Capital Requirement Calculator
This tool estimates the total asset size required to achieve your target monthly passive income under a given, sustainable return rate assumption.
Estimated Capital Required for Financial Independence
Annual Income Potential Comparison (at X% Return)
The chart visualizes how capital requirements change based on the selected target income and return rate.
Important Note: This is a theoretical, sustainable withdrawal estimate. It does not account for taxes or inflation.
Already investing every month? → See how long it will take to reach your passive income goal with our Passive Income Timeline Calculator
How This Capital Requirement Calculator Works
This tool uses a simple, static yield formula to determine the theoretical capital base needed to generate a continuous stream of income without depleting the principal.
The core principle is: **Capital = Annual Income / Yield Rate**. For example, to generate \$12,000 per year at a 6% return rate, you need \$12,000 / 0.06 = \$200,000.
This calculation is crucial for **financial planning and goal setting**. It provides a clear, objective asset target that allows you to assess the feasibility of your passive income goals. Since it does not consider variable factors like market crashes or inflation, it should be used as a foundational estimate, not a guaranteed outcome.
Frequently Asked Questions
Is this capital requirement guaranteed?
No. This calculation provides an estimate based purely on the inputs and a static mathematical formula. It does not account for market volatility, inflation, taxes, or sequence of returns risk. Investment returns are never guaranteed.
What return rate should I assume?
The expected annual return rate depends entirely on your portfolio's asset allocation (e.g., stocks, bonds, real estate). Historically, a broadly diversified portfolio targeting 7% is often cited, but always choose a rate that reflects realistic, long-term expectations for your specific investments.
Does this assumption relate to the 4% rule?
While similar, this tool calculates capital for a sustainable 'return-only' withdrawal (e.g., if you use 4% return, the capital needed is identical to the 4% rule's capital estimate). However, the 4% rule is an empirical spending strategy designed to account for inflation and prevent depletion over 30 years, whereas this calculator is a pure mathematical yield calculation.
What if my expected returns are lower?
If your expected annual return is lower, the capital required to generate the same monthly passive income will be significantly higher. Lowering your return rate input is a good way to test the impact of more conservative or safer investment choices.
Is this calculator for gross income or net income?
This calculator determines the Gross Capital required to produce the Gross Monthly Income. You should always factor in taxes, fees, and inflation separately to ensure your calculated capital meets your real (net) spending needs.
Who is this calculator for?
This tool is ideal for anyone setting long-term financial goals, planning for retirement, or comparing the capital requirements of different investment strategies. It provides a simple benchmark target to track your progress toward financial independence (FI).