The formula
How to calculate passive income needed
This turns the gap between your passive income and your spending into a capital figure — the amount still to accumulate. It is the same arithmetic as a FIRE number, applied only to what is missing.
The safety margin matters more here than elsewhere. Passive income streams are not contractual: dividends get cut, tenants leave, and interest rates fall. Planning to exactly 100% of spending leaves no room for any of it.
Here is what each field means:
- Monthly spending
- Passive income today
- Safety margin (%) — headroom for dividend cuts, voids and unexpected costs
- Withdrawal rate (%)
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
Worked example
A concrete run-through, using the values already in the fields:
- Monthly spending: 2,800
- Passive income today: 1,200
- Safety margin: 15 %
- Withdrawal rate: 4 %
That gives:
- Further monthly income needed: 2,020
- Capital required to produce it: 606,000
- Total monthly income targeted: 3,220
Reading the result
The capital figure tends to shock, and that is useful information. Every £100 a month of missing income needs roughly £30,000 of capital at a 4% withdrawal rate, which is why reducing spending is so often the faster lever.
Where this goes wrong. Applying a 4% withdrawal rate to income-producing property. Property yields are quoted gross and behave differently from a diversified portfolio — use the actual net yield instead.
About £300,000 at a 4% withdrawal rate, or £343,000 at 3.5%. Those figures assume a diversified portfolio, not a single high-yield holding.
For a plan with no fallback earnings, 20% or more is defensible. If you retain the ability to earn something, or your spending includes obvious discretionary items you could cut, 10–15% is enough.
The answer it gives you is further monthly income needed. With 2,800 monthly spending, 1,200 passive income today and 15 % safety margin, that comes to 2,020. Change any field and the figure moves with it.