The Pension Gap: How to Size It Before You Fix It

A pension gap is a subtraction, not a mystery. Take the monthly income you will need once you stop working, subtract the income that will arrive whether or not you lift a finger, and what is left is the part you have to fund yourself. Most people never do that subtraction. That is why retirement planning feels like a mood instead of a maths problem, and why the question "am I saving enough?" never gets an answer.

Your retirement income gap sits between two honest numbers

The first number is what you will spend, not what you earn now. The second is income you can genuinely count on: a state pension, a workplace scheme already promised to you, an annuity you have bought, rent from a property you own outright. Subtract the second from the first and you have a monthly shortfall. That shortfall is the only thing your savings are actually for. Both numbers will be estimates and both will be somewhat wrong, which is fine. A badly estimated gap is still far more useful than a gap you have never estimated, because you can correct it as you go.

Start from your spending, not from a share of your salary

You will see a rule of thumb that says you need some fixed percentage of your final salary. As a first guess it does no harm. As a final answer it is poor, because it anchors on your employer's payroll rather than on your life.

Some costs stop when work stops. You are no longer commuting, no longer paying into the pension itself, and often no longer supporting children. Other costs do not move at all: the rent or the mortgage, the insurance, the food bill. And a few quietly grow later on, especially health costs and paying other people to do jobs you used to do yourself. So take last year's actual spending, strike out what genuinely disappears, leave the rest alone, and add back anything you expect to spend more freely on once you have the time. That figure is closer to the truth than any percentage of a salary you will no longer be earning.

Where the guaranteed side of the subtraction comes from

Retirement income usually arrives in layers: the state layer, then whatever a current or former employer has promised, then whatever you have built privately. Only the first two show up without further effort from you, so only those belong on the guaranteed side of the sum. Find the paperwork. In Germany the Deutsche Rentenversicherung sends an annual Renteninformation with a projected monthly amount on it. In Italy, INPS keeps an estratto conto contributivo listing the contributions recorded against your name. In France the relevé de carrière, consolidated on the official info-retraite service, shows the periods you have accrued across the schemes you have belonged to. Whatever country you are in, tracking down that document is the highest-value hour in this entire exercise.

If you have worked in more than one country, expect a split picture. Each system pays for the years you spent inside it, and each has its own definition of a qualifying year. Within the EU, coordination rules let periods completed in different member states be added together when a country decides whether you qualify at all, while each country still pays only for its own portion. Outside the EU, whether your years abroad count anywhere depends on whether a bilateral social security agreement exists between the two countries. This is the detail people who move for work discover far too late.

Your pension statement is a starting point, not an answer

A projection is a sentence with conditions attached. It generally assumes you keep contributing at something close to your recent average, that the rules of the system stay as they are, and that future adjustments happen at some assumed rate. Change any of those and the figure changes. The German Renteninformation is refreshingly open about this: it prints its assumptions next to the number, along with a plain warning that rising prices will reduce what the amount actually buys. Read that page rather than skipping to the bold figure. And if your career does not resemble the average that the projection is built on, because of part-time years, caring years, self-employment or a stretch abroad, treat the statement as a record of what you have already earned rather than a forecast of what you will get.

Inflation is what turns a nominal figure into a lie

A monthly amount quoted for a date decades away is written in tomorrow's money, and tomorrow's money buys less. Suppose, purely as an illustration, that prices double between now and the year you stop working. A projected 1,000 a month would then buy what 500 buys today. Nothing has gone wrong and nobody has lied to you. The number simply never meant what it looked like it meant.

Many state pensions are raised over time, which helps, but the increase follows a formula set by policy rather than the contents of your own shopping basket. The fix is to do the whole calculation in today's money. Estimate your spending at today's prices, restate the projected pension at today's prices, and only then compare the two. For most people that single correction changes the answer more than any decision about which fund to buy.

Turn a monthly gap into a capital target

A monthly shortfall becomes something you can save towards in two steps. Multiply it by twelve to get the annual shortfall, then divide by the rate at which you intend to draw on your savings each year. That rate is the safe withdrawal rate, and its best known version is the 4% rule.

As an illustration with deliberately round numbers, a gap of 1,000 a month is 12,000 a year. Divide by 4% and the capital target is 300,000. Divide by 3% instead and it is 400,000. Those figures are invented to show the mechanic, not a recommendation, and the distance between them is the lesson: a small change in the withdrawal rate you assume moves the target by a third. Anyone who hands you one precise number has hidden an assumption from you.

Then work backwards to a monthly amount

Once you have a target and a number of years, the question becomes how much per month gets you there, and time does most of the work because compound interest pays growth on growth already earned. Put 200 a month aside for thirty years and you personally contribute 72,000; whatever the investments add sits on top of that. Start the same plan ten years later and you contribute 48,000, with a decade less for anything to compound. The missing decade costs you considerably more than the missing 24,000 of contributions.

What actually moves the number

The most powerful lever is the date you stop. Push it back and you work on both sides of the subtraction at once: more years of contributions going in, fewer years of drawdown coming out, and in many state systems a larger entitlement for having claimed later. A plan that looks impossible at one retirement age can look unremarkable two years further out.

Spending is the other lever you control, and it is stronger than it looks, because every 100 a month you decide you do not need is 100 a month you never have to fund and never have to build capital for. Investment returns matter as well, but they are the input you have the least say over, so build the plan on the two you can steer. People chasing FIRE are running exactly this arithmetic, only earlier and more aggressively.

Recompute it every year, then act on it

A gap is a reading, not a verdict. Statements arrive annually, salaries move, plans change and prices rise. Redo the subtraction when the new statement lands, in the same today's-money terms, and watch the direction of travel rather than the decimal places. If the gap is closing, the plan is working. If it keeps widening, something in it has to change, and you want to learn that with years of runway left, not months.

So do this before you buy anything. Put two numbers on one page this week: what you expect to spend each month in today's prices, and what your official statement promises you in today's prices. The difference is your gap, and once it has a number you can act on it instead of worrying about it. The follow-on question, how long a pot of money actually lasts, only becomes answerable once the pot has a size.

Written by

Federico Romaldi

Co-Founder, Worthmap

Published: August 14, 2026

Federico is a co-founder of Worthmap, a wealth-intelligence platform built for serious investors. With a background in software engineering and a long-standing passion for value investing, he created Worthmap to bridge the gap between net-worth tracking and investment analysis.