ASSUMPTIONS
Why returns must account for inflation, fees and taxes
A portfolio’s headline return is not the increase in purchasing power that the investor can keep.
The calculator compounds these layers rather than simply subtracting them. Personal tax is not included here.
If future investments are projected with a headline return while today’s spending stays fixed, the two sides are measured in different money. A useful plan asks how much purchasing power may remain.
Three layers answer different questions
Turns a nominal return into growth in purchasing power.
Fees and other costs reduce what remains invested.
May apply inside a fund, on distributions, or when gains are realised.
The site uses one editable inflation assumption as a common yardstick. A household’s own costs can rise differently from a published consumer-price index, so a detailed scenario can also change spending.
Tax cannot always be one percentage
Dividends may be taxed when received, while capital gains may only be taxed when sold. When $10 of an investment is sold, tax should apply only to the gain inside that $10, not to returned capital. This is why a detailed plan can store acquisition cost and why the public calculator leaves personal tax out.
A hidden cost can occur inside a fund
When companies pay dividends to an international fund, some tax may be withheld before the fund reinvests the money. The investor may never see a separate line for it.
For one audited Irish world index fund in one financial year, our estimate is about 0.23% of fund assets. That does not mean a 23% annual tax and it is not a universal rate.
Show the 0.23% calculation
The Vanguard FTSE All-World UCITS ETF reported $681,582,910 of dividend income and $78,871,274 of current income withholding tax for the year ended 30 June 2025. That is 11.57% of the dividends received.
$78,871,274 ÷ $681,582,910 = 11.57%
Using the simple average of opening and closing net assets, dividend income was about 1.96% of estimated average assets.
$681,582,910 ÷ $34,778,312,984 = 1.96%
Multiplying the two gives an estimated drag of 0.227% of assets, rounded to 0.23%.
11.57% × 1.96% = 0.227%
The average-assets method is approximate, and another fund or year can be different.
Why the world-index example says 4.75%
The 2025 Yearbook reported a 5.2% annualised real return for world equities from 1900 to 2024. With a 2.5% inflation assumption, the example 0.19% product fee and 0.23 percentage-point withholding drag give about 4.78% after inflation and before personal tax. The calculator uses the unrounded result from those editable inputs. Some article illustrations use an approximate 4.75% real return; that is not the exact default displayed by the calculator.
Each layer stays editable in the detailed account. If an entered fund return already includes a cost, that cost should not be subtracted again.