How to Estimate Your Retirement Income
Retirement changes the way you think about money.
While you are working, your paycheck usually arrives on a predictable schedule. You know roughly how much is coming in, when it is coming in, and what will be deducted before the money reaches your bank account.
Retirement can look very different.
Your income may come from several places, and those sources may begin at different times. You may have Social Security, a pension, a 401(k), an IRA, investment income, rental income, or other resources. Some payments may be guaranteed for life. Others depend on how much you have saved and how you manage those savings.
That makes retirement income worth calculating before you leave work.
You want to know what your money is expected to provide, where it will come from, and whether there is a gap between your expected income and your expected expenses.
Start With Your Income Sources
Begin by identifying every source of income you expect to have in retirement.
For many people, Social Security will be one part of the picture. You can view your estimated benefit through your personal Social Security account and see how the amount changes based on the age you claim.
A pension can provide another source of predictable income. Your pension statement or plan administrator can provide an estimate based on your years of service, earnings, retirement date, and the payment option you choose.
You may also have:
A 401(k) or 403(b)
A traditional or Roth IRA
Taxable investment accounts
An annuity
Rental income
Part-time employment
Other recurring income
Write down each source separately. Keeping them separate makes it easier to see where your retirement income will actually come from.
Find the Numbers
Once you know your income sources, find the most current estimate available for each one.
For Social Security, check your personal estimate rather than using an average benefit or someone else's number. Your earnings history and claiming age affect your benefit.
For a pension, check your latest statement or contact the plan administrator. If the estimate changes based on your retirement date or payment option, look at the numbers for the dates you are considering.
For retirement accounts and investments, use your most recent statements to find your current balances.
This is where an important distinction comes in: an account balance is an asset, not a monthly income amount.
If you have $500,000 in a 401(k), that $500,000 is available to support your retirement. It does not automatically translate into a $500,000 annual income or a specific monthly payment.
How much income those savings can provide depends on factors such as investment performance, withdrawals, taxes, and how long the money needs to last.
The same idea applies to other assets. A rental property may have a value of $300,000, for example, while the rental income you actually receive each month is a separate number.
Put Your Income on a Timeline
Your retirement income may not begin all at once.
You could retire from your job at 64, begin a pension at 65, and start Social Security at 67. Your retirement savings might provide income during the years before those other payments begin.
That means your retirement income can change over time.
A simple timeline might look like this:
Age | Income Source | Estimated Monthly Amount |
64 | Retirement savings | Varies |
65 | Pension | $1,200 |
67 | Social Security | $2,400 |
67 | Other recurring income | $300 |
This gives you more useful information than simply adding everything together.
At age 64, you may have one combination of income. At 65, another source begins. At 67, your monthly income changes again.
Your estimate should account for those changes so you can see what your income may look like at different points in retirement.
Account for Built in Expenses
The amount of income you see on paper may not be the amount that reaches your bank account. Just like a paycheck, there might be taxes to consider, making your actual income less than you anticipated.
For that reason, separate your estimate into two numbers:
Gross retirement income: the total income you expect before taxes and other deductions.
Estimated spendable income: what you expect to have available after taxes, healthcare costs, and other deductions you can reasonably estimate.
Using the second number gives a more realistic idea of what you can afford, and how much you have to put towards expenses.
For example, someone might have $4,600 in estimated gross monthly retirement income:
Income Source | Monthly Amount |
Social Security | $2,400 |
Pension | $900 |
Other recurring income | $300 |
Income from retirement savings | $1,000 |
Estimated gross monthly income | $4,600 |
Now consider what happens before that money is available for everyday spending.
If you receive Social Security and have Medicare Part B, your Part B premium is generally deducted directly from your Social Security benefit. Some people also have other Medicare-related premiums or deductions taken from their Social Security payment.
That means the Social Security amount shown in your benefit estimate may be higher than the amount that actually reaches your bank account.
Taxes can reduce your retirement income as well. Traditional 401(k) and IRA withdrawals are generally taxable, and pensions are often taxable. Depending on your circumstances, part of your Social Security benefit may also be taxable.
For example, imagine this person estimates that $350 per month will go toward federal income taxes and $250 toward Medicare and other healthcare costs.
Monthly Income and Costs | Amount |
Estimated gross retirement income | $4,600 |
Estimated federal income taxes | -$350 |
Medicare and other healthcare costs | -$250 |
Estimated amount available for other expenses | $4,000 |
In this example, $600 per month, or $7,200 per year, is no longer available for the person's other expenses.
The actual numbers will vary considerably from one person to another. Taxes depend on your income, deductions, account types, and other circumstances. Healthcare costs also depend on your Medicare coverage, premiums, prescriptions, supplemental coverage, and healthcare needs.
Keep gross income and spendable income separate when building your estimate. Seeing both numbers gives you a much clearer picture of how much money you may actually have available for your retirement expenses.
Final Thoughts
Retirement income comes from the resources you have built and the benefits you have earned over your working years.
Start with the numbers you can verify. Find your Social Security estimate, check your pension information, review your account balances, identify other income sources, and put everything on a timeline.
Then look beyond the gross number. Taxes, healthcare, and other deductions affect how much money you will actually have available.
A realistic income estimate gives you something much more useful than a retirement account balance. It shows how your money may support your life after your paycheck stops.
Up Next: Knowing your expected retirement income is one part of the equation. The next step is figuring out what that income will need to cover. How to Create a Retirement Budget
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