Perpetual Income Simulator (Living off Dividends)

Calculate the exact wealth required to live off dividends from stocks or earnings from Real Estate Investment Trusts (REITs). Project consistent monthly withdrawals that preserve the purchasing power of the principal over time, adjusted for inflation.

Passive Income Goals:
Basic Independence ($5,000/month) Middle Class ($10,000/month) High Standard ($30,000/month)
Fill in the data and click on Simulate Income to run the financial independence calculations.
Target Wealth Required
$ 0.00
Time to Reach the Goal
0 years
Real Portfolio Yield Rate
0.00% p.a.
Current Monthly Income
$ 0.00
Goal Coverage Achieved
0.00%
Annual Dividends Generated (Goal)
$ 0.00

Wealth Accumulation Projection

Independence Coverage Barometer

Annual Investment Projection Table

Year Accumulated Deposits Estimated Nominal Wealth Adjusted Real Wealth Real Monthly Income Generated

What is perpetual income and how to protect yourself from inflation?

Complete financial independence is achieved when the earnings generated by your invested assets can cover all your monthly expenses without you having to work. However, the biggest mistake made when planning this is ignoring inflation.

The Concept of Real Perpetual Income

If you accumulate a wealth of $1 million that pays 1% per month in nominal yield ($10,000) and you withdraw all $10,000 monthly for consumption, with the passage of years, prices rise due to inflation. In 10 or 15 years, your fixed $10,000 will not be able to pay for half of your expenses. Your nominal wealth remains at $1 million, but its real value has melted away.

For income to be truly perpetual, you can only withdraw the real yield rate (nominal return rate minus inflation). The rest of the return rate must be reinvested in the wealth itself, making the principal grow nominally at the same rate as accumulated inflation, eternally preserving its real purchasing power.

How does the calculation formula work?

First, we calculate the Real Return Rate of the portfolio by dividing the dividend factor by the estimated inflation factor:

$$DY_{real} = \frac{1 + DY_{nominal}/100}{1 + Inflation/100} - 1$$

Then, we discover the required wealth size by dividing the annualized real income by the real yield found:

$$\text{Target Wealth} = \frac{\text{Desired Income} \times 12}{DY_{real}}$$

If you want $5,000.00 per month ($60,000.00 per year) of real income, and your portfolio yields 9% p.a. under an inflation of 4.5% p.a., your real return rate is approximately 4.31% p.a. The total wealth required is $60,000 / 0.04306 = $1,393,300.00.

Frequently Asked Questions

REITs (Real Estate Investment Trusts) pay constant monthly rents that are tax-exempt for individuals, making it easier to plan monthly cash flow. Stocks pay dividends and JCPs irregularly (quarterly, semiannually, or annually) with higher operational fluctuations. The recommended strategy is diversification in both classes to balance volatility and consistency of earnings.

Born from the classic Trinity Study in the US, the rule establishes that a retiree can withdraw 4% of their total invested wealth annually in the first year of retirement and adjust this nominal withdrawal only for inflation in subsequent years. The study proved that the portfolio (50% stocks, 50% government bonds) has more than 95% chance of lasting at least 30 years without being depleted.

Because reinvestment accelerates the effect of compound interest (the so-called snowball effect). The yield from one month buys new units/shares or stocks, which in turn pay more dividends the following month. During the accumulation phase, 100% of earnings should be used to purchase new assets, starting to make partial withdrawals only when the financial independence goal is reached.