# Passive Income Calculator

> Calculate how much passive income your investments generate and project when you'll reach financial independence based on savings rate and expected returns.

**Category:** Finance
**Keywords:** passive income, financial independence, FIRE, investment income, dividends, rental income, portfolio income
**URL:** https://complete.tools/passive-income-calculator

## How it calculates

The calculator uses several core financial formulas to produce its results:

**Monthly Passive Income** is calculated as:
Monthly Income = Portfolio Value x (Annual Yield / 100) / 12

This takes your total portfolio and determines how much income it generates each month at the specified yield rate.

**Financial Independence Number** uses the safe withdrawal rate methodology:
FI Number = (Monthly Expenses x 12) / (Safe Withdrawal Rate / 100)

For example, with $4,000 in monthly expenses and a 4% withdrawal rate: FI Number = ($4,000 x 12) / 0.04 = $1,200,000. This is the portfolio size at which you can withdraw enough each year to cover expenses indefinitely.

**Years to Financial Independence** is computed using iterative monthly compounding:
Each month: Balance = Previous Balance x (1 + Monthly Rate) + Monthly Contribution

The calculation loops month by month, applying investment growth and adding your monthly contribution, until the balance reaches or exceeds the FI number. The monthly rate is the annual return divided by 12.

**Income Coverage Percentage** shows your current progress:
Coverage = (Monthly Passive Income / Monthly Expenses) x 100

When this reaches 100%, your passive income fully covers your expenses and you have achieved financial independence.

## Who should use this

This calculator is designed for a broad range of people at different stages of their financial journey. It is particularly useful for individuals pursuing the FIRE movement who want to track their progress toward early retirement. Long-term investors who want to understand how their portfolio generates income will find the passive income projections valuable. Young professionals beginning their investment journey can use it to see how early savings and compounding work in their favor over decades. Pre-retirees approaching traditional retirement age can verify whether their portfolio will sustain their lifestyle. Financial planners and advisors can use the tool to illustrate the relationship between savings rate, investment returns, and the timeline to financial independence for their clients. Anyone who wants to reduce dependence on earned income and build wealth through investments will benefit from the clear projections this tool provides.

## Worked examples

**Example 1: Mid-career professional**
A 35-year-old has a $250,000 portfolio, contributes $2,000 per month, expects a 7% annual return, has $4,000 in monthly expenses, and uses a 4% safe withdrawal rate.

- FI Number = ($4,000 x 12) / 0.04 = $1,200,000
- Current Monthly Passive Income = $250,000 x 0.07 / 12 = $1,458.33
- Income Coverage = $1,458.33 / $4,000 = 36.5%
- Years to FI: approximately 14.3 years (portfolio grows through compounding and contributions until it reaches $1,200,000)
- At FI, the projected portfolio will be roughly $1,200,000, generating $7,000 per month at 7% or $4,000 per month at the 4% safe withdrawal rate.

**Example 2: Early saver with aggressive savings rate**
A 28-year-old has $50,000 invested, saves $3,000 per month, expects an 8% return, spends $3,500 monthly, and uses a 4% withdrawal rate.

- FI Number = ($3,500 x 12) / 0.04 = $1,050,000
- Current Monthly Passive Income = $50,000 x 0.08 / 12 = $333.33
- Income Coverage = $333.33 / $3,500 = 9.5%
- Years to FI: approximately 14.8 years
- Despite starting with a smaller portfolio, the higher savings rate and higher expected return bring the timeline close to Example 1.

**Example 3: Near-retirement investor**
A 55-year-old has $800,000, contributes $1,500 per month, expects a 6% return, has $5,000 in monthly expenses, and uses a 3.5% withdrawal rate.

- FI Number = ($5,000 x 12) / 0.035 = $1,714,286
- Current Monthly Passive Income = $800,000 x 0.06 / 12 = $4,000
- Income Coverage = $4,000 / $5,000 = 80%
- Years to FI: approximately 9.6 years
- Already covering 80% of expenses, this investor is well on track and may reach FI before traditional retirement age.

## Limitations

1. The calculator assumes a constant annual return rate, while real-world investment returns fluctuate significantly from year to year. A portfolio returning 7% on average might return 20% one year and lose 10% the next, which affects the actual timeline.
2. Inflation is not explicitly accounted for. Over long time horizons, the purchasing power of future dollars will be lower than today. Users should consider using inflation-adjusted return rates (typically 2-3% lower than nominal rates) for more realistic projections.
3. Taxes on investment income, capital gains, and withdrawals are not factored in. Depending on account types (taxable, Roth IRA, traditional 401k), the actual spendable income may be significantly less than the gross income calculated.
4. The safe withdrawal rate is a guideline based on historical data, primarily the Trinity Study. It is not a guarantee, and extended bear markets or periods of high inflation could cause portfolio depletion faster than projected.
5. The calculator assumes consistent monthly contributions. In practice, income and savings rates change over time due to career changes, life events, and economic conditions.
6. It does not account for Social Security, pensions, or other income sources that may supplement investment income in retirement.

## FAQs

**Q:** What is the 4% safe withdrawal rate and where does it come from?


**A:** The 4% rule originates from the Trinity Study (1998), which analyzed historical stock and bond market returns and found that withdrawing 4% of your initial portfolio value (adjusted for inflation each year) had a high probability of lasting at least 30 years. It has become the standard guideline for retirement planning, though some financial advisors recommend more conservative rates of 3% to 3.5% for early retirees with longer time horizons.


**Q:** Should I use my total return rate or just the dividend yield for annual return?


**A:** Use your total expected return rate, which includes dividends, interest, and capital appreciation. The calculator uses this rate to project overall portfolio growth. Your actual passive income in practice may come from dividends and interest alone, but total return is the appropriate measure for projecting when your portfolio will reach the FI target.


**Q:** How does changing the safe withdrawal rate affect my FI number?


**A:** The safe withdrawal rate has an inverse relationship with the FI number. A lower withdrawal rate requires a larger portfolio. For example, with $48,000 in annual expenses: at 4% SWR the FI number is $1,200,000, at 3.5% it is $1,371,429, and at 3% it is $1,600,000. Choosing a lower rate provides a larger safety margin but requires more time to accumulate.


**Q:** Does this calculator work for rental income or just stock portfolios?


**A:** The mathematical principles apply to any income-producing asset. For rental properties, your portfolio value would be your equity in rental properties and the annual return would be your net rental yield after expenses. However, rental income has different characteristics than stock dividends, including maintenance costs, vacancy rates, and leverage effects, so results should be interpreted as estimates.


**Q:** What annual return rate should I use?


**A:** Historical US stock market returns have averaged roughly 10% nominal or 7% after inflation over long periods. A balanced stock and bond portfolio might return 6-8%. Conservative investors may want to use 5-6%, while those with aggressive all-stock portfolios might use 7-9%. Using a lower estimate provides a more conservative and potentially more reliable projection.

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