Real return: what your money actually earns
Nominal returns are headlines. Real returns are wealth. The 8% market return your fund advertises is a nominal figure — it doesn't account for inflation eroding purchasing power, or for tax taking a slice of the gain. The real return is what's actually adding to your spending power year-over-year, and it's almost always materially less than the nominal figure suggests.
Standard formula: real return = ((1 + after-tax nominal) / (1 + inflation)) − 1. The /(1+inflation) division is the key — inflation compounds against your gains, not just subtracts from them. At a nominal 8% return, 20% effective tax, 3% inflation: after-tax nominal is 6.4%, real return is (1.064/1.03 − 1) = 3.30%. Compounded over 30 years, the difference between 8% nominal and 3.30% real is enormous: $10k grows to $100k nominal but only $26k in real terms.
For Australian context, super accumulation is taxed at 15%, super pension at 0%, outside super at marginal rates with CGT discount and franking offsetting some of the burden. Long-run inflation has averaged ~2.5%; recent quarters have been higher. Use real returns when modelling retirement adequacy — nominal figures will materially under-state how much you actually need.