Retirement Income Gap Calculator Formula
Understand the math behind the retirement income gap calculator. Each variable explained with a worked example.
Formulas Used
Annual Income Needed
retirement_need = income_neededGuaranteed Income
guaranteed_income = social_security + pension_incomeAnnual Income Gap
income_gap = max(income_needed - social_security - pension_income, 0)Savings Needed (4% Rule)
savings_needed_4pct = max(income_needed - social_security - pension_income, 0) * 25Variables
| Variable | Description | Default |
|---|---|---|
current_income | Current Annual Income(USD) | 80000 |
replacement_rate | Income Replacement Target(%) | 80 |
social_security | Expected SS Annual Benefit(USD) | 24000 |
pension_income | Pension Annual Income(USD) | 0 |
income_needed | Derived value= current_income * replacement_rate / 100 | calculated |
How It Works
Retirement Income Gap
Gap = Income Needed - Social Security - Pension
Savings Required = Gap x 25 (4% Rule)
The 4% rule suggests you can safely withdraw 4% of your portfolio annually, so you need 25x your annual gap in savings.
Income Replacement
Most advisors suggest replacing 70-85% of pre-retirement income. You may need less (no payroll taxes, commuting costs) or more (healthcare, travel).
Worked Example
$80,000 income, 80% replacement, $24,000 SS, no pension.
- 01Income needed = $80,000 x 80% = $64,000
- 02Guaranteed = $24,000 (SS)
- 03Gap = $64,000 - $24,000 = $40,000/year
- 04Savings needed = $40,000 x 25 = $1,000,000
Frequently Asked Questions
What is the income replacement rate?
It is the percentage of your working income you will need in retirement. Most advisors recommend 70-85%. Higher earners may need a lower percentage.
What is the 4% rule?
The 4% rule suggests withdrawing 4% of your portfolio in the first year of retirement, then adjusting for inflation. It is designed to last 30 years.
How do I close the income gap?
Increase savings, work longer, reduce expected expenses, consider part-time work in retirement, or adjust your investment strategy.
Ready to run the numbers?
Open Retirement Income Gap Calculator