Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A gap expressed as a dollar figure is far more actionable than a vague sense that retirement might be tight, because it converts an abstract worry into a specific number that more saving, later retirement or lower planned spending can each be measured against directly.
Before you rely on it
What to check
Recalculate the gap whenever a major input changes, spending plans, expected fixed income, portfolio value, rather than treating one calculation as a fixed lifetime answer.
The common error
Where people go wrong with retirement income gap calculator
Treating a one-time gap calculation as permanent. Spending plans, market performance and fixed-income sources all shift over time, and a gap figure calculated years ago can be badly out of date by the time it actually matters.
Sensitivity evidence
How withdrawal rate changes the annual income gap
| Withdrawal rate | Annual income gap | Funded share of spending |
|---|---|---|
| 2.0% | $37,000 | 56.5% |
| 3.0% | $29,000 | 65.9% |
| 4.0%worked example | $21,000 | 75.3% |
| 5.0% | $13,000 | 84.7% |
| 6.0% | $5,000 | 94.1% |
Every input, tested
Which input moves the annual income gap most
| Input | Tested from | To | Annual income gap at each end | Swing |
|---|---|---|---|---|
| Desired annual spending | $76,500 | $93,500 | $12,500 to $29,500 | $17,000 (81%) |
| Withdrawal rate | 3.0% | 5.0% | $29,000 to $13,000 | $16,000 (76%) |
| Annual fixed income | $28,800 | $35,200 | $24,200 to $17,800 | $6,400 (30%) |
| Portfolio value | $720,000 | $880,000 | $24,200 to $17,800 | $6,400 (30%) |
Two variables at once
Annual income gap by withdrawal rate and desired annual spending
| Withdrawal rate \ Desired annual spending | $68,000 | $85,000 | $102,000 |
|---|---|---|---|
| 2.0% | $20,000 | $37,000 | $54,000 |
| 3.0% | $12,000 | $29,000 | $46,000 |
| 4.0% | $4,000 | $21,000 | $38,000 |
| 5.0% | $0.00 | $13,000 | $30,000 |
| 6.0% | $0.00 | $5,000 | $22,000 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Desired annual spending | $85,000 |
| Annual fixed income | $32,000 |
| Portfolio value | $800,000 |
| Withdrawal rate | 4.0% |
| Annual income gap | $21,000 |
| Funded share of spending | 75.3% |
Where the inputs come from
Desired annual spending is your budget, fixed income is the total of Social Security, pensions and annuities you have secured, and portfolio value is what you can draw from with the chosen withdrawal rate. Enter the figures you would have at the start of retirement. If you are still working, use projected values from your Social Security statement and your savings projection.
Using the annual income gap in a real decision
Compare the cost of each.
When the result stops applying
The result is a snapshot for the first year and does not track inflation, taxes, or changes in spending as you age. Fixed income sources may not rise with inflation unless they include cost-of-living adjustments. The portfolio withdrawal is not guaranteed and can fall in weak markets. Healthcare and long-term care costs can widen the gap.
What to compare it with
Estimate the portfolio needed with the retirement goal calculator, and the effect of delaying benefits with the Social Security break-even page. The barista FIRE calculator shows how part-time income closes a gap. The retirement healthcare and long-term care pages cover costs that often widen it.
People also ask
Frequently asked questions
How do I close a retirement income gap?
Options include spending less, working longer or part-time, delaying Social Security, saving more before retirement, or buying an annuity for guaranteed income.
Is a funded share below 100% a problem?
It means the plan as entered falls short. Many planners want fixed income to cover essential expenses and the portfolio to fund the rest.
Should the gap change over time?
Yes. Inflation, healthcare and benefit timing move it, so recheck the gap every year as your situation changes.