Break Even Formula Validity?

[Scott Johnson]

Hey, everyone! 

I learned about a formula today that I'm trying to wrap my head around. It calculates the percentage return one would need in order to confirm an investment is "moving ahead" as opposed to tracking behind the Inflation and Personal Taxation rate:

B = I / (1 - R)

B = Break-Even Return

I = Inflation Rate

R = One's Personal Effective Tax Rate (Federal & State)

Is anyone here better with math who can elaborate on whether or not this makes sense to them and why?

Thanks!

[Chris Seveney]

@Scott Johnson

Simple. Let’s say inflation is 5% and you are in a 24% federal bracket and 5% state (29% total).

Your break even with inflation is 5%/(1-.29)

So your investment would need to make 7.04% to keep up with inflation on a net basis.