The formula is one division. The answer isn't.
The arithmetic takes ten seconds. A thousand dollars a month is $12,000 a year; divide that by a portfolio yield and you have your number. At 3%, you need $400,000. At 6%, $200,000. At 12%, just $100,000.
That last line is why this question has such a thriving cottage industry of bad answers. Sort any screener by yield, multiply, and the internet will happily tell you that financial independence costs $100,000 and a list of double-digit tickers. The division is correct. The answer is wrong — because the formula has a hidden variable, and it's the only one that matters: the yield you plug in has to still exist next year, and the year after, and the decade after that. A 12% yield that gets cut to 6% didn't give you $1,000 a month; it gave you a few good statements and then half an income, usually alongside a capital loss, which is the double hit income investing exists to avoid.
So the honest version of this post isn't one number. It's the same division run across the tiers of yield you can actually trust — and the price tag on each tier is the real information.
The table everyone wants
Using round, illustrative yields — the tiers matter more than the decimals, which move with markets:
- 3.0% → $400,000
- 4.0% → $300,000
- 5.0% → $240,000
- 6.0% → $200,000
- 8.0% → $150,000
- 10.0% → $120,000
- 12.0% → $100,000
Read top to bottom, that column of capital requirements falls by three-quarters. Every dollar of that "savings" is purchased with something — and what it's purchased with is the actual subject of this post.
The three tiers of trustworthy
Tier one — earned and defensive, roughly 3 to 4.5%: figure $265,000 to $400,000. This is the money you barely have to watch: Canadian bank dividends that haven't missed since the 1940s, regulated utilities and their half-century raise streaks, plain dividend ETFs passing through what the underlying companies earn. The yields are modest because nothing is being manufactured and nothing is being stretched — and the payouts come with something the table can't show: a strong historical tendency to grow. The capital requirement is the highest on the menu. So is the probability that the income arrives, every month, through whatever the economy does next.
Tier two — earned but working harder, roughly 5 to 6.5%: figure $185,000 to $240,000. Pipelines with contracted cash flows and three-decade raise records, REITs with genuinely covered payouts and light balance sheets. The income is still earned — real cash from real operations — but the machines carry more moving parts: leverage, refinancing schedules, payout ratios worth actually checking in the honest denominator. This tier is where checking graduates from virtue to requirement, because it contains both the best value in income investing and, at its thin-cushioned edge, the names that cut when recessions arrive.
Tier three — manufactured, roughly 7 to 10%: figure $120,000 to $170,000. Covered-call and enhanced-yield funds, where the distribution is assembled — dividends plus option premium, sometimes leverage — rather than simply earned. The cheque is real and remarkably steady, which is exactly the appeal. What the table hides is the structural price: capped participation in good markets, so the capital underneath the income tends to grow slowly or erode, and at the aggressive end the distribution partly consists of your own money returning. Funding $1,000 a month from this tier at $130,000 genuinely works — for spend-it-now income, chosen with open eyes, from the conservative end of the category. Funding it here because $130,000 was what you had is the mistake this whole post is about.
Above 10% sits the tier we don't price, because the table's promise inverts there: yields that high are usually the market forecasting a cut, which means the $100,000 plan is a plan to fund $1,000 a month right up until it's $500.
The dimension the table hides
One more thing the single division can't see, and over a long horizon it outweighs everything above: the growth rate of the income itself.
A 3.5% yield from payers raising 5–7% a year doubles your income inside a decade and change without a dollar of new capital — while a static 9% distribution buys a little less every year as inflation grinds. Run the movie twenty years forward and the boring tier-one portfolio frequently ends up paying more per month than the manufactured one it started far behind, while sitting on capital that grew instead of eroding. That's the arithmetic behind the head-to-head that surprised readers most: the small yield attached to a compounding machine versus the large yield attached to a converting one. If your $1,000 a month needs to still be worth $1,000 in today's terms when you're older, the growth column — absent from every screener — is quietly the most important number in the plan. (Where the accounts and taxes fit is its own post; the short version is that placement decides how much of the $1,000 is actually yours.)
The backwards question
Here's the failure mode underneath most bad answers to this query, stated plainly so you can catch yourself: people start from the capital they have and reverse-engineer the yield they need. I have $120,000, I need $1,000 a month, therefore I need 10% — now, which funds pay 10%? The screener will always produce candidates. The market, however, does not owe your budget a trustworthy 10%, and shopping with a required yield is precisely how investors end up owning the tier-three-and-beyond names at maximum size — the highest-stakes version of sorting by the one column that measures nothing.
The honest sequence runs the other way. Decide which tier of trustworthiness you can live with — genuinely, including what it does in a recession. Price the income at that tier's yields. If the capital required exceeds what you have, the answer is a smaller income target, more saving, or more time — not a higher number in the divisor. It's a less exciting answer than the $100K listicle. It has the advantage of still being true in year five.
And whichever tier you build in, the maintenance is the same: the yield you trusted has to keep deserving it, which means the coverage behind every holding is worth checking on a schedule — or letting our continuously updated grades do the checking for you. The division really is one line. Making sure the number you divided by keeps existing — that's the whole craft, and it's the part nobody's calculator ships with.