Is there a rule of thumb for this?

Rules of thumb such as replacing a set share of your former income are easy to quote and poorly suited to individual circumstances. Two households with identical incomes can have very different essential expenses depending on whether a mortgage is paid off and what healthcare costs look like. The gap calculation is more work and far more useful.

Does Social Security count as guaranteed income?

For this purpose yes. It arrives regardless of market conditions and it adjusts over time. For most households it is the largest single piece of guaranteed income they will ever have, which is why the gap is often smaller than people expect.

What if my essential expenses are already covered?

Then you are in an unusually comfortable position and the honest advice is that you may not need to do anything here at all. Your savings can be aimed at other purposes entirely, including simply enjoying them.

Should I cover discretionary spending with guaranteed income too?

Generally not, and it is worth resisting the temptation. Discretionary spending is by definition adjustable, which is exactly what gives a plan flexibility in a difficult year. Committing money to make it inflexible removes the thing that helps most when conditions change.

Retirement Planning

How Much Guaranteed Income Do You Need in Retirement?

The useful answer is not a percentage of your salary. It is the gap between the expenses that never stop and the income that already arrives regardless.

Key Financial GroupSeptember 9, 2026

The short version: Add up the expenses that continue no matter what. Subtract the income that arrives regardless of markets. The remainder is your gap, and that gap is the only number worth building guaranteed income around.

Why the usual answers do not help

Ask this question in most places and you get a percentage. Replace seventy or eighty percent of your working income, and so on.

Those figures are averages of people who are not you. Whether your mortgage is paid off, what you spend on healthcare, whether you support anyone, where you live and how you like to spend all move the number enormously.

The alternative takes an evening and produces an answer that is actually yours.

Step one: the expenses that never stop

Go through twelve months of statements. Sort what you spent into two columns.

The first column is what continues regardless: housing including property taxes and insurance, utilities, groceries, healthcare and insurance premiums, transport, and any non-negotiable debt payments.

The second column is everything you chose: travel, gifts, dining out, hobbies, help for family.

Both columns are real spending and both matter. Only the first is the subject of this exercise.

Two cautions. Use actual figures rather than what you think you spend, because the two are rarely the same. And remember irregular items such as insurance premiums and property taxes, which are easy to forget precisely because they do not arrive monthly.

Step two: the income that arrives regardless

List what comes in whatever markets do.

Social Security, using the amount actually deposited rather than the gross figure. Any pension. Any annuity already in payment. Any genuinely reliable rental income, discounted for vacancy.

Do not include withdrawals from savings. That is the thing we are trying to size, not an input.

Step three: the gap

Subtract guaranteed income from essential expenses.

If guaranteed income is larger, your essentials are already covered. That is a strong position, and the honest conclusion may be that you need no additional guaranteed income at all.

If there is a gap, that figure is the answer to the question in the title. Not your total savings. Not a percentage. The gap.

What to do with the number

Once you know it, you have options rather than an obligation.

Cover it with guaranteed income. A fixed annuity is the usual tool, sized to the gap rather than to your savings. We work through that in using an annuity to cover essential expenses.

Cover part of it. Many households cover a portion and meet the rest from savings, keeping more flexibility.

Cover none of it. If you have substantial savings relative to a small gap, and you are comfortable managing withdrawals, this can be perfectly reasonable.

Reduce the gap instead. Sometimes the better answer is on the expense side. Paying off a mortgage before retiring changes the essential number permanently.

A note on the word essential

People sometimes feel uncomfortable with this exercise, because sorting spending into essential and discretionary can feel like a judgement on how they live.

It is not. Discretionary does not mean frivolous. Visiting grandchildren, keeping up a hobby of forty years, and taking the trip you postponed while working are among the best reasons to have saved at all.

The distinction is purely about flexibility. Essential spending is what you could not adjust if you needed to. Discretionary spending is what you could, if a difficult year required it. That is the only property being measured.

In fact, the whole point of covering essentials reliably is to make discretionary spending easier rather than harder. A household that knows the fixed costs are handled tends to feel considerably freer about the rest.

Things that change the answer

Whether you are married. The gap can change substantially when one Social Security payment stops. Planning for the survivor is essential rather than optional, and we cover it in protecting a surviving spouse financially.

Inflation. A level payment covers a shrinking share of a rising expense over a long retirement. That argues for covering essentials with guaranteed income while keeping other savings working, not for avoiding guaranteed income.

Healthcare. The least predictable large category in most retirements. See planning for healthcare costs in retirement.

When you claim Social Security. The timing changes the amount, which changes the gap, which changes everything downstream.

Why doing this yourself first is worth it

If you walk into any adviser's office already knowing your essential expenses and your existing guaranteed income, the conversation changes completely.

It stops being about what someone would like to sell you and becomes about a specific number and how best to close it. It also makes it immediately obvious if a recommendation is far larger than the gap requires, which is a useful thing to be able to see.

You can sketch how savings might grow toward covering part of the gap using our savings growth calculator.

If you would like help with the arithmetic or with what to do once you have it, schedule a free consultation. Bring your figures if you have them, and there is nothing to prepare if you do not.

This article is for general education and is not financial, tax, or legal advice. Please speak with a licensed professional about your situation.