Income Replacement Calculator
How much capital do you need to replace your paycheck from dividends alone? Pick a basket. Get the number.
Income Replacement Calculator iEstimates how much capital is required to fund a target monthly income from dividends, using the average yield of a chosen basket of dividend stocks.
Allocation
| Ticker | Weight % | Shares | Capital | Annual income (yr 1) |
|---|
Methodology & full breakdown
Capital required (Goal-first)
capital = (monthly_target * 12) / basket_yield. Basket yield is the daily-refreshed equal-weight mean of constituent yields (Aristocrats / Kings) or the weighted-mean of your custom rows.
Years-to-goal (Resource-first)
We project monthly contributions reinvested at the basket's current yield, with dividends-per-share growing at the basket's 5-year CAGR. Growth tapers from the trailing-5y rate toward 6%/year after year 5 (why?). The simulation stops at the first year where annual dividend income meets or exceeds monthly_target * 12.
Closed-form DPS
For year t with starting DPS d0 and growth g:
t ≤ 5:DPS(t) = d0 * (1 + g)^tt > 5:DPS(t) = d0 * (1 + g)^5 * (1 + 0.06)^(t-5)(capped at 6%)
Inputs & sources
- Basket yield, growth, price
- Pre-aggregated daily by
/api/basket-aggregatesfrom the canonical Aristocrats / Kings constituent lists. Per-constituent quote and dividend history come from public Yahoo Finance feeds. - Custom basket yield
- Weighted mean of resolved-ticker live yields. NaN, ≤0 yields, and unresolved tickers are excluded.
- Negative aggregate growth
- If the trailing 5-year aggregate dividend growth is negative (e.g. recession years), we clamp the projection growth to 0% and surface a "negative DGR" chip on the result card.
Limitations
- No taxes, no transaction costs, no foreign withholding.
- Constant nominal yield projection; ignores share-price changes.
- Custom basket subject to your tickers' actual dividend safety - the calculator does not screen.
How It Works - Replacing your paycheck with dividends
The basic question is simple: how much do I need invested so that the dividends alone cover my bills? The math is just as simple. If a basket of dividend stocks yields 2.5% per year, then $1,000,000 invested produces $25,000 of dividends per year, or about $2,083 per month. To produce $5,000 per month ($60,000 per year) from the same basket you would need $2.4M.
Yield drives capital. Doubling the average yield halves the capital you need. That sounds great until you remember that very high yields almost always come with weak or shrinking dividends, leverage, or business risk. The Dividend Aristocrats and Dividend Kings bias the other way: the average yield is modest (around 2.5-3%), but the dividend has grown for decades through every recession.
Growth matters too. A $25,000-a-year income today, growing at 6% per year, doubles in twelve years. The Resource-first mode shows you that compounding directly: each year your shares earn dividends, those dividends buy more shares, and next year both the share count AND the per-share dividend are higher. This calculator caps the long-run growth at 6% to keep projections honest, even if the trailing 5-year growth was 12% or 15%.
Custom mode lets you build your own basket. Pick up to five tickers, optionally weight them, and the math switches from "basket aggregate" to "weighted average of these specific stocks." Use this if you want to model a concentrated income portfolio - say, three high-yield REITs and two dividend kings - rather than the full Aristocrats index.
The headline numbers are estimates. Real-world dividend income depends on the exact stocks you hold, the timing of your purchases, taxes, and whether companies in your basket cut their dividends. The calculator's job is to give you a directional anchor: "for $5k/month, I need around $2-3M, and at $1k/month into Aristocrats I get there in roughly 25 years." That's enough to plan around.
FAQ
How much money do I need to replace my income with dividends?
Divide your target annual income by the basket's average dividend yield. For $5,000/month ($60,000/year) at a 2.5% yield basket, you need roughly $2.4 million invested. Higher yields lower the capital target but typically come with slower dividend growth or higher risk.
What is a dividend basket?
A basket is a curated equal-weight group of dividend stocks - here, the S&P 500 Dividend Aristocrats (25+ years of raises) or the Dividend Kings (50+ years). Aggregates use today's mean yield and 5-year dividend growth rate across the constituents, refreshed daily.
Why does the calculator cap dividend growth after year 5?
A high recent dividend growth rate (e.g. 12% trailing 5-year) is rarely sustainable for decades. We taper growth toward 6% per year after year 5, which matches the long-run average for mature dividend payers and avoids implausible projections.
What is Goal-first vs Resource-first mode?
Goal-first: "I want $X/month - how much capital do I need today?". Resource-first: "I have $Y today and can add $Z/month - how many years until I hit $X/month in dividends?". Both modes share the same basket math.
Is this a recommendation to buy these stocks?
No. The calculator illustrates basket-level math using the official Dividend Aristocrat and Dividend King constituents as a reference set. Your actual portfolio choices, weights, taxes, and risk tolerance are personal decisions a tool cannot make for you.
What if dividends are cut during a recession?
The calculator clamps the average 5-year basket growth rate at 0% if the raw aggregate is negative (e.g. during 2009 or 2020). The Aristocrats and Kings indexes themselves drop any company that cuts; in practice, basket-level dividend income has been more stable than individual stock dividends.
Why does my custom basket differ from the standard Aristocrats?
Custom mode lets you pick up to 5 specific tickers and weight them. The math switches from basket-aggregate (mean yield) to weighted-mean across your actual rows. This is useful if you want to model a concentrated income portfolio rather than the full Aristocrats index.
Not financial advice. For informational and educational purposes only. Numbers come from public market data and may be stale. Always consult a licensed financial advisor before making investment decisions.