Retirement Income Gap Calculator
Analysis
What Is a Retirement Income Gap?
A retirement income gap is the difference between:
- What you will need to spend each month in retirement, and
- What your income sources can realistically provide
If your income is lower than your expenses, you have a shortfall.
If your income is higher, you have a surplus.
This gap is often invisible until retirement is very close. A calculator helps surface it early, when you still have time to adjust.
Why a Retirement Income Gap Calculator Matters
Many people focus on account balances alone. A large portfolio can still fail if withdrawals, taxes, or inflation are ignored.
This calculator helps you answer practical questions like:
- Will my savings last at my chosen retirement age?
- How much monthly income can my portfolio safely produce?
- Will Social Security and pensions be enough?
- How much do taxes reduce my retirement cash flow?
- Am I on track, or am I heading toward a shortfall?
Instead of guessing, you see the numbers laid out clearly.
What This Retirement Income Gap Calculator Does
This calculator combines several key retirement planning elements into one view:
- Savings growth before retirement
- Inflation-adjusted future expenses
- Portfolio income using a safe withdrawal rate
- Guaranteed income sources
- Estimated federal taxes
- Final monthly surplus or shortfall
The result is a realistic snapshot of your retirement cash flow.
Inputs Explained in Simple Terms
1. Current Age and Retirement Age
These determine how long your money has to grow.
- More years = more compounding
- Fewer years = less time to recover from shortfalls
Even a two or three year change can make a big difference.
2. Current Savings
This includes:
- 401(k)
- IRA
- Brokerage accounts
The calculator assumes these grow at 7% per year before retirement, which is a long-term market-based assumption.
3. Monthly Savings
This is what you add every month until retirement.
Small monthly changes matter more than most people expect because they compound over decades.
4. Monthly Spending Need (Today’s Dollars)
This is your expected monthly retirement lifestyle cost, stated in today’s money.
Examples:
- Housing
- Food
- Travel
- Healthcare
- Utilities
The calculator inflates this amount at 3% per year to estimate real future costs.
5. Guaranteed Monthly Income
This includes income that does not depend on markets:
- Social Security
- Pension payments
These are treated as stable income streams and are assumed to already reflect inflation or cost-of-living adjustments.
Key Assumptions Used by the Calculator
Assumptions keep the math realistic and consistent:
- 7% annual return before retirement
- 3% inflation on expenses
- Safe withdrawal rate of 3.5%, 4.0%, or 4.5%
- 2026 projected federal tax brackets
- Standard deduction applied based on filing status
These are not promises. They are planning estimates designed to avoid overly optimistic outcomes.
Understanding the Safe Withdrawal Rate
The safe withdrawal rate determines how much income your portfolio can generate each year without a high risk of running out.
- 3.5%: Conservative, lower risk
- 4.0%: Standard, widely used
- 4.5%: Aggressive, higher risk
A higher rate means more income now, but less margin for error later.
How the Calculator Estimates Your Portfolio Value
The calculator does two things:
- Grows your current savings over time
- Adds the future value of monthly contributions
Both are compounded until your retirement age. The total becomes your projected retirement portfolio.
From that number, the calculator estimates monthly income using your chosen withdrawal rate.
How Inflation Is Handled
Expenses are inflated forward using a 3% annual rate.
This step is critical.
A lifestyle that costs $5,000 per month today could cost over $9,000 per month in retirement, depending on timing. Ignoring inflation is one of the most common retirement planning mistakes.
Monthly Cash Flow Breakdown
The calculator shows:
- Total inflated monthly expenses
- Minus guaranteed income
- Minus portfolio income
- Resulting surplus or shortfall
This makes it easy to see where the pressure is coming from, not just the final number.
Tax Reality Check Explained
Taxes reduce what you can actually spend.
This calculator estimates federal taxes by:
- Combining guaranteed income and portfolio withdrawals
- Applying standard deductions
- Using simplified projected 2026 tax brackets
The result is shown as a monthly tax drag, which is added back into the gap calculation.
This step prevents false confidence based on pre-tax income.
Reading the Final Results
Shortfall Detected
If you see a shortfall:
- Your projected income does not fully cover expenses
- Taxes are increasing the gap
- Action may be needed
Possible responses include saving more, retiring later, lowering expenses, or adjusting withdrawal expectations.
On Track (Surplus)
If you see a surplus:
- Your income covers expenses and taxes
- You have flexibility and margin
- You may be able to retire earlier or spend more confidently
A surplus does not mean stop planning. It means your assumptions are currently working.
Who Should Use This Calculator
This tool is useful for:
- Mid-career professionals testing retirement readiness
- Pre-retirees stress-testing income plans
- Couples comparing filing status impacts
- Anyone unsure if savings alone are enough
It is especially valuable for people who want monthly clarity, not just account balances.
Limitations to Keep in Mind
This calculator is a planning tool, not a guarantee.
It does not account for:
- Healthcare shocks
- Long-term care costs
- Market crashes after retirement
- State taxes
- Required minimum distributions
Use it as a decision aid, not a final answer.