Retirement Gap Calculator
Identify the gap between your projected retirement savings and your income goal.
What this calculator does
This calculator measures how far your current savings fall short of the retirement income you want. It takes your target monthly income, subtracts the State Pension and any defined benefit income you expect, and converts what remains into the pot required at a 4 percent withdrawal rate. It then projects your existing savings forward with no further contributions.
The difference is the gap, expressed both as a lump sum and as the monthly saving needed to close it by your retirement date. The monthly figure is the useful one. A six-figure shortfall is paralysing as a headline and manageable as a standing order.
When to use it
Run it once a year, ideally when your workplace pension statement and State Pension forecast are both in front of you. Where a projection calculator shows where you are heading, this one shows how far off course you are and prices the correction per month.
It is also good at exposing which lever is cheapest. Because the requirement is driven by the income gap rather than total income, you can see straight away what deferring the State Pension does, or what reducing target spending by £300 a month saves in capital. Either usually beats simply contributing more.
Understanding the inputs
Target monthly income should reflect expected spending rather than current earnings, and should be gross if you intend to compare it against pension income taxed at your marginal rate. The Retirement Living Standards published by the PLSA are a useful reference point for what moderate and comfortable actually cost.
Projected pension is where the State Pension belongs, and accuracy matters because a 4 percent rate converts every monthly pound into £300 of capital. Current savings should include old workplace pensions, any SIPP and retirement-earmarked ISAs. Expected return should be net of platform and fund charges, and conservative if retirement is close.
How is this calculated?
Required Nest Egg = (Target − Pension) × 12 / 0.04. Gap = Required − Projected FV of Current Savings.
A worked example
Someone targeting £3,500 a month, expecting £1,000 from the State Pension, has a £2,500 monthly gap. At 4 percent that requires a pot of £750,000. With £120,000 already saved, 20 years to go and a 5.5 percent return, the existing balance grows to roughly £350,000 by itself.
The gap is therefore about £400,000, needing roughly £918 a month of new saving to close. Assume a more cautious 3.5 percent withdrawal rate instead and the requirement rises to around £857,000, adding over £100,000 to the target from a change of half a percentage point.
Limitations and assumptions
This is a projection under assumptions, not a forecast. It applies one flat return, ignores income tax on pension withdrawals and the 25 percent tax-free element, and treats 4 percent as a safe rate when UK studies using domestic data have often suggested nearer 3.5 percent, especially after charges.
It also mixes a target expressed in today's money with a nominal projection, so long horizons understate the gap unless you enter a real return. And because returns arrive in sequences rather than evenly, the pot you actually reach can differ materially from the projection even if the average proves right. Read the gap as a direction of travel.
Common Questions
- What is the retirement gap measuring?
- The difference between the pot your target income needs and the pot your existing savings will grow into with no further contributions. The requirement is sized from your target monthly income less any State Pension or defined benefit income, so it captures only what your own savings must cover.
- Why does the baseline assume I stop contributing?
- Because the gap is meant to represent saving you have not yet committed to. Building future contributions into the baseline would shrink the gap on the strength of a plan you might not keep. Starting from a standstill makes the required monthly figure the number worth acting on.
- What should I enter for projected pension?
- Start with the State Pension. The full new rate is around £230 a week, roughly £11,970 a year or £997 a month, and you need 35 qualifying National Insurance years to receive it in full. Add any defined benefit scheme income. Check your NI record on the government's State Pension forecast service.
- Why is the required pot so large?
- At a 4 percent withdrawal rate every £1 of monthly income needs £300 of capital behind it, so a £1,000 monthly gap requires £300,000. That multiplier explains why an inflation-linked State Pension is worth so much: at roughly £997 a month it substitutes for around £300,000 of savings.
- The monthly savings figure is unaffordable. What now?
- Reduce the requirement rather than raising the contribution. Working three years longer, trimming the target income, or deferring the State Pension all shrink the gap before you save another pound. Deferring the State Pension adds about 5.8 percent for each full year deferred under the current rules.
- Does salary sacrifice change the arithmetic?
- It changes what the contribution costs you, not what it buys. Sacrificing salary saves employee National Insurance as well as income tax, so a £300 monthly pot contribution can cost a basic rate taxpayer under £200 of take-home pay. Many employers also pass on their own NI saving, increasing it further.
- Is the gap in today's money?
- Not quite. Your target income is in today's terms while the projection is nominal, which understates the gap over long horizons. The simplest correction is to enter a real return, meaning your expected return minus inflation, which places the entire calculation in today's purchasing power.
- Should I include my house?
- Only if you have a concrete downsizing plan and a realistic figure for what it releases after costs. A home you live in generates no income and cannot be drawn at 4 percent a year. Equity release exists but its compounding interest makes it a last resort rather than a retirement strategy.
- How often should I recheck this?
- Once a year, ideally when your annual pension statements arrive. The gap responds to your salary, your contribution rate, your State Pension forecast and your spending expectations, all of which move. The number to watch year on year is the required monthly saving falling, not the projected pot rising.