Income Replacement

Free Income Replacement calculator with clear step-by-step results.

About Income Replacement

Treats income replacement as an inflation-linked annuity problem rather than a multiple-of-salary rule. The lump sum is the present value of the required income stream discounted at the real return, which is why a modest change in the assumed return moves the answer substantially over a twenty-year horizon.

Formulas

Real return

Real = (1 + nominal return) / (1 + inflation) - 1

Capital required

Capital = annual income needed x (1 - (1 + real)^-years) / real

Worked example

With the default values below, Income Replacement returns Additional cover needed of $640,238.26. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual income to replaceminimum 0 $: 72,000 $
Share of income the family needsaccepts 10–100 %: 70 %
Years of support requiredaccepts 1–50: 20
Return on the invested lump sumaccepts 0–15 %: 5 %
Inflationaccepts 0–12 %: 2.5 %
Existing life cover and liquid assetsminimum 0 $: 150,000 $

Results

Additional cover needed: $640,238.26
Capital required to fund the income: $790,238.26
Annual income to replace: $50,400.00
Real return used: 2.439% %

Step by step

1Values used
2Real return
3Capital required
4Additional cover needed= $640,238.26
5Capital required to fund the income= $790,238.26
6Annual income to replace= $50,400.00
7Real return used= 2.439 %

Assumptions and limits

The result is derived only from the 6 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take tax or fees or charges into account.
Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
Not insurance or financial advice. Actual cover needs depend on debts, dependants, state benefits and existing employer provision. Review with a licensed adviser.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Not insurance or financial advice. Actual cover needs depend on debts, dependants, state benefits and existing employer provision. Review with a licensed adviser.

Frequently Asked Questions

Why not just use ten times salary?

Multiples ignore how long support is needed, what the survivors' own income is, and what assets already exist. They can be wildly wrong in either direction.

Should the replacement rate be 100%?

Rarely. One fewer adult means lower household costs, and some expenses such as commuting disappear. Sixty to eighty percent is the usual planning range.