Inflation and the return you type in

Why a nominal return overstates what you can buy, and how to use real versus nominal mode without mixing the dollars.

A balance that doubles while prices double has not made you richer. Calculators that show a large nominal balance and a spending number from today are mixing two currencies that share a symbol. That mix is the most common way a FIRE number looks finished when it is not.

A workable real return

If the nominal return is R and inflation is I, a clean real return is (1 + R) / (1 + I) − 1. Subtracting I from R is the shortcut. At 7% and 3% the shortcut says 4% and the ratio says about 3.9%. Either beats pretending inflation is zero. Use one and say which.

In real mode, spending, Social Security, and contributions stay in today's dollars, and the rate is already after inflation. In nominal mode, those cash flows grow with inflation and the balance is future dollars. The Coast calculator does this and labels the retirement target. The compound-interest chart does not inflate spending, because it is a balance chart. If you want that chart in today's buying power, type a real rate and read the axis that way.

Inflation does not hit every budget the same way

CPI is an average basket. A renter in a hot city, a household that mostly buys medical care, and a household with a fixed mortgage do not experience that average. A calculator cannot see your basket. If housing is your large line and you have a fixed-rate mortgage, your personal inflation may be lower than CPI. If you rent and pay market health insurance, it may be higher. Bias the spending number, not just the inflation field.

Neither mode forecasts next year's prices. Both exist so you do not compare a future balance with today's rent.

Questions

What inflation rate should I type?

There is no correct personal forecast here. The Coast calculator defaults to 3% because that is a round, historically familiar long-run figure for U.S. consumer prices, not because next year will be 3%. The Bureau of Labor Statistics CPI is the series people mean when they say 'inflation' in this context. If you want a plan that is sterner, use a higher inflation rate or a lower real return and read the result as a stress test.