Income Ladder Calculator

Last Updated on

There are times when we have a large sum of money to be spent, not in one-shot, but over the course of a few years. Retirement of course is the most obvious and most complicated example wherein the corpus has to last from a few years to decades. There can other situations: a person who works in a salaried job wanting to start a business may desire to use a corpus to guarantee certain expenses (eg. school or college expenses) for a certain number of years until his business picks up. An expecting mother who may/will not be working for the next few years, a person who is working in a shaky job may all have such requirements.

An Income Ladder can be used for such requirements. The idea is to take a lump sum, divide it into many parts and lock them into fixed-income instruments (most popular being bank FDs) of differing durations to provide guaranteed sums each year to meet expenses. An inflation factor by which expenses can increase each year should also be taken into account. The main advantage of this method is it give one peace of mind that expenses for a fixed number of years is guaranteed. This is not just a calculation but also set of specific investments steps to be followed.

A simple example can illustrate this better:  Suppose I need:

1 lakh for one year starting now

1.1 lakhs for one year, 12 months later, (10% inflation) and

1.21 Lakhs for one year 24 months later.

To create an income ladder, one lakh is kept away for meeting expenses for the first 12 months. Then one lakh is invested in a fixed deposit for one year offering a return of, say, 10% per anum (dream on!) and one  lakh in a second fixed deposit for two years (@10% pa). The first FD matures after one year and provides for expenses in the second year. The second FD matures after two years and provides for expenses in the third year. This way using a corpus of 3 lakhs a total expense of 3.31 lakhs over 3 years can be covered. Let us call this method 1.

Another way to do it is to open FDs which pay out interest annually. This way the expenses for the second year will be met by the first FD and the interest from the second FD (call this method 2). A more detailed example can be found here.

Source: DIY Storage Ladder
Source: DIY Storage Ladder

Which method is better? This depends on the how the interest rates change with duration. Sometimes higher rates are given for shorter durations. In this case typically method 1 will result in a lower corpus requirement. If higher rates are given for longer durations then method 2 will result in a lower corpus. Howeverthe difference between the corpus’s is not that significant.

Inspired by and based on the ideas outlined at incomeladders I have made an Income ladder calculator. The ladder can be created for up to 14 years (I got bored at 14 and stopped. If you want it for longer, you can either extend it yourself or contact me). The calculator is fairly self-explanatory to use.

One of the most important usages of an income ladder is during retirement. One creates an income ladder and ensures expenses for the first 8-10 years of retirement are taken care of. This provides the retiree ‘peace of mind’ to invest the rest of the corpus in growth instruments of varying risk as outlined in the ‘retirement bucket strategy’.

Can you think of any other situation where such an income ladder will be useful?

Download the Income ladder calculator (.xlsx file) (updated Nov 2013. Now supports up to 16 years)

Download the Income ladder calculator (.xlsx file)

Download the Income ladder calculator (.xls file)

Here is set of annuity or ‘how long will my money last?‘ calculators. How different is the Income Ladder from these?

Annuity Calculators (.xlsx file)

Annuity Calculators (.xls file)

How long will my money last?

Do share if you found this useful

Create a "from start to finish" financial plan with this unique open-source robo advisory software template


 Don't like ads but want to support the site? Subscribe to the ad-free newsletter! 
You will get the full post-ad-free delivered to your inbox for Rs. 3000 a year. Follow this link to read the terms and sign up! 


About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

12 Comments

  1. Interesting – really gives peace of mind before chartering into the unknown…Can be used to plan for any fixed duration expense without an income – an education break from career, a world tour for a couple of years or even in case of a health situation which is of the progressively worsening kind. Will work on the calculatore further and post my next comment.

  2. Pattu, your excel calculators are not opening in my computer, I tried a few times.
    It is stating file is corrupt or extension problem.
    This happening with a different calculator which I am trying today, earlier it was fine. Due to this, I restarted my computer also, but this problem priest.
    Can you check at your end?
    Thank You

Leave a Reply

Your email address will not be published. Required fields are marked *