The formula
How to calculate investment income
Investment income is the cash a portfolio actually pays out — dividends, bond coupons, rent from property funds — as opposed to the gain sitting in the price. Living on income alone means never selling a holding.
Yield and total return are different things. A global equity fund yielding 1.8% may return 7%; the other 5.2% arrives as price appreciation and can only be accessed by selling.
The calculator asks for:
- Portfolio value
- Portfolio yield (%) — dividends and interest actually paid out, not total return
- Effective tax rate on that income (%)
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
The order the fields are filled in makes no difference to the result — the calculator recomputes the whole formula from whatever is currently in every field, not step by step. That means it is safe to adjust one number, watch the result change, and adjust it back, without worrying about resetting anything first.
Why investment income matters
FIRE stands for Financial Independence, Retire Early — reaching a portfolio large enough that investment income covers your living costs, so paid work becomes a choice rather than a necessity. It is not a specific account or product, just the point at which the figures below cross over.
Most people who look up a investment income calculation already have a specific number in mind — a quote, an offer, a target — and want to check it rather than learn the theory behind it. This page is built for that: enter your own figures, see the result immediately, and change any field to see how the answer moves without redoing the arithmetic from scratch each time.
It is also useful as a sense check before signing anything. A quote, an offer letter or a spreadsheet from someone else can contain an error, an optimistic assumption, or simply a different convention for rounding — running the same inputs through an independent calculator is a quick way to confirm a number before relying on it.
The reason a page like this exists at all, rather than leaving the calculation to a spreadsheet or a textbook appendix, is that the formula behind investment income is fiddly enough to get wrong by hand but not complicated enough to need specialist software. That middle ground — real enough maths to matter, simple enough to check instantly — is exactly what a dedicated calculator is for, and it is why the same figure recalculated here should match a careful manual calculation almost exactly.
A calculator like this one is often bookmarked and returned to repeatedly over months rather than used once, particularly for anything tied to an ongoing plan such as a mortgage, a savings goal or an investment being tracked. Because the figures live in the web address rather than only in memory, coming back to the same page with updated numbers is quicker than starting from a blank spreadsheet each time.
Worked example
Work through the defaults on this page:
- Portfolio value: 400,000
- Portfolio yield: 3.2 %
- Effective tax rate on that income: 20 %
That gives:
- Gross annual income: 12,800
- Net annual income: 10,240
- Net monthly income: 853.33
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
An income-only strategy is psychologically comfortable and mathematically restrictive. Chasing a 5% yield generally means concentrating in a few sectors, whereas a total-return approach that sells 4% a year keeps the portfolio diversified.
Where this goes wrong. Treating dividends as free money. A share price falls by roughly the dividend on the ex-dividend date — the payment is a transfer from the company's value to your account, not a return generated on top of it.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Financially they are close to equivalent, and selling units is usually more tax-efficient in the UK because capital gains have their own allowance. Dividends win on behaviour: cash simply arrives, with no decision to make.
Somewhere between 2% and 3.5% for a mainstream global mix in the current environment. Getting materially above that means tilting towards high-yield equity, corporate bonds or property, each of which brings its own risk.
It returns gross annual income. With 400,000 portfolio value, 3.2 % portfolio yield and 20 % effective tax rate on that income, that comes to 12,800. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.