"Living off the interest" sounds remote, but the capital it needs takes one division to work out. The hard part comes next - how many years it takes to get there.
How much capital
The formula: annual spending divided by the rate of return.
Want 20 000 ₴ a month, so 240 000 ₴ a year. At a 5 % return on capital you need 4 800 000 ₴. Change any input and the figure moves:
| Monthly income | At 4 % | At 5 % |
|---|---|---|
| 20 000 ₴ | 6 000 000 ₴ | 4 800 000 ₴ |
| 30 000 ₴ | 9 000 000 ₴ | 7 200 000 ₴ |
| 50 000 ₴ | 15 000 000 ₴ | 12 000 000 ₴ |
One percentage point of return changes the capital required by a quarter. Which makes the rate you assume more important than any other number in the calculation.
Why 4 %
The 4 % rule comes from research on American retirement portfolios: historically that withdrawal rate let the capital survive 30 years. It is a reference point, not a guarantee, and it was derived for US stocks and bonds, not for hryvnia deposits.
The higher the withdrawal rate you assume, the greater the chance the money runs out before you do.
How long it takes to build
This is where reality arrives. To reach 4 800 000 ₴ at an 8 % return, starting from 100 000 ₴:
- in 20 years - set aside 7 313 ₴ a month
- in 30 years - set aside 2 487 ₴ a month
Ten extra years cut the required contribution threefold. Not because you save more, but because the accumulated sum does the work: over 20 years you pay in 1 855 046 ₴ of your own money, and the return adds the rest - nearly three million.
Inflation moves the target
4 800 000 ₴ twenty years out is not today's 4 800 000 ₴. At 8 % annual inflation it buys about what 1 030 000 ₴ buys now.
So either restate the target in future money, or work in real terms - return minus inflation. At an 8 % return against 8 % inflation the real rate is 0 %: the capital holds its value but does not grow.
This is the most common mistake in these calculations: taking the nominal return and forgetting that the cost of living rises too.
What to do about it
- Plan in real rates, not nominal ones. If you expect 8 % and inflation runs at 8 %, plan from zero, not from eight.
- Start earlier rather than bigger: the term moves the result far more than the contribution.
- Assume a withdrawal rate you could live with in a bad year, not an average one.
- Check both halves of the plan - "how much to save" and "how long it lasts" are different calculations with different answers.
Your own numbers fit into the investment calculator - its passive income mode works out the capital required - and the pension calculator shows how long that capital lasts under monthly withdrawals.