Perpetuity Planner
Live off the interest · keep your capital · compare inflation-proof, fixed and spend-down plans
| Return | Real | Inflation-proof capital | Save / month |
|---|
Perpetuity Calculator Kenya: How Much Capital to Live Off Interest Forever
The perpetuity formula
A perpetuity is an income you can draw for ever because you only spend what the capital earns. If your capital earns a monthly return r and you want a monthly income W:
Capital = W ÷ r
With 8% a year compounded monthly, r is about 0.643% a month. KES 150,000 ÷ 0.00643 ≈ KES 23.3M. Every month the interest pays your income and the capital stays exactly where it started.
The catch: inflation
That fixed KES 150,000 does not stay worth KES 150,000. At 6% inflation it buys about 56% as much after 10 years and about 31% after 20. The capital is intact in shillings but shrinking in what it can buy.
To keep both your income and your capital at today's buying power, you reinvest enough interest each month for the capital to grow with inflation, and spend only the rest. The formula becomes:
Capital = W ÷ (monthly return − monthly inflation)
At 8% and 6% the gap is about 0.157% a month, so KES 150,000 needs about KES 95.8M. Your payout rises with prices every month, and the capital you leave behind has the same buying power as when you started.
Three ways to fund the same income
- Inflation-proof forever: the safest and most expensive. Income and capital keep their buying power indefinitely.
- Fixed payout forever: the cheapest perpetuity, but your lifestyle shrinks every year as prices rise.
- Spend down to an age: an inflation-proof income that uses up the capital by a chosen age. At 8% and 6%, KES 150,000 a month for 25 years needs about KES 35.7M, but nothing is left at the end.
The calculator shows all three side by side, with the monthly saving each one needs between now and the age you want to start.
What return to assume in Kenya
Use a long-run average after tax, not today's headline rate. From 2009 to 2026 Kenya's 91-day T-bill averaged about 9% a year while inflation averaged about 6.6%, a real return of roughly 2.4%. Interest from T-bills, bonds, money market funds and fixed deposits carries a 15% final withholding tax, so 9% gross is about 7.7% in your pocket. We default to 8% after tax and 6% inflation.
Short spells of high rates, such as the 15% T-bills of 2024, are worth locking in with long-dated bonds when you have cash to invest, but they are not a safe basis for a plan that has to last decades. Each extra percentage point of real return roughly halves the inflation-proof capital you need, which is why the assumption matters so much.
Building the capital
Most people reach a perpetuity in two phases: a growth phase while working (NSE shares, unit trusts, long bonds, often 10–12% a year) and a safer income phase afterwards (T-bills, bonds, money market funds). The calculator uses a separate return for each, grows your target income with inflation until your start age, and works out the flat monthly saving that gets you there.
Registered pension contributions are deductible from taxable pay up to KES 30,000 a month, which makes a pension scheme one of the most tax-efficient ways to build the capital.
Frequently Asked Questions
How much money do I need to live off interest in Kenya?
It depends on whether your income must keep up with inflation. At an 8% after-tax return and 6% inflation, a monthly income of KES 150,000 paid from interest alone needs about KES 23.3M if the payout stays fixed in shillings, or about KES 95.8M if the payout rises with inflation every month and your capital keeps its buying power forever. Spending the capital down over 25 years instead needs about KES 35.7M.
What is a perpetuity?
A perpetuity is an income that never ends because you only ever spend the return, never the capital. Capital × monthly return = monthly income. Rearranged: capital = monthly income ÷ monthly return. As long as the return holds, the capital is still there for your children.
Why is the inflation-proof figure so much larger?
To keep the payout rising with prices, part of every month's interest must be reinvested so the capital grows at the inflation rate. You only get to spend the real return (return minus inflation). At 8% and 6% that is about 1.9% a year instead of 8%, so you need roughly four times the capital. A fixed payout looks cheaper, but at 6% inflation it buys only about 31% as much after 20 years.
What return should I assume for Kenya?
For a plan meant to last decades, use a long-run average, not today's rate. Kenya's 91-day T-bill averaged about 9% a year from 2009 to 2026, against inflation of about 6.6%. After the 15% withholding tax that is roughly 7.7%. We default to 8% after tax with 6% inflation. Rates of 15% or more seen in 2024 were a temporary peak.
Should I enter returns before or after tax?
After tax. Interest from money market funds, T-bills, bonds and fixed deposits carries a 15% final withholding tax in Kenya, so a fund quoting 12% gross pays you about 10.2%. Infrastructure bonds are tax-exempt, so enter their coupon as is.
How is this different from the 4% rule?
The 4% rule assumes you spend some capital and have a high chance of lasting about 30 years. A perpetuity never touches the capital, so it lasts indefinitely and can be passed on. That safety costs more: at Kenyan long-run rates an inflation-proof perpetuity needs more capital than the 25× annual spending the 4% rule suggests.
What if my return is lower than inflation?
Then no amount of capital can pay an inflation-proof income forever, because the capital loses buying power faster than it earns. The calculator flags this. You can still plan a fixed payout or a spend-down to a chosen age.