Retirement Income Gap Calculator Formula

Understand the math behind the retirement income gap calculator. Each variable explained with a worked example.

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Formulas Used

Annual Income Needed

retirement_need = income_needed

Guaranteed Income

guaranteed_income = social_security + pension_income

Annual 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) * 25

Variables

VariableDescriptionDefault
current_incomeCurrent Annual Income(USD)80000
replacement_rateIncome Replacement Target(%)80
social_securityExpected SS Annual Benefit(USD)24000
pension_incomePension Annual Income(USD)0
income_neededDerived value= current_income * replacement_rate / 100calculated

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.

current_income = 80000replacement_rate = 80social_security = 24000pension_income = 0
  1. 01Income needed = $80,000 x 80% = $64,000
  2. 02Guaranteed = $24,000 (SS)
  3. 03Gap = $64,000 - $24,000 = $40,000/year
  4. 04Savings needed = $40,000 x 25 = $1,000,000

Ready to run the numbers?

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