Tax-adjusted scenario return
rₜ = positive scenario return − entered annual tax dragThe simplified drag applies only to positive returns in general or other taxable accounts and cannot reduce a positive return below zero.
Investment Growth · Methodology
How the calculation works
Illustrate how contributions, return uncertainty, fees, simplified tax drag and inflation could shape an investment, then test whether a target is reached across several scenarios.
Return to calculatorIncluded
- Cautious, central and stronger deterministic return scenarios
- Fixed, inflation-linked or user-increasing monthly contributions
- Percentage, fixed, contribution, initial and exit fees
- A user-entered annual tax-drag estimate for taxable accounts
- Today-money and future-pound values
- A one-year market-fall sensitivity
- A target comparison and solved monthly contribution under the central assumptions
Outside this method
- Return probabilities, confidence intervals or Monte Carlo simulation
- Investment or asset-allocation recommendations
- Automatic dividend, Income Tax or Capital Gains Tax calculations
- ISA and pension eligibility or contribution limits
- Pension tax relief and tax on withdrawals
- Withdrawals, rebalancing and changing asset allocation
- A claim that returns or inflation are smooth or predictable
Calculation
Core formulas
Net monthly factor
a = [(1 + tax-adjusted return) × (1 − annual fee)]^(1/12)The effective annual return and percentage fee are converted into one geometrically consistent monthly factor.
Month-end balance
Bₘ = Bₘ₋₁ × a + contributionₘ × (1 − contribution charge) − fixed monthly feeContributions enter at month end and can step up once at the start of each modelled year.
Today-money value
Real value = nominal value ÷ (1 + inflation)^yearsThis converts the future-pound balance into estimated current purchasing power.
Tax drag
Gross no-charge value − tax-adjusted no-fee valueThis isolates the modelled reduction associated with the user-entered return drag.
Fee drag
Tax-adjusted no-fee value − final after-fee valueThis includes the entered charges and the compound growth those amounts no longer earn.
Target contribution
Solve real central value(monthly contribution) = real targetA bounded bisection search finds the starting monthly contribution under all other entered assumptions.
Timing convention
When cash flows occur
Returns, the simplified tax drag and percentage fees compound monthly. Contributions enter at month end and increase once a year when selected. The optional market fall replaces the central return throughout one selected modelled year. Initial charges are deducted at the start and the exit charge at the final point.
Limitations
What the result cannot establish
- The default rates are generic FCA projection-rate maxima for certain products, not forecasts for a particular portfolio.
- Constant scenario returns conceal volatility, sequence risk, correlations and changing market conditions.
- A single tax-drag estimate cannot reproduce allowances, dividend and realised-gain timing, losses or changing tax rates.
- General inflation may not match the user’s spending pattern.
- A one-year market fall does not model recovery shapes or repeated losses.
- The solved target contribution is only as reliable as the central assumptions and ignores affordability and product limits.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| Lump-sum compounding | £10,000; 5% return; 10 years | £16,288.95 |
| Monthly contributions | £100 monthly; 5% effective return; 12 months | £1,227.26 |
| Ongoing fee drag | £100,000; 5% return; 1% fee; 10 years | £147,314.31 after fees |
| Tax-drag approximation | £10,000; 5% return; 1 percentage-point tax drag; no fees; 10 years | Uses a 4% annual return and ends at £14,802.44 |
| Today-money value | £100,000 future value; 2% inflation; 20 years | Approximately £67,297 in today’s money |
| Target already funded | Opening balance alone reaches the real target under the central assumptions | Required monthly contribution is £0 |
Evidence