After-tax real rate of return

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After-tax real rate of return

The after-tax rate of return minus the inflation rate.

After-Tax Real Rate of Return

The rate of return on an investment after subtracting taxes and adjusting for inflation. It is calculated simply by taking the after-tax return and subtracting the inflation rate. For example, if the after-tax return is 7% and the inflation rate is 4%, the after-tax real rate of return is 3%.
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As long as the retiree spends only the after-tax real return amount, he or she will preserve the purchasing power of the original investment.
5% inflation rate, the after-tax real return is a more modest 1.
5% / 2) 4/15/2007 $115,787 $1,890 $51,447 10/15/2007 115,344 1,890 1,442 4/15/2008 114,896 1,890 1,436 10/15/2008 114,442 1,890 1,431 (1) (5) Premium to Payment amortize (3)-(2) 4/15/2007 $5,443 10/15/2007 448 4/15/2008 454 10/15/2008 459 Exhibit 2: After-tax real returns for TIPS held in taxable accounts assuming different real returns, inflation rates, and tax rates 15% Tax Rate Annual Inflation Rate (Percent) 1% 12.
By setting the after-tax real return on TIPS equal to the after-tax real return on fixed-rate debt (i.
The TIPS would indeed have a negative after-tax real return in this setting; however, Clements does not consider any other alternatives.
The after-tax real return, discussed in the next section, declines with inflation.
In fact, with the combination of high inflation and taxes, it is possible that an indexed bond can have negative after-tax real returns.