Retirement Shortfall Calculator

What the retirement shortfall calculator does

The retirement shortfall calculator checks whether your money will be enough to fund the life you want after you stop working. It compares the income you will need each year with the income your savings and other sources can realistically produce, and shows the annual shortfall and the extra capital it would take to close it.

It works from four figures: your target annual income, any other income you expect, your current portfolio value, and a safe withdrawal rate.

How the shortfall is calculated

A retirement portfolio does not pay out its whole value at once; you draw a modest percentage each year so the capital can last. That percentage is the safe withdrawal rate, and your portfolio value multiplied by it is the income the portfolio can be expected to produce.

Adding other dependable income, such as a pension or rental payments, gives a projected total, which the calculator compares with the income you need. If your needs are higher, the difference is your annual shortfall. If your projected income meets or beats your target, the shortfall is zero.

The tool also divides the annual shortfall by the same withdrawal rate to show how much additional money you would need invested to generate the missing income without changing your withdrawal assumption.

The four inputs

• Income needed each year is your target retirement spending in today's money. Be realistic about housing, healthcare, travel, and everyday costs.
• Other annual income is any reliable income outside the portfolio, such as a state pension, workplace pension, annuity, or rent. Include only money you are confident will arrive.
• Current portfolio value is the total of the invested savings you will draw on, including retirement accounts and taxable investments set aside for retirement.
• The safe withdrawal rate is the percentage you plan to draw each year. A lower rate is more cautious and increases the capital the tool says you need.

Reading the results

The tool shows your annual shortfall, the extra capital needed to close it, and your projected annual income. If projected income already exceeds your target, you may have room to retire earlier, spend more, or draw at a gentler rate. If it falls short, the capital figure gives you a concrete savings goal.

Closing a retirement gap

Investing more before retirement raises your portfolio value and lowers the capital still required. Working a little longer gives savings more time to grow and shortens the years they must cover. Additional dependable income reduces the burden on the portfolio.

You can also revisit the target itself; a modest trim to planned spending or a decision to downsize housing sometimes closes a gap more comfortably than chasing a larger portfolio. A slightly higher withdrawal rate lowers the capital figure, but too aggressive a rate raises the risk of running out of money later.

Limits of the estimate

• Everything is in today's money. Inflation will raise the income you need over the years, so revisit the figures regularly.
• The results are before tax, and how much you keep depends on your country and account types.
• The withdrawal rate is an assumption. Markets do not deliver a steady return, and a rate that looked safe in one era may not in another, so lean conservative.

Revisit the numbers whenever your savings, income, or plans change.

This article is general information only and is not financial advice.

About This Retirement Shortfall Calculator

Use this retirement shortfall calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.