Passive Income Target Calculator

What Is Passive Income? Passive income is money earned from capital you have already deployed: dividends from stocks, interest from bonds, rent from property, or distributions from funds. You are not actively working for the income; your money is working for you.

The Core Formula Capital needed = Annual income target ÷ (After-tax return rate) After-tax return = Annual return % × (1 − Tax rate %) Real return = After-tax return − Inflation rate

Nominal vs Real (Inflation-Adjusted)

• Nominal: Ignores inflation. Shows the capital needed based on your stated return rate.
• Real (inflation-adjusted): Accounts for the fact that $3,000/month today buys less in 20 years. To maintain your purchasing power, your real return must exceed inflation.

Both figures come out of the same calculator, and the gap between them is usually a shock the first time you see it.

The 4% Rule (from the FIRE community: Financial Independence, Retire Early) The “4% rule” states that withdrawing 4% of a portfolio per year is historically sustainable. That means you need 25× your annual spending invested to be financially independent. Example: $3,000/month × 12 = $36,000/year → 25× = $900,000 required.

Why the inflation-adjusted number looks absurd The nominal figure assumes you spend the income and leave the capital alone. The inflation-adjusted figure assumes something stricter: that the capital itself keeps pace with prices, so your income buys the same basket of groceries in year 30 as in year 1. That takes a real return, and real returns are small. A 5% gross return taxed at 20% is 4% after tax; against 3% inflation the real return is 1%, and $36,000 divided by 1% is $3.6 million. The arithmetic is right, and it is why perpetual inflation-proof income is so expensive. Most retirement plans do not aim for it. They accept slow capital erosion over a finite life, which is exactly what the 4% rule assumes.

Where the income actually comes from Dividend yields on broad index funds sit near 1.3% to 2%, so a pure-dividend portfolio needs far more capital than this calculator’s default suggests. Corporate bond funds and certificates of deposit have paid 4% to 5.5% in recent years, but that income is taxed as ordinary income in the United States, not at the lower qualified-dividend rate. Rental property can clear 6% to 8% net, though the word “passive” does a lot of work there once a tenant calls about a boiler. Blend the sources and use the blended after-tax figure in the return field.

Important Caveats

• Returns are not guaranteed. Past performance does not predict future results.
• Tax treatment of passive income varies (dividends, capital gains, rental income).
• Inflation erodes purchasing power over time, so use the real return calculation for long-term planning.
• This calculator assumes a steady withdrawal rate. It does not account for portfolio rebalancing, sequence-of-returns risk, or tax-loss harvesting.