tradeval

The planning desk

Your freedom number

What your life costs a month, and the amount invested whose return covers it — so the spending no longer depends on the job.

What your life costs

A year of it$42,000

Use what you actually spend, not what you earn. Rent, food, insurance, travel and the bills that only arrive once a year — the number is only as honest as this field.

Measured

The figures below assume your costs never rise. Switch to after inflation to see what keeping pace actually takes.

High-yield savings

4%

Cash in a high-yield savings account, near the best national rate on offer today.

$1,050,000invested, at this rate

A rate of the moment, not a rate you hold. Savings paid close to nothing from 2009 to 2022 and followed the Fed back down whenever it cut. Nothing here is locked in for longer than a bank chooses to offer it.

S&P 500 index

7%

A broad index fund, at roughly its long-run average annual return after inflation.

$600,000invested, at this rate

An average of years that arrive one at a time. The index fell 37% in 2008 and has had losing stretches of a decade. Taking the average out every year leaves nothing behind to recover on after a bad one.

High-yield dividend

10%

An income-focused portfolio paying about ten percent a year.

$420,000invested, at this rate

Broad dividend funds yield nearer 3–4%. Yields around ten come from covered-call funds, mortgage REITs and BDCs, and the extra is paid for with capped upside, credit risk, or a share price that shrinks as it distributes. This is not a higher-paying version of the box above it — it is a different instrument.

Your own portfolio

8%

Whatever mix you actually hold, at the return you expect it to average.

$525,000invested, at this rate

The rate you choose here is an assumption, and the number below inherits every bit of its optimism. Moving the slider two points changes the answer by more than most people expect — which is the useful thing this box has to show.

What these numbers are, and are not

Each figure is the capital whose annual return equals a year of your spending: the money never runs down, because only what it earns is spent. That makes it a clean number to compare approaches with, and an optimistic one to plan with.

It is before tax. Interest from savings is taxed as ordinary income; qualified dividends and long-term gains are taxed more lightly. Covering $42,000 of spending means earning more than $42,000. The after-tax gains calculator shows what a bracket and a state take.

It is before inflation. The figures assume your costs never rise. At 3% a year, $42,000 of spending becomes about $75,600 in twenty years while the income stays flat. Switch the toggle above to see what keeping pace costs instead.

It assumes the rate never varies. Real returns arrive unevenly, and someone spending from a portfolio is exposed to the order they arrive in — a bad first decade does lasting damage that the same decade later would not. This is why withdrawal-rate research tends to land nearer 4% of a stock-and-bond portfolio than at whatever the headline average return happens to be.

A rules-based calculation for orientation, not financial, investment or tax advice, and not a plan for your circumstances.

Common questions

How much do I need invested to live off the returns?

Take what you spend in a year and divide it by the annual return you expect the money to earn. Spending $3,500 a month is $42,000 a year, which needs about $1.05 million at 4%, around $600,000 at 7%, and roughly $420,000 at 10%. The rate you assume moves the answer more than almost anything else, which is why it is worth seeing several of them at once rather than settling on one.

Why does a higher assumed return make the number so much smaller?

Because the rate sits in the denominator, so the required capital falls as a reciprocal rather than in a straight line. Going from 4% to 8% halves the number; going from 8% to 10% only takes a fifth more off. The uncomfortable half of that arithmetic is that the assumptions doing the most to shrink your target are also the ones most likely to be wrong, and being wrong about the rate costs you the difference in years of working.

Is a 10% dividend yield a realistic way to fund a lifestyle?

It is realistic to receive, and a different thing to rely on. Broad dividend funds yield nearer 3-4%; getting to ten generally means covered-call funds, mortgage REITs or BDCs, which buy the extra income with capped upside, credit risk, or a share price that erodes as it distributes. A high payout that comes partly out of your own capital is a withdrawal wearing the costume of an income.

Should I plan with the figure before or after inflation?

After, if the plan is to stop working. The page opens on the gross, nominal figure because that is what people ask for, and a toggle takes inflation out of every rate. The gap is not a detail: spending $3,000 a month needs about $900,000 at a 4% savings rate before inflation, and about $3.6 million after it at 3%, because what is left to spend is the 1% the money earns above the rising cost of living, not the 4% it earns in total.

What happens if my return does not beat inflation?

Then there is no number, and no amount of money fixes it. Spending that rises with prices is funded by the gap between what the money earns and what the cost of living takes, so if that gap is zero or less, the income falls further behind every year whatever the balance started at. Cash paying 4% against 5% inflation is the ordinary version of this, and it is why a savings account is a poor place to hold money meant to last decades.

Does the figure account for tax?

No, and that pushes the same way as inflation. Covering $42,000 of spending means earning more than $42,000, because the income is taxed before you spend it, and how much more depends on what kind of income it is: savings interest is taxed as ordinary income while qualified dividends and long-term gains are taxed more lightly. Treat the figure as a floor to plan above rather than a target to stop at.

Can I just withdraw my portfolio's average return every year?

Not safely, and this is the most common way the arithmetic misleads. An average is made of years that arrive in an order, and someone spending from a portfolio is exposed to that order: a bad first decade does damage that the same decade later would not, because the money withdrawn during the fall is not there to recover. Withdrawal-rate research tends to land nearer 4% of a stock-and-bond portfolio than at whatever the headline average return happens to be.