Every investor chasing passive income eventually runs into the same wall: a big, round target number, with no clear sense of how long it actually takes to get there.
$10,000 a month is one of the most searched versions of that goal. The figure sounds desirable. It sounds specific. What it doesn't come with is a timeline.
There's a shortcut for that maths. It's called the rule of 72, and it turns a vague "someday" into an actual number of years.
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The doubling shortcut
The rule of 72 is a rough but reliable way to estimate how long an investment takes to double at a given rate of return. Divide 72 by the annual return, and the answer is roughly the number of years to doubling.
At an 8% average total return — a reasonable long-run assumption for a diversified share portfolio — that's 72 divided by 8, or nine years per doubling. It's an approximation, not a formula from a textbook, but run the actual compound interest maths and it lands within a rounding error almost every time.
Start with the target. At a 4% yield — a moderate, unfranked dividend yield, before any boost from franking credits — generating $10,000 a month, or $120,000 a year, in passive income (before tax) requires a portfolio worth approximately $3 million. That's a big number in isolation. It's less intimidating with a starting point and a timeline attached.
Take an investor with $750,000 already invested, compounding at that same 8% average return. One doubling, nine years, gets them to $1.5 million. A second doubling, another nine years, gets them to $3 million.
And it is worth noting that the doubling comes from compounding, not from additional investments or added capital.
Eighteen years, two doublings. If that investor is 42 today, the maths lines up almost exactly with Australia's superannuation preservation age of 60.
Escape velocity
Here's where it gets interesting. That $3 million portfolio doesn't need the full 8% return to keep paying $10,000 a month — only the 4% yield component does the work. The other 4%, roughly $120,000 in year one alone, is capital growth that's never touched.
That's the same order of magnitude as the income being withdrawn. The portfolio's own growth is doing as much heavy lifting as the retiree is asking of it.
Think of it like a rocket reaching escape velocity. Below a certain speed, gravity always wins — the rocket falls back to Earth, just as a portfolio drawing down faster than it grows eventually runs dry. At exactly the right speed, it settles into a stable orbit, sustainable, but not going anywhere.
Above that threshold, it breaks free. It keeps climbing, indefinitely, regardless of how long the journey lasts.
A portfolio where total return outpaces the withdrawal rate behaves the same way. It doesn't just fund a comfortable retirement — it compounds through one, quietly growing larger even as it pays out $10,000 every month, year after year. A broad, diversified holding like the Vanguard Australian Shares Index ETF (ASX: VAS), is built to offer both halves of that equation, yield and growth, rather than the high-income, low-growth profile of a pure income fund.
Foolish takeaway
None of this is a guarantee. Average returns are exactly that, averages, built from good years and bad ones, and a poor sequence of returns early in retirement can undo tidy nine-year doubling maths in a hurry. Franking credits, contribution timing, and fees all shift the real-world numbers too.
The underlying principle holds regardless of the exact figures. The gap between what a portfolio earns and what it pays out determines whether that portfolio is slowly falling, holding steady, or genuinely escaping. For long-term investors, aiming for that third outcome, rather than the $10,000 a month figure on its own, might be the more useful goal.
