The Retirement Income Gap: Are You On Track?

You have probably spent years watching your 401(k) balance grow. But have you calculated what that balance will actually pay you each month in retirement?

This is the income gap: the difference between what you expect to spend each month and the guaranteed or predictable income you already have. And it is the single most overlooked number in retirement planning.

Social Security typically replaces only about 40% of pre-retirement income. If you need $5,000 a month to live and Social Security gives you $2,000, you have a $3,000 monthly gap to fill. That gap has to come from somewhere: portfolio withdrawals, part-time work, rental income, or annuities.

The problem is most people do not calculate this number until they have already retired. By then, their options are more limited.

Knowing your income gap today gives you time to adjust. You can save more, delay retirement, or use a portion of your savings to purchase guaranteed income that fills the gap permanently.

And with annuity payout rates still near multi-year highs, locking in that income now costs less than it will next year.