The One Retirement Number That Matters Most

Most people obsess over their net worth. How much is in the 401(k)? What is the house worth? What is the total balance sheet?

But net worth is not what pays your bills in retirement. Monthly income is. And the gap between what you need and what you have coming in is the single most important number in your retirement plan.

Here is how to calculate yours: add up your expected monthly expenses in retirement. Include housing, food, healthcare, transportation, utilities, insurance, and taxes. Then subtract your guaranteed income sources: Social Security, pension, and any other predictable payments. The difference is your income gap.

If your gap is $2,000 per month, you need to generate $2,000 per month from your savings. If your portfolio can sustain that withdrawal rate, you are in good shape. If not, you need to adjust by saving more, spending less, or using a portion of your savings to purchase guaranteed income.

Annuities are designed to fill exactly this gap. They convert a lump sum into a guaranteed monthly payment that lasts as long as you do. And with today's payout rates still elevated, each dollar of premium buys more income than it would if you wait.

Stop worrying about your net worth. Start focusing on your monthly income gap. That is the number that matters.