Passive Income From Investments Calculator 🌎

The 4% rule, originated by financial planner William Bengen in 1994 and reinforced by the Trinity Study, states that you can withdraw 4% of your portfolio in year one, then adjust that dollar amount for inflation annually, and historically have a very high probability of not exhausting your savings over a 30-year retirement. The rule was derived from US stock and bond return data going back to 1926.

In 2026, its validity is nuanced. Morningstar's 2024 retirement research suggests a starting withdrawal rate of 3.7%–4.0% remains reasonable for a 30-year horizon with a balanced portfolio. However, for early retirees planning 40+ years, many planners now recommend 3.3%–3.5% to account for sequence-of-returns risk in a longer drawdown period. Elevated bond yields in 2025–2026 have actually improved the outlook for income-focused retirees compared to the near-zero rate environment of 2020–2021. The rule remains a solid planning benchmark, but should be paired with flexible spending and periodic portfolio reviews.

The calculator uses the following 2026 benchmark yield estimates: Bonds / Bond Funds: 4.0%, based on the Bloomberg US Aggregate Bond Index yield-to-maturity range. Dividend Stocks: 3.0%, reflecting the S&P 500's dividend yield band of 1.5%–3.5%, with 3.0% representing a dividend-focused tilt (e.g., Vanguard High Dividend Yield ETF). REITs: 5.0%, based on the Vanguard Real Estate ETF (VNQ) and REIT index historical distribution yields. HYSA / Money Market: 4.5%, reflecting competitive online bank and money market rates available in early 2026. T-Bills / Short-Term Treasuries: 4.8%, based on 4-week to 1-year T-Bill auction results from TreasuryDirect.

All yields are approximations. Actual returns depend on the specific securities you hold, reinvestment decisions, expense ratios, and Federal Reserve policy changes. Always verify current rates at TreasuryDirect.gov, your brokerage, and fund provider websites before making investment decisions.

This distinction has a real impact on after-tax income. Qualified dividends from most US stocks are taxed at preferential capital gains rates: 0% (for taxable income up to ~$47,025 single / ~$94,050 married in 2026), 15%, or 20% — significantly lower than ordinary income rates.

REIT distributions, by contrast, are mostly classified as ordinary income because REITs are required to distribute at least 90% of taxable income, much of which comes from depreciation recapture and operating income. This means REIT payouts are taxed at your marginal rate (10%–37%), not the lower qualified dividend rate. The one partial offset is the Section 199A pass-through deduction, which allows non-corporate investors to deduct up to 20% of qualified REIT dividends, effectively reducing the marginal rate on that portion.

For a high-income investor in the 32% bracket, a 5% REIT yield might net only 3.5%–3.8% after tax, while a 3% qualified dividend yield could net 2.55% after the 15% rate. This is why tax-advantaged accounts (Roth IRA or traditional IRA) are the preferred home for REIT holdings.

In nominal dollar terms, spending only the income your portfolio generates leaves the stated portfolio value unchanged — you are not selling shares or depleting bonds. However, 'preserving principal' has important caveats in practice.

First, inflation erosion: a $1,000,000 portfolio producing $40,000/year in income in 2026 still nominally holds $1,000,000, but its purchasing power declines roughly 2%–3% per year with average inflation. Over 20 years, that $1M would have the buying power of roughly $550,000 in today's dollars.

Second, market price risk: bond funds, REITs, and dividend stocks all have fluctuating market values. A rising interest rate environment can reduce the market value of bond funds even as they continue paying coupon interest. Your principal in dollar terms is not guaranteed unless you hold individual bonds to maturity.

Third, yield changes: HYSA and T-Bill rates move with the Fed Funds Rate. If rates fall significantly, your income stream shrinks unless you reallocate. The yield-only strategy is the most principal-friendly approach available, but it is not risk-free.

Here is the math for three common approaches, targeting $4,000/month ($48,000/year) in gross income:

4% Rule: $48,000 / 0.04 = $1,200,000. This is the classic benchmark. You withdraw principal over time, with historical models showing high survival probability over 30 years.

Yield-Only (blended 4.26%): $48,000 / 0.0426 = $1,127,000. Slightly less capital required, and your principal remains intact — but this demands a more income-focused allocation across bonds, REITs, HYSA, and T-Bills.

Conservative 3.5% Rule (for 40+ year retirement): $48,000 / 0.035 = $1,371,429. More capital required, but better suited for early retirees who need the portfolio to last decades longer.

Note that these are pre-tax figures. In a taxable account at a 22% bracket, you would need to generate roughly $5,128/month gross to net $4,000, requiring approximately $1,444,000 under the 4% rule or ~$1,445,000 under yield-only.

Both T-Bills and high-yield savings accounts earn interest taxed as ordinary income at the federal level. The key difference is state and local income tax treatment.

T-Bill interest is exempt from state and local taxes under federal law (31 U.S.C. § 3124). This is a meaningful advantage for investors in high-tax states. For example: California taxes income up to 13.3%, New York up to 10.9%, and New Jersey up to 10.75%. On a $50,000 T-Bill holding earning 4.8% ($2,400/year), a California investor saves roughly $319/year in state taxes compared to an equivalent HYSA yield.

HYSA interest is fully taxable at both federal and state levels. So even if a HYSA nominally offers 4.9% versus T-Bills at 4.8%, a California investor would net more from the T-Bills after state taxes.

This calculator does not model state taxes. Investors in states with income taxes should manually adjust the effective yield on HYSA and bond fund income downward by their state marginal rate when comparing to T-Bill allocations.

Asset location — which accounts hold which investments — can significantly boost after-tax income without changing your total portfolio size. Here are the general principles:

Roth IRA: Best for the highest-yielding and most tax-inefficient assets. REITs (ordinary income taxed at marginal rates) and high-yield bonds are ideal Roth candidates because qualified Roth distributions are completely tax-free. A 5% REIT yield in a Roth stays 5% after tax.

Traditional IRA / 401(k): Good for bond interest, which is otherwise taxed as ordinary income in taxable accounts. Taxes are deferred until withdrawal, and RMDs (Required Minimum Distributions) begin at age 73 under current law.

Taxable brokerage: Best suited for tax-efficient assets like qualified dividend stocks (taxed at lower capital gains rates), municipal bonds (federal tax-exempt), and T-Bills (state tax-exempt). Index funds with low turnover also work well here.

This calculator models tax-advantaged accounts with no current tax drag at the distribution stage, which is most accurate for Roth IRA withdrawals or when analyzing the accumulation phase of a traditional IRA.

No — this calculator uses static, point-in-time yield rates for each asset class. It is designed as a snapshot tool: given your portfolio today, how much monthly income can it produce?

Dividend growth investing works differently. Dividend Aristocrats (S&P 500 companies with 25+ consecutive years of dividend increases) have historically grown payouts at 6%–8% annually. A portfolio starting at a modest 2.5% yield but growing dividends at 7%/year would double its income in roughly 10 years — reaching an effective yield on original cost of about 5% by year 10 without adding capital.

For younger investors building toward retirement, dividend growth is often a more powerful strategy than chasing high current yield, because it builds an income stream that keeps pace with or outpaces inflation. However, it requires patience and is not captured in this calculator's current-income model.

If dividend growth is part of your strategy, consider running this calculator with a projected future portfolio value and a higher assumed dividend yield to simulate what your income might look like 10–15 years from now.

Both are modeled under the same HYSA / Money Market category at a 4.5% estimated yield, but they have meaningful structural differences.

High-Yield Savings Accounts (HYSA) are FDIC-insured bank deposit accounts. They offer principal protection up to $250,000 per depositor per institution and are extremely liquid. Interest is paid monthly and rates fluctuate with Fed policy.

Money Market Funds (MMF) are SEC-regulated investment funds that hold short-duration, high-quality instruments (T-Bills, commercial paper, repos). They are not FDIC-insured but are considered extremely low-risk. Government MMFs (holding primarily T-Bills) may offer partial state tax exemption similar to direct T-Bill ownership, depending on the fund's composition and your state's rules.

Money Market Accounts (MMA) are FDIC-insured bank products that blend savings account features with limited check-writing, typically offering competitive rates similar to HYSAs.

For income planning purposes, the yield difference between these options in 2026 is minimal (4.3%–4.8%), so they are grouped together. For tax efficiency, government MMFs may hold a slight edge in high-tax states, similar to T-Bills.

Passive income estimates should be revisited whenever key inputs change materially. Here are the most important triggers:

Federal Reserve rate decisions: HYSA and T-Bill yields move quickly with Fed Funds Rate changes — often within days of a policy shift. If the Fed cuts rates by 100 basis points, your HYSA and T-Bill income could drop by $5,000–$10,000/year on a $500,000 allocation.

Annual rebalancing: As market prices shift your actual allocation percentages away from targets, your blended yield and monthly income change. Rebalancing restores alignment.

Significant portfolio changes: New contributions, withdrawals, Roth conversions, or inheritances all change your base portfolio value — the single largest driver of income.

Tax law changes: Bracket adjustments, changes to qualified dividend rates, or modifications to the Section 199A deduction affect after-tax income estimates.

As a general rule, run this calculator at least annually — ideally as part of a year-end financial review — and whenever you make a material change to your portfolio or life circumstances such as a job change, marriage, or approaching retirement.

Yes. Simply enter your combined household portfolio value and the blended allocation across both accounts. This approach works best when you want a single household-level income number.

However, keep a few nuances in mind. Tax brackets are household-specific: a married couple filing jointly has different bracket thresholds than a single filer (e.g., the 22% bracket extends to $201,050 for MFJ versus $100,525 single in 2026). Use your joint marginal rate when the calculator asks for a federal tax bracket.

Account type matters per account: If one spouse holds a Roth IRA and the other has a taxable brokerage, the blended tax treatment is somewhere between the two. For a more precise estimate, run the calculator separately for each account type and add the results.

Social Security coordination: For retirees, Social Security benefits can make up to 85% taxable depending on combined income. A high level of portfolio income in a taxable account can push more Social Security benefits into taxable territory — a planning nuance this calculator does not model, but one worth discussing with a financial advisor.