JobzbrvSalary as a stream
Your family relies on a steady flow of income. This tool converts that flow into the single sum that, invested sensibly, could pay it out over the years you choose.
The calculation
Yearly need equals income times the percentage you want to replace. The lump sum is the present value of that yearly amount over your chosen years at your assumed return. At 0 percent return it is just yearly need times years.
Example
Replacing 70 percent of $75,000 is $52,500 a year. For 15 years at a 4 percent return the sum needed is roughly $584,000, well below the $787,500 total paid out, because the money keeps working.
Picking a percentage
Households usually need less than the full salary since costs like commuting disappear. 70 to 80 percent is a typical start.
Limits
It ignores inflation and tax. Choose a cautious return to stay on the safe side.
Common questions
What return is safe to assume?
Three to four percent is a prudent starting point.
How is this different from the cover calculator?
This tool looks only at income. The other adds debts, kids and final costs.