FIRE glossary
Real vs Nominal Returns
A nominal return is the raw percentage your portfolio grew by; a real return subtracts inflation, which is what actually determines whether your future spending power grew or shrank.
Why Ember works in real terms by default
Ember converts nominal inputs to real terms at the point they enter a calculation, not partway through the maths. Every return, spend figure and required pot the engine produces is already expressed in today's money, so a projected pot 20 years out is directly comparable to your spending target today without a further mental inflation adjustment on your part.
Where nominal numbers still show up
Contribution schedules and headline returns quoted by brokers and providers usually arrive nominal — a statement showing "+8% this year" hasn't subtracted inflation. Ember's `inflationPct` assumption is the single rate the engine uses to translate those nominal figures into the real terms every downstream calculation actually runs on, alongside a separate real-return assumption set per asset class.
A rate that flatters in nominal terms can still fail
A bond fund quoting a large nominal return in a high-inflation year can have a real return close to zero, or negative, once that inflation is stripped out. Comparing a nominal headline figure against a real safe-withdrawal-rate target — without adjusting for inflation first — is one of the most common ways retirement maths goes wrong, and it tends to understate risk exactly when inflation is highest.
A moving target, not a one-off adjustment
Inflation isn't a single correction applied once — it compounds every year a plan runs. A modest-looking annual rate can erode a meaningful share of purchasing power over a 40–50-year early-retirement horizon, which is part of why the standard safe-withdrawal-rate figure doesn't generalise cleanly to longer horizons either. Treating a distant projection as if today's prices will still apply is one of the quieter ways a plan can end up under-funded without anyone noticing until much later.
Across borders
An expat earning in one currency and spending in another effectively stacks two real-return questions: inflation in the country you spend in, and the exchange rate between the two currencies. A "real return" quoted in your home currency can still lose purchasing power against your actual cost of living abroad — see the geoarbitrage term.
Common questions
Does Ember ever show nominal figures?
The model works in real terms throughout by default. If a broker or provider quotes a nominal return, subtract your inflation assumption before comparing it against any figure Ember shows.
Why does inflation matter more the longer my horizon is?
It compounds. Even a modest inflation rate erodes purchasing power meaningfully over a 40–50-year early-retirement horizon — the same reasoning behind why the standard 4% safe-withdrawal-rate figure doesn't cleanly generalise to longer horizons.
Is a real 5% return a realistic assumption?
It's an assumption you set per asset class, not a promise or a guarantee. See the sensitivity-analysis term for how to check how much your plan actually depends on the specific number you choose.
Related terms
See real vs nominal returns in your numbers
The free calculator gives a rough estimate; the full planner models your actual accounts, pensions, residency moves and taxes — with the maths behind every figure shown.