How to Calculate Your Retirement Income Gap

Your retirement-income conversation can begin with a practical question: which bills will arrive each month, and what income will help pay them?

Put spending and income on the same basis

List housing, utilities, food, transportation, insurance, healthcare and other essential costs. Separately note flexible spending and expenses that occur only occasionally. Use your own records, not a generic household budget.

Next, list expected income sources, such as Social Security and a pension. Use current estimates and account for taxes so that you are comparing spendable income with spending. Include income timing; a benefit that begins later will not pay an earlier bill.

Calculate the difference

Suppose essential spending is $4,000 a month and expected spendable income is $2,700. The difference is $1,300 a month, or $15,600 a year.

This is hypothetical arithmetic, not a forecast, product illustration or recommendation. Your actual expenses and income can change. A monthly average can also hide a large annual or unexpected bill.

Compare options without treating the gap as a product order

A gap is a planning question. It does not determine how much money you should put into any one product. Review accessible reserves, portfolio withdrawals, timing choices and possible insurance-based income in the context of your whole situation.

If considering an annuity, examine the contract’s income conditions, costs and access rules. Keep your need for emergency money separate from your desire for dependable income. Read Can an Annuity Replace Your Retirement Paycheck? and Annuity Income Rider Fees: What a Lifetime Guarantee Costs.

Bring your spending list and income estimates to the conversation. For an educational starting point, Contact Us.

Disclosure: General education, not individualized investment, tax or insurance advice. The example is hypothetical and does not include changing prices, investment performance or contract charges. Annuity features, fees, availability and guarantees vary by contract. Withdrawals can trigger charges, adjustments, taxes and reductions in benefits. Guarantees depend on the issuing insurer’s financial strength and claims-paying ability. Annuities are not FDIC insured.