, explained on our methodology page. Historical and inflation figures were checked against these sources in October 2026:

1. Historical returns on stocks, bonds and bills (annual data from 1928). Aswath Damodaran, NYU Stern School of Business, updated January 2026. Our calculations from this data: from 1928 to 2025, US stocks (the S&P 500 with dividends) returned about 10% a year, and a mix of 75% stocks and 25% 10-year Treasury bonds returned about 9% a year with yearly swings (standard deviation) of about 15%.
2. Why does the Federal Reserve aim for inflation of 2 percent over the longer run?. Federal Reserve Board.
3. Why we target 2% inflation. Bank of Canada, 2025.