Passive Income Goal Calculator

The Two Numbers That Define a Passive Income Goal

Passive income planning reduces to two numbers: the yield your capital earns, and the monthly income you want. Capital needed equals (target monthly income × 12) / yield rate. A 5,000/month target at 4% yield needs 1.5 million. The same target at 8% yield needs 750,000. Yield rate changes the required capital drastically. The uncomfortable truth is that most sustainable, diversified yields sit in the 3-5% range once risk and inflation are properly accounted. Double-digit yields almost always carry risk that is being masked or deferred.

What Counts as a Sustainable Yield

Dividend index funds: 1.5-2.5% current yield, with price growth on top. REITs (Real Estate Investment Trusts): 3-5% yield, moderate volatility. Investment-grade bonds: 4-6% in current rate environment. High-yield corporate bonds: 6-8%, higher credit risk. Rental property: 4-7% gross yield before maintenance, tax, and vacancies eat roughly a third. Dividend-growth blue chips: 3-5%. Cash and money market: 4-5% in current environment, but falls with rate cuts. Anything promising 10%+ without corresponding risk is either misrepresenting the income as return-of-capital, or taking concealed duration or credit risk.

Why the 4% Rule Keeps Appearing

The 4% safe withdrawal rate (from the Trinity Study) was designed for retirement portfolios to last 30 years with 95%+ confidence under historical markets conditions. It assumes a balanced portfolio of stocks and bonds, inflation-adjusted annual withdrawals, and portfolio depletion acceptable at year 30. For passive income goals where you want the capital to last indefinitely (not just 30 years), 3% is a more defensible rate. For shorter horizons (10-15 years), 5% can work. Use 4% as a reasonable midpoint unless you have specific reasons to adjust.

Inflation Is the Sneaky Problem

A 5,000/month target today means something different in 20 years. At 3% inflation, 5,000 loses roughly 45% of its purchasing power over two decades. If your goal is 5,000/month in today's money, you actually need 9,000/month in future units — and capital needs to grow to match. Two ways to handle this: enter your target in future-inflated units, or use a real (after-inflation) yield rate. Most planners use 3-4% real yield for long-horizon passive income, implicitly assuming the portfolio grows with inflation.

Worked Example

Target: 3,000/month passive income. Current capital: 200,000. Yield rate: 4%. Annual target income: 36,000. Capital needed: 36,000 / 0.04 = 900,000. Gap: 700,000. Current income from capital: 200,000 × 4% / 12 = 667/month. Goal coverage: 22%. You are 22% of the way there. Options: raise contributions, wait for capital to compound (at 4% dividend + 4% growth = 8% total return, capital roughly doubles every 9 years), lower the target, or raise the yield tolerance.

What the Calculator Leaves Out

Tax. Passive income is often taxable at ordinary income rates in non-sheltered accounts. 36,000 in dividends at a 25% marginal rate nets 27,000 — you may need to scale capital up by 25-33% to hit after-tax target. Sequence-of-returns risk. A big market drop in the first few years of retirement can deplete capital faster than the yield rate implies. Reinvestment risk. Today's 5% yield can be 3% in five years. Concentration risk. A single high-yield asset can fail; diversification is cheap insurance.