Investment Income Calculator

How much you can take without shrinking the pot

Most investment calculators answer the accumulation question: put money in, watch it grow. This one answers the harder question at the other end.

You have a sum invested. You want to live off what it produces. How much can you actually take each year, indefinitely, without the pot losing ground?

The word doing the work there is indefinitely. It is easy to take a large income for a while. The model here takes only what is left after paying the fund manager, paying the tax, and setting aside enough to keep the capital's purchasing power intact. Whatever remains is genuinely yours to spend, year after year, without eroding anything.

It prints fifty years of that, row by row. The number in the income column is usually a good deal smaller than people expect, and understanding why is the point of this page.

Five percentages

1. Investment Principal. The sum you have invested.
2. Annual Growth Rate. What you expect the investments to return each year, before anything comes off.
3. Inflation Rate. What you expect prices to rise by. This is what the capital has to grow by just to stand still.
4. Annual Investment Fee. The total cost of holding the investments, as a percentage. Fund expense ratios, platform charges, advice fees.
5. Tax Rate on Annual Gain. What you expect to pay on the gain each year.

Press Calculate and you get a fifty year table with eight columns: the principal you started the year with, the gain, the fee, the tax, the amount set aside for inflation, the income you can take, and the principal you end with.

The horizon is fixed at fifty years, which is long enough to cover a full retirement and long enough to make the pattern obvious. What matters is not year fifty but the shape of the first row, which the rest simply repeats.

What happens in each row

Six steps, in order, and the order matters.

1. The gain. Beginning principal multiplied by the growth rate.
2. The fee. Charged on the value at the end of the year, so principal plus gain, multiplied by the fee rate. This is how fund charges actually work, on the balance rather than on the return.
3. The taxable gain. The gain less the fee, since costs of investing reduce what you made.
4. The tax. Taxable gain multiplied by your tax rate.
5. The inflation set aside. Beginning principal multiplied by the inflation rate. This is the amount that has to stay in to keep the capital worth the same in real terms.
6. The income. Everything left: taxable gain, minus tax, minus the inflation set aside.

Then the ending principal is the beginning principal plus the inflation set aside, and the next row starts from there.

That last line is the design of the whole thing. The capital grows at exactly the rate of inflation, no faster and no slower, so its purchasing power never changes. Everything above that is spent.

Written as a single expression, the income you can take each year is:

income rate = [g - (1 + g) × f] × (1 - t) - i

where g is growth, f is the fee, t is tax and i is inflation. Multiply that rate by your principal and you have the income column.

Five hundred thousand at eight percent

Principal 500,000, growth 8 percent, inflation 3 percent, fee 1 percent, tax 15 percent. The first row, line by line:

So half a million pounds, dollars or rupees, earning a perfectly respectable eight percent, supports an income of 14,410.

That is 2.88 percent of the capital.

Eight percent is not eight percent

The gap between the return you earned and the income you can take is the single most useful thing this tool shows, so it is worth pulling apart.

Eight percent went in. Two point eight eight percent came out. The three deductions consumed 5.12 percentage points, which is 64 percent of the gross return.

Here is what each one costs, by removing them one at a time:

Inflation is by far the largest. Three whole points, and it is the one most people leave out of their thinking entirely, because it does not appear on any statement. Nobody sends you a bill for it. It simply means that the same pot buys less each year unless you feed it, and feeding it is the first claim on your returns.

Tax takes about a point, and that is at a fairly gentle 15 percent. Double the rate and it doubles.

The fee takes 0.918 points on a headline of one percent, which is close to a full point of your eight. Put another way, a one percent annual charge is consuming roughly a third of your spendable income in this scenario. That is the argument for low cost investing stated in the only terms that matter, and it is the reason professional performance reporting standards require returns to be presented net of fees rather than gross.

Try the fee box at 0.2 percent and again at 1.5 percent. The difference in what you can spend every year for the rest of your life is startling for a number that looks like a rounding error in a fund factsheet.

The rate below which none of it works

Since the income is what remains after three deductions, there is a growth rate at which nothing remains. Below it, the strategy fails and the table shows negative income.

With the settings above, a 1 percent fee, 15 percent tax and 3 percent inflation, that break-even growth rate is 4.575 percent.

A negative income column is not a broken calculation. It is telling you something true and important: at that combination of return, cost, tax and inflation, there is nothing to take. Drawing an income at all would mean the capital shrinks in real terms every year.

Note how steeply it falls away. Between 6 percent and 5 percent of growth, the sustainable income more than halves. Near the break-even point the whole thing is extremely sensitive to the return assumption, which is a good reason to run this at a conservative growth rate rather than a hopeful one.

Why the income grows and also does not

Run the table out and the income column climbs steadily. On our example:

By year fifty the income is 61,332, more than four times where it started, and the principal has passed two million.

And the last column never moves.

That is the model working exactly as designed. The capital grows at inflation, so the income grows at inflation too, and your actual purchasing power is identical in year fifty to year one. The large numbers at the bottom of the table are not wealth appearing from nowhere. They are the same money, described in a currency that has lost value.

Which is the right way to read any long projection. A figure fifty years out in nominal terms tells you almost nothing without knowing what it buys, and this table is unusually honest about that because it makes the inflation adjustment explicit in its own column rather than hiding it.

What the model holds still

Four things worth knowing about the world this table describes.

Returns arrive in equal annual slices. Every year returns exactly the growth rate you entered. Real markets deliver a good year, a bad year and a flat one, and when you are drawing an income the order matters enormously. A poor run early in retirement, while you are still withdrawing, does lasting damage that a later recovery cannot fully repair. This is the single largest gap between the table and reality, and it argues for treating the income figure as an upper bound rather than a plan.

Tax is charged on the gain every year. That fits an income producing portfolio, where dividends and interest are taxed as they arrive. It does not fit a portfolio of unrealised capital gains, which in most jurisdictions are taxed only when you sell. If most of your return is capital growth you are not spending, this overstates the annual tax.

Nothing is added. No contributions, no pension arriving, no other income. This is a pot standing on its own.

The percentages never change. Fifty years at one growth rate, one inflation rate, one fee and one tax rate. None of those has held still for fifty years in any country.

So the honest use of this is not to find your number. It is to see the shape: how much the three deductions take, which one takes most, and how sensitive the answer is to the growth assumption. Run it three times at different growth rates and the spread tells you more than any single row.

This is a planning estimate rather than a recommendation, and nothing here is investment or tax advice.

Questions people ask

What does this actually calculate?

The income you could draw each year while keeping the capital's purchasing power unchanged. It takes the gain, pays the fee and the tax, sets aside enough to grow the principal by inflation, and treats whatever is left as spendable.

Why is the income so much lower than my growth rate?

Because three things come out first. On 8 percent growth with a 1 percent fee, 15 percent tax and 3 percent inflation, the sustainable income is 2.88 percent. The deductions take 64 percent of the gross return.

Which deduction costs the most?

Inflation, by a distance. It takes three full percentage points in the example, against roughly one point each for the fee and the tax. It is also the one that never appears on a statement.

Does a one percent fee really matter?

It costs 0.918 percentage points of income, which is about a third of everything you could have spent. On a lifetime of withdrawals that is a very large number for a charge that looks small on a factsheet.

Why is my income column negative?

Because the growth rate is not enough to cover the fee, the tax and inflation together. With a 1 percent fee, 15 percent tax and 3 percent inflation, growth has to exceed about 4.575 percent before any sustainable income exists at all.

Why does the income grow every year?

Because the principal grows by inflation each year and the income is proportional to it. In real terms the income never changes: 14,410 in year one and 61,332 in year fifty are the same purchasing power.

Can I change the fifty years?

No, the table is fixed at fifty. It does not matter much, because every row is the same calculation on a larger principal. Read the first row to understand the strategy and the later rows to see inflation at work.

Will this hold up in a real market?

Treat it as an upper bound. It assumes an identical return every year, and a run of poor years while you are drawing an income does damage that a later recovery does not undo. Use a conservative growth rate.

Is taxing the gain every year realistic?

For an income producing portfolio, yes, since dividends and interest are generally taxed as they arrive. For unrealised capital growth it is not, since most jurisdictions tax gains only on sale, so the model overstates tax in that case.

References

The year by year accumulation and the compound growth of the principal use the standard financial mathematics relations set out in university materials for the actuarial syllabus. The treatment of investment fees as a deduction from returns, and the principle that performance should be assessed net of fees rather than gross, follows the Global Investment Performance Standards published by CFA Institute, which require net returns to be presented. The distinction between a nominal figure and one that reflects the erosion of purchasing power is the same distinction that separates a nominal annual rate from an effective one under Regulation Z and Regulation DD.

1. CFA Institute, Global Investment Performance Standards (GIPS) for Firms, 2020 edition. https://www.gipsstandards.org/wp-content/uploads/2021/03/2020_gips_standards_firms.pdf
2. CFA Institute, Overview of the Global Investment Performance Standards. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/overview-of-the-global-investment-performance-standards
3. J. Robert Buchanan, Millersville University, Loan Repayment, MATH 372 Financial Mathematics I. https://sites.millersville.edu/rbuchanan/math372/LoanRepayment-handout.pdf
4. Consumer Financial Protection Bureau (CFPB), 12 CFR Part 1030, Truth in Savings (Regulation DD). https://www.ecfr.gov/current/title-12/chapter-X/part-1030