This income replacement calculator estimates the lump sum needed today to replace years of income, accounting for investment growth. It answers a key life-insurance question: how large a policy would generate my income for my family?
How Income Replacement Is Calculated
This is the present value of an income stream. Rather than simply multiplying income by years, it accounts for the fact that a lump sum can be invested and earn a return (r) while it is drawn down over n years. That means the amount needed today is less than the raw total — the invested balance keeps working.
Worked Example
To replace $60,000 a year for 20 years at a 4% expected return, the lump sum needed today is about $815,000 — well below the $1,200,000 raw total, because the invested balance earns interest as it is spent down.
DIME vs Income Replacement
- DIME adds up specific obligations (debt, mortgage, education) plus income.
- Income replacement focuses purely on generating an ongoing income stream, discounted for growth.
Use a conservative return assumption, since the money may be invested cautiously. This tool does not adjust for inflation or taxes on withdrawals.