Core Insurance Solutions
    By Core Insurance SolutionsNovember 7, 2026
    Retirement Income Shortfall: How to Measure and Close It

    Retirement Income Shortfall: How to Measure and Close It

    A retirement income shortfall is the gap between what you expect to spend each month in retirement and the reliable income you expect to have. You measure it by listing your costs, adding Social Security, pensions and other steady income, and seeing what your savings must cover. You can shrink the gap with a mix of saving more, working longer, spending smarter and planning for health costs early.

    Core Insurance SolutionsReview Medicare Costs in RetirementCore Insurance Solutions helps Lakeland seniors compare Medicare plans and review prescription costs as part of their health care expenses.Explore Medicare guidance

    TL;DR

    • A shortfall is expected spending minus reliable income. Savings have to cover whatever is left.
    • Research from Boston College and Vanguard suggests many households are at risk of falling short, and health care is a large reason.
    • Social Security is designed to replace about 40% of pre-retirement income on average, so most people need other sources.
    • The U.S. Department of Labor offers a 30-year worksheet method that you can follow at your kitchen table.
    • Prescription and Medicare plan choices are one of the few cost levers you can review every year.

    Table of Contents

    What a retirement income shortfall actually is

    Think of two columns. On one side sits everything you expect to spend: housing, food, insurance, taxes, travel, medical care. On the other sits income you can count on: Social Security, a pension, annuity payments, and withdrawals your savings can sustain. When the first column is larger than the second, the difference is your shortfall.

    Researchers define it in slightly different ways. The Employee Benefit Research Institute (EBRI), for example, counts a household as having run short when savings are exhausted and Social Security and defined-benefit payments cannot cover expenses. Others compare your spending to a typical retiree’s. Both approaches point to the same practical question: how much of your lifestyle is funded by something other than your own account balance running down?

    A shortfall is not a verdict. It is a number, and a number can be worked on.

    How common shortfalls are

    The estimates differ by method, but they tell a consistent story.

    So the picture is not uniformly bleak. Some households are on track, and policy changes have helped at the margins. But a large share of people face a real gap, and it tends to be widest for lower and middle earners.

    What Americans have saved

    Balances are a rough yardstick. Federal Reserve figures reproduced by Investopedia show median retirement-account balances of $18,880 under age 35, $45,000 for ages 35 to 44, $115,000 for 45 to 54, $185,000 for 55 to 64, $200,000 for 65 to 74, and $130,000 at 75 and older.

    A survey from Northwestern Mutual, reported by CBS News, found that Americans said they would need $1.46 million to retire comfortably while the average retirement account held $88,400. That is a gap of about $1.37 million on paper. Treat it as a mood reading, not a personal target: it compares what people expect with an average, and it says nothing about your pension, your home or your spending.

    Your own number depends on when you stop working, where you live and what you want your days to look like. That is why the next sections matter more than any national median.

    Why Social Security does not close the gap alone

    Social Security is designed to replace about 40% of pre-retirement income, based on your highest 35 years of earnings and the age you claim. The percentage depends heavily on what you earned. AARP’s 2026 figures for workers born in 1960 who claim at full retirement age show replacement rates of 75.5% for very-low earners, 55% for low, 41% for medium, 33.7% for high and 26.9% for maximum earners. Claiming at the earliest eligible age lowers those rates.

    The program’s funding outlook adds a planning question. AARP, citing the latest trustees report, notes that without legislative changes only about 83% of scheduled benefits would be payable after trust-fund depletion. Another summary describes the retirement trust fund as projected to be depleted by 2033, with possible benefit reductions of 9% to 25% unless Congress acts. Projections move with each annual report, so it is sensible to plan with a cushion rather than assume the full scheduled amount.

    Why Social Security does not close the gap alone

    Health care: the line item that surprises people

    Medicare is a cornerstone of retirement coverage, but it does not pay for everything, and premiums, deductibles, prescriptions and services outside Medicare’s scope add up.

    Long-term care changes the math more than anything. Morningstar’s 2025 analysis projected that 41% of households would run short when long-term services and supports are included, against 26% when they are excluded. It estimated that about 43% of baby boomers will need paid long-term care, and that shortfalls reach 52% of single women, 37% of couples and 36% of single men once those costs are counted.

    If you want to see what to expect on the Medicare side, our guide to health care costs in retirement breaks down premiums and out-of-pocket items. For the nursing-care piece, see how skilled nursing coverage works under Medicare and how to plan for long-term care gaps. Higher earners should also look at how income-related premium surcharges apply in our IRMAA briefing.

    Health care: the line item that surprises people

    How to estimate your own shortfall

    The Department of Labor’s retirement-planning guide lays out a method you can follow with a pencil and a spreadsheet. Here is a plain version.

    1. List expected monthly expenses. Start from what you spend today, then adjust for what will change: a paid-off mortgage, more medical costs, less commuting. The Texas Teachers Retirement System worksheet suggests applying an inflation factor for the years until you retire.
    2. Add reliable income. Use your Social Security estimate and any pension. Include annuity payments if you own one.
    3. Add non-guaranteed income. Account withdrawals, part-time work and rental income belong here, and they are less certain.
    4. Project over 30 years. The Department of Labor recommends comparing projected income and expenses over a 30-year retirement, with future amounts converted to retirement-year dollars.
    5. Subtract. What remains is the amount your personal savings must cover. Vanguard’s planning guide describes the same logic: estimate expenses with inflation and health care, list income, then calculate the gap.

    A worked example from the Department of Labor

    The Department of Labor’s worksheet example assumes $1,400 of monthly income, a 5% return, 8% health-cost inflation and 3% inflation on other expenses. It arrives at $260,769.60 of projected income and $306,093.60 of projected expenses, a $45,324 shortfall over 30 years. Multiplying that gap by a 0.00644 savings factor gives about $291.89 a month to save over 10 years at a 5% return.

    Those are illustrative numbers, not a forecast for you. The value of the exercise is seeing the shape: a modest monthly gap compounds into a large lifetime figure, and a modest monthly saving can answer it when you start early.

    Practical ways to reduce the gap

    The Department of Labor guide and other official sources point to a short list of levers. Each has a trade-off worth weighing.

    Lever What it does Trade-off to weigh
    Raise workplace contributions and capture any employer match Adds savings and tax-advantaged growth Less take-home pay today
    Work longer or retire later Adds contributions, shortens the withdrawal period, can raise Social Security Depends on health and job availability
    Delay Social Security Raises the monthly benefit You must fund the bridge years
    Reduce or restructure spending Lowers the income you need Lifestyle adjustments
    Downsize or move to a lower-cost area Cuts housing costs and may free equity The Department of Labor notes relocation can carry financial costs and loss of community
    Add guaranteed income Covers essentials with a predictable payment Product terms, fees and liquidity vary

    One caution on home equity. The Consumer Financial Protection Bureau warns that using a reverse mortgage to delay Social Security can cost more than simply claiming, because loan interest and fees can exceed the value of the higher later benefits, and says working longer is generally the less costly way to delay claiming when it is feasible. Borrowers must also stay current on property taxes and homeowners insurance or risk foreclosure. If you are weighing any home-equity move, talk with a HUD-approved housing counselor and a licensed financial professional before signing.

    Guaranteed income options

    Some retirees use annuities to turn part of their savings into steady payments. The two common routes are an immediate annuity and a fixed indexed annuity, and they work quite differently. Our guide to retirement income annuities for people 55+ explains the basics, and SPIA versus FIA compares them side by side. If you are considering the indexed type, read about rider fees on fixed indexed annuities first so you know what the income rider costs.

    Where Medicare choices fit in

    Health coverage is the part of the budget you can revisit every year. The plan you picked at 65 may not be the right fit at 68: drug formularies change, premiums change, doctors leave networks and your own health changes. Reviewing coverage during the annual enrollment period each fall is one of the few ways to keep that line item in check without giving up care.

    Three areas tend to matter most:

    • Prescriptions. The Part D plan that covers your medications at the lowest total cost this year may not next year. A Part D plan review compares your drug list against the plans available in your area.
    • Gap coverage. Some people pair Original Medicare with a Medicare Supplement plan to predict out-of-pocket costs. Others choose Medicare Advantage for bundled benefits. Which suits you depends on your doctors, your health and your budget.
    • Extras. Dental, vision and hearing are often not covered by Original Medicare, and costs can build quickly. See options for dental, vision and hearing coverage.

    If you are about to turn 65 in Florida, the Turning 65 Medicare checklist covers timing and enrollment steps, so a missed window does not add permanent costs to your budget.

    Our perspective

    After working with more than 2,000 families, we see the same pattern. People build a savings number in their heads and forget that health coverage is not a fixed cost. It is a decision they get to make again each year.

    That is why we start with a holistic health needs assessment before we talk about any plan. We look at your medical history, your prescriptions and your preferences, then compare options across the carriers we work with. Our aim is to match coverage to your life, not to fit you into a plan we happen to have.

    We also believe the work does not end at enrollment. Our annual Rate Watch and policy audits revisit your coverage each year, and we help you look for ways to lower prescription costs. If a claim gets difficult, we advocate with you. For clients who want steadier income, we also discuss lifetime income solutions alongside their Medicare coverage, so the whole plan works together.

    A retirement budget with a clear, reviewed health plan is easier to trust. That is the relationship we aim to build.

    Core Insurance Solutions

    Get help building the health side of your plan

    If you live in Lakeland, Plant City, Winter Haven, Bartow or anywhere in Polk County, we can walk you through your Medicare options. We compare plans from the carriers we work with, check your prescriptions and review your coverage each year. Our services carry no direct cost to you, since carriers pay us when you enroll in a plan.

    Core Insurance Solutions

    See our services or start at our home page to talk with a local advisor. We do not offer every plan available in your area. Please contact Medicare.gov or 1-800-MEDICARE (TTY 1-877-486-2048) to get information on all of your options.

    FAQ

    How do I know if I will have a retirement income shortfall?

    List your expected monthly spending, then subtract Social Security, pensions and other steady income. If the remainder is more than your savings can safely supply over about 30 years, you have a gap. The Department of Labor’s worksheet walks through this, and a licensed financial professional can check your assumptions.

    How much of my income will Social Security replace?

    On average it is designed to replace about 40% of pre-retirement income. AARP’s 2026 figures show the share runs from about 27% for maximum earners to about 76% for very-low earners. Your own estimate is available in your my Social Security account on ssa.gov.

    What is the median retirement savings in the United States?

    Federal Reserve data reproduced by Investopedia show median retirement-account balances of $185,000 for ages 55 to 64 and $200,000 for ages 65 to 74. Medians say little about your needs, because retirement timing, pensions, home equity and lifestyle all differ.

    Can lowering health costs really help a shortfall?

    It can matter, since health care is a large share of retirement spending. Reviewing your Medicare plan and your Part D drug coverage each year is one way to keep premiums and out-of-pocket costs aligned with your needs. Results depend on your medications, providers and the plans available where you live.

    Sources

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