How to Calculate Pension Gap
What is Pension Gap?
A pension gap calculator compares your projected retirement pot to your target, showing the monthly extra contribution needed to close the shortfall.
Formula
Pension gap = Target retirement income − Projected pension income; Annual savings needed ≈ Gap / [PV of annuity factor @ retirement age]
- Target
- Desired annual retirement income (Currency)
- Projected
- Expected pension + Social Security (Currency annually)
- Gap
- Annual shortfall (Currency)
- Years
- Years to retirement (Integer)
Step-by-Step Guide
- 1Target = Annual income × 25 (4% rule)
- 2Project current pot: FV = PV × (1+r)^n
- 3Gap = Target − Projected
- 4Monthly top-up uses future value annuity formula
Worked Examples
Input
Current £60k, target £600k, 25yr, 5% growth
Result
Projected £203k; Gap £397k; need ~£700/mo extra
Frequently Asked Questions
How much retirement income do I need?
Rule of thumb: 70–80% of pre-retirement income. So if earning $100k, aim for $70–80k/year retired. Adjust for health, travel plans, debt status.
Should I count Social Security?
Yes, but realistically. Claim at 62 (70% of full benefit) vs 67+ (100%+). Longevity risk: live past 85? Delayed claiming pays off. Build some cushion.
How does inflation affect pension gap?
Huge. 3% inflation = money halves every 24 years. Use real (inflation-adjusted) returns when projecting. Underestimating inflation is a common retirement killer.
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