Income Replacement Calculator
Income, years & yield
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- United States — state-regulated insurance
- Scope and limitations
- Educational estimate only. Insurance in the U.S. is regulated state by state, so rates, required coverages and available discounts differ by where you live. Your premium is set by an insurer's own underwriting — driving record, claims history, credit-based insurance score where permitted, the property itself — and only a quote is binding. What a policy pays depends on its exclusions and limits, not on this estimate.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the annual income you want to replace — the earnings your dependants would lose.
- 02
Set how many years the lump should cover before it is fully drawn down.
- 03
Choose a safe yield to see the alternative perpetual lump that pays the income indefinitely.
- 04
Open Advanced options to add an annual income growth (COLA) rate, which raises the finite lump so later years keep pace with rising costs.
Formula
This calculator answers one question two different ways, so you can see the bookends of what replacing your income costs. The headline, 'capital to replace income', is a finite, uninvested drawdown: it assumes a pile of cash is set aside and the income is simply withdrawn from it each year until the chosen horizon ends. With level income that is annual income multiplied by years to replace, and the safe-yield field does not touch this number at all. The secondary figure, 'lump that yields the income', is a perpetuity: annual income divided by the safe yield expressed as a decimal (income / (yield/100)). That lump is never spent down — it throws off the income forever from its returns alone — which is why it is larger than the finite lump whenever the yield is below the implied 1/years rate. The advanced 'annual income growth (COLA)' field changes only the headline. When growth is zero the headline stays at income times years; when growth is positive the level sum is replaced by the sum of a rising income, income × ((1 + g)^years − 1) / g, which raises the capital required because each later year withdraws more than the last. The drawdown chart and schedule trace the headline lump only: the capital remaining falls each year by that year's income while a second line tracks income drawn to date, reaching the full headline total in the final year as the balance hits roughly zero.
Example
Take the defaults: an annual income of 600,000, a horizon of 15 years, a safe yield of 4%, and income growth left at 0. The headline finite lump is the income drawn down uninvested over the period: 600,000 × 15 = 9,000,000. Because growth is zero, the COLA formula collapses to that same flat product, so the headline is unchanged. The drawdown then plays out one year at a time — start at 9,000,000, withdraw 600,000 to leave 8,400,000 after year one, 7,800,000 after year two, and so on in equal 600,000 steps until the balance reaches 0 at the end of year 15, with income drawn to date climbing to the full 9,000,000. The perpetual-yield lump is sized differently: 600,000 ÷ 0.04 = 15,000,000. That 15,000,000 is never touched — a 4% return on it pays the 600,000 income indefinitely — which is why it is 6,000,000 larger than the finite lump even though both replace the same salary. The contrast is the whole point: 9,000,000 covers exactly 15 years and then runs dry, while 15,000,000 covers the income forever but ties up far more capital. Note that the 9,000,000 figure is conservative because it assumes the cash earns nothing; if the family invested it at the same 4% yield while drawing it down, the lump needed for 15 years would be smaller than 9,000,000.
Definitions
- Annual income
- The gross yearly earnings you want the capital to replace — the figure your dependants would lose if your income stopped (0 to 100,000,000).
- Years to replace
- How many years the finite lump should cover, after which it is fully drawn down to zero; longer horizons raise the headline proportionally (1 to 50 years).
- Safe yield (for lump option)
- The conservative annual return assumed for the perpetual-yield lump; it sizes the secondary figure only and has no effect on the headline finite lump (0.5% to 15%, default 4%).
- Annual income growth (COLA)
- An advanced cost-of-living adjustment that grows the replaced income each year; at 0% the headline equals income × years, and a positive rate raises the finite lump (0% to 10%, default 0%).
- Capital to replace income
- The headline result: the lump sum that, drawn down uninvested, replaces your income for the chosen number of years before reaching zero.
Good to know
What it means to replace an income
An income is not a number on a payslip; it is a stream of money that arrives reliably and quietly funds everything a household does. Replacing it means asking how much capital you would have to hold today so that, if the income stopped, the people who depend on it could keep living roughly as they do now. That framing is more useful than guessing a round figure, because it ties the answer to two concrete decisions: how much arrives each year, and for how long it would need to keep arriving. The tool deliberately strips the question down to those essentials rather than burying income inside a longer list of debts and goals. Doing so makes the mechanics visible. You can see that a salary worth 600,000 a year is not worth 600,000 in capital — it is worth many times that, because it must be reproduced again and again across the years your family would still need it. Put another way, your earning power is itself an asset — quite possibly your most valuable one — even though it never shows up on any balance sheet, and this tool is what puts a price on it. A salary with many working years still ahead of it is worth a large multiple of a single year's pay, and seeing that multiple spelled out is often the moment people first appreciate how much economic weight their steady income quietly carries for the people who count on it. By treating the problem as income first and products second, you arrive at a number you understand and can defend, rather than a premium quote whose logic is hidden. The capital figure becomes a brief — a clear statement of what is at stake — that any policy, savings plan or pension must then be measured against.
The finite lump: income drawn down to zero
The headline result models the simplest possible plan: set aside a pile of cash and spend it down, year by year, until it is gone. With a level income that pile is just the income multiplied by the number of years you want covered, which is why the default of 600,000 over 15 years produces exactly 9,000,000. There is no interest, no investment return and no growth baked into this figure — it is the amount you would need if the money literally sat in a drawer and was withdrawn in equal slices. That bluntness is a feature, not an oversight. It gives you a conservative ceiling that does not depend on any market assumption working out, so you can trust it as a worst-case anchor before layering on more optimistic ideas. The drawdown schedule makes the logic tangible: the balance starts at the full lump and falls by one year's income at each step, reaching roughly zero at the end of the final year, while a parallel line shows the cumulative income drawn climbing to meet the starting total. Because the lump is finite, it has a hard expiry — once the years run out, the money is exhausted and the protection ends. That makes the horizon you choose the single most important lever on this number: every additional year you add is one more full year of income piled onto the total. The finite view suits anyone whose need is genuinely temporary, such as bridging the years until children are independent or a mortgage is cleared, where permanent income replacement would be more capital than the situation calls for.
The perpetual lump: living off the yield
The second figure answers a different question: how much capital would let the income continue forever without ever spending the principal? Here the lump is sized so that its returns alone cover the income each year, leaving the capital untouched. The arithmetic is a perpetuity — annual income divided by the safe yield written as a decimal — so at the default 4% yield, replacing 600,000 a year requires 600,000 divided by 0.04, or 15,000,000. That is 6,000,000 more than the finite lump, and the gap is not a quirk: a 4% yield implies you are effectively replacing the income for 25 years' worth of capital (one divided by 0.04), which comfortably exceeds the 15-year drawdown. The lower the yield you assume, the larger this lump becomes, because each unit of capital throws off less income and you need more of it to hit the same target. This perpetual view is the right lens when the income must last indefinitely — supporting a dependant with lifelong needs, funding a legacy, or building a portfolio meant to pay you in retirement without ever being depleted. It is also the bridge to passive-income thinking, where the goal is to accumulate enough invested capital that its yield alone covers your spending. The safe-yield input is where your judgement matters most: a cautious rate produces a larger, safer lump that is unlikely to fall short, while an aggressive rate shrinks the headline figure but leans on returns you must actually achieve year after year, through good markets and bad.
Why investing the money changes everything
The finite lump assumes the worst about your cash: that it earns nothing while you spend it. In reality, money left in a family's hands rarely sits idle — it can be held in deposits, bonds or a diversified portfolio and drawn down gradually while the remaining balance keeps earning. That earning power means the capital truly needed for a fixed period is less than the flat income-times-years figure, because the returns on the un-spent balance do part of the work for you. The tool flags this directly: it tells you the headline assumes the capital is not invested, and that investing it at your safe yield would lower the amount required. It stops short of computing that reduced figure on purpose, so the headline stays a clean, assumption-free anchor rather than a number that quietly depends on a return you might not earn. Understanding the direction of the effect is what matters. If you can reasonably expect a modest return during the drawdown, the genuine need sits somewhere between the conservative finite lump and zero, closer to the finite figure for short horizons and lower returns, and noticeably below it for long horizons and healthy returns. The trade-off is risk. Leaning on investment returns means a poor sequence of markets early in the drawdown can drain the fund faster than planned, leaving the later years short. The conservative headline buys you a margin against exactly that danger. Treat the un-invested figure as the safe upper bound and the investment effect as the cushion you earn by accepting some market exposure, sizing your real plan with eyes open to both.
Choosing the inputs that move the result
Three of the four inputs each pull the answer in a distinct direction, and knowing which lever does what keeps you from chasing the wrong one. The income figure scales everything linearly: double it and both lumps double, so be honest about whether you want to replace your full gross earnings or only the portion your dependants actually rely on after taxes and your own spending are stripped out. The years-to-replace input drives the finite lump alone, adding one whole year of income for each year you extend; this is usually the most consequential choice, so set it by tracing how long your dependants would genuinely lean on your earnings — until the mortgage is cleared, the youngest child finishes study, or a partner's own income could carry the household alone. The safe yield touches only the perpetual lump, and small changes there swing it widely — moving from 4% to 5% cuts the perpetual figure by a fifth, while dropping to 3% inflates it by a third. The advanced income-growth field is the subtlest: at zero it does nothing, but a positive rate compounds the replaced income upward so the finite lump grows to keep later years whole against rising costs. Because these levers act on different figures, a sensible workflow is to fix the income first, choose the horizon that matches your dependants' real recovery time, then read both lumps as the bookends of your need. Revisit the inputs whenever life shifts — a pay rise, a new child, a mortgage paid off or a partner who starts earning all change the income or years you should enter, and therefore the capital at stake. The number is only as good as the assumptions behind it, so the inputs deserve as much thought as the output.
Putting the figure to work
A capital figure on its own is just a target; its value comes from what you compare it against. Start by subtracting what already stands between your family and that need — cash savings, investments, an employer pension or group cover, and any policies already in force. Whatever remains is the genuine gap a new arrangement must fill, and it is almost always smaller than the raw lump, because most households have built at least some buffer. From there the two figures point to different solutions. The finite lump maps naturally onto term life insurance, where a fixed benefit covers a defined number of years inexpensively; the practical step is to set the policy's term equal to the horizon you entered here, so the protection and the need run out together rather than leaving a stretch of years uncovered or paying for cover long after the dependence has passed. The perpetual lump, by contrast, is an accumulation target — the invested capital you would build over a working life so its yield eventually replaces your income without being spent, the logic behind retirement and financial-independence planning. Avoid the common trap of anchoring on what feels affordable rather than what the gap demands: a policy too small leaves the real shortfall exposed, while one too large drains money into protection you do not need. Seen together, the two lumps also describe a sequence across a lifetime: the finite figure is the shortfall a young household most needs to insure today, while the perpetual figure is the accumulation target that same household saves toward, until one day invested capital throws off the income a policy once stood in for. Whatever route you take, revisit the calculation after every major life event, because the income at stake, the years it must last and the resources offsetting it all drift over time, and a number set once and forgotten slowly stops describing the family it was meant to protect.
Frequently asked questions
Why are there two very different numbers?
They answer the same question with opposite assumptions. The headline finite lump is spent down to zero over your chosen years, so it is the minimum cash needed for a fixed period. The perpetual-yield lump is never touched and pays the income forever from its returns alone, so it is larger but permanent.
Does changing the safe yield change my headline figure?
No. The headline 'capital to replace income' is a pure uninvested drawdown of income times years, and the yield field never enters that calculation. The yield only sizes the secondary perpetual lump — income divided by the yield — which is the amount you would need if you wanted the income to continue indefinitely without ever spending the capital.
Is the finite lump realistic if I would actually invest the money?
It is deliberately conservative. The drawdown assumes the cash sits idle and earns nothing, so it overstates what an invested family would truly need. If the lump were invested at your safe yield while being drawn down, the capital required for the same number of years would be smaller, so treat the headline as a cautious ceiling rather than a precise target.
What does the income growth (COLA) option do?
It makes the replaced income rise each year to keep pace with the cost of living. With growth at zero the headline is simply income times years, but a positive rate replaces that with the sum of a growing income stream, so each later year withdraws more and the total lump climbs. Use it when you want the protection to hold its real value over a long horizon.
How is this different from a life-insurance need calculator?
A life-insurance calculator adds debts, a mortgage and education costs and subtracts existing resources to size a death benefit. This tool isolates just the income-replacement piece — the largest slice of most needs — and shows it both as a finite drawdown and as a perpetual-yield lump. Use it to understand that one component before folding it into a fuller coverage estimate.
How many years should I replace?
Match the horizon to how long your dependants would genuinely rely on your earnings — often until children finish education or a partner reaches retirement. Every extra year adds one more year of income to the headline lump, so the choice moves the result more than any other input. Pick the figure that reflects your household's real recovery timeline rather than a round number.