How to Calculate Your Retirement Income Gap

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Calculate your retirement income gap in 3 simple steps. Find out how much more income you need beyond Social Security and pensions to maintain your lifestyle. Why Retirement Income Gaps Are So Common For many retirees, the fear isn’t dying too soon—it’s living too long without enough money. Even diligent savers can discover that Social Security and investments alone may not cover all their expenses. That’s where the concept of an “income gap” comes in. Your retirement income gap is the difference between what you’ll need to live comfortably and the reliable income you’ll have coming in. According to the Employee Benefit Research Institute, only about 1 in 3 retirees feel “very confident” their savings will last their lifetime. This lack of confidence usually comes down to not knowing how big their income gap really is—or how to close it. Step 1: Estimate Your Retirement Expenses To calculate your gap, first outline what you’ll need annually in retirement. Be sure to include: Essential expenses: housing, utilities, groceries, healthcare, insurance premiums. Lifestyle expenses: travel, hobbies, dining out, gifts for family. Inflation factor: prices tend to rise over time, so build in an annual increase of 2–3%. 👉 Example: You expect to spend $70,000 per year in retirement, including essentials and lifestyle extras. Step 2: Tally Your Guaranteed Income Next, identify your predictable, guaranteed income streams. These may include: Social Security benefits Pension payments Annuity income (if owned) 👉 Example: Between Social Security ($28,000) and a small pension ($12,000), you’ll receive $40,000 per year guaranteed. Step 3: Identify the Gap Subtract guaranteed income from projected expenses. 👉 Example: $70,000 (expenses) – $40,000 (guaranteed income) = $30,000 income gap per year. This gap will need to be filled by withdrawals from savings or other income strategies. Step 4: Review Savings and Investments Suppose you’ve saved $500,000 in retirement accounts. How long will that last if you need to pull $30,000 per year, especially during market downturns? If invested in the market, a downturn could shrink your balance just as you need income. If withdrawn too aggressively, savings may run out in 15–20 years. This is why relying solely on savings can be risky—especially w