How to Close the Retirement Income Gap: A CPA’s Step Guide

The $77 Problem: Why the 2026 COLA Won’t Be Enough

When early projections suggest that the 2026 Social Security cost-of-living adjustment (COLA) could add roughly $77 per month to the average retiree’s check, I understand why so many of my clients feel a knot in their stomach. That’s about $2.50 a day — barely enough to cover a cup of coffee, let alone the rising costs of groceries, utilities, and prescription drugs.

The preliminary 2026 COLA estimate sits around 2.2% to 2.5%, according to forecasts from The Senior Citizens League and early Consumer Price Index data tracked by the Social Security Administration. Compare that to the 8.7% COLA retirees received in 2023, and you can see the trajectory. The big adjustments are behind us, but the prices they were meant to address haven’t retreated.

In my 20 years as a CPA and Enrolled Agent working with retirees, I’ve watched this pattern repeat: inflation surges, COLAs partially catch up a year or two later, and then the adjustments shrink while everyday costs quietly stay elevated. The result is a growing retirement income gap — the difference between what you receive each month and what you actually need to live comfortably. As I’ve covered before, this erosion is real: seniors have quietly lost roughly 13.7% in purchasing power over the past two decades.

But here’s the good news: that gap doesn’t have to swallow your retirement. This guide walks you through concrete, proven strategies to close it — or at least shrink it dramatically.

Understand Your Personal Income Gap First

Before you can fix the problem, you need to measure it. I often tell my clients that the biggest financial mistake retirees make isn’t overspending — it’s not knowing exactly where they stand.

Map Your Actual Monthly Expenses

Pull your last three months of bank and credit card statements. Categorize every dollar into three buckets:

• Fixed essentials: Housing (mortgage or rent, property taxes, insurance), Medicare premiums, supplemental insurance, utilities, and car payments
• Variable necessities: Groceries, gas, prescriptions, medical co-pays, home maintenance
• Discretionary spending: Dining out, travel, gifts, subscriptions, hobbies

Now total your guaranteed monthly income — Social Security, any pension, annuity payments. The difference between that total and your expenses is your retirement income gap. For the average retired couple I work with, that gap runs between $800 and $1,500 per month. A $77 COLA increase barely dents it.

Factor in Healthcare Inflation Separately

Fidelity’s 2025 Retiree Health Care Cost Estimate projects that a 65-year-old couple retiring in 2026 may need approximately $185,500 to cover healthcare expenses throughout retirement. That figure has climbed 58% since 2010. What I see most often is retirees budgeting for today’s premiums and co-pays without accounting for the fact that healthcare costs historically rise 5% to 7% annually — roughly double the general inflation rate.

If you want a deeper look at the financial fears that keep retirees up at night — and which ones are overblown — I recommend reading this breakdown of the 5 biggest financial concerns for retirees and how to fix them.

Maximize the Social Security Income You Already Have

Before looking outside Social Security, make sure you’re squeezing every dollar out of the benefit you’ve earned. Too many retirees leave money on the table.

Review Your Earnings Record for Errors

Your benefit is calculated using your highest 35 years of earnings. If there are mistakes — missing years, under-reported wages — your check could be lower than it should be. Log into your my Social Security account and verify every year. I’ve helped clients recover hundreds of dollars per month simply by correcting reporting errors from decades ago.

Evaluate Whether You Claimed Too Early

If you started collecting at 62, your benefit is permanently reduced by up to 30% compared to waiting until full retirement age (67 for most people reading this). If you claimed within the last 12 months, you can withdraw your application, repay what you received, and restart later at a higher amount. It’s a little-known reset button.

For those past that 12-month window, you can still voluntarily suspend benefits at full retirement age to earn delayed retirement credits of 8% per year up to age 70. That’s a guaranteed return you won’t find anywhere in the market.

Coordinate Spousal and Survivor Benefits

If you’re married, divorced (after a marriage lasting at least 10 years), or widowed, spousal and survivor benefits can significantly increase household income. I recently worked with a 68-year-old widow who had no idea she was eligible for a survivor benefit that was $640 more per month than her own retirement benefit. These rules are complex, but the payoff is real. For more on protecting every dollar of your benefit, see our guide on how to maximize your Social Security check in 2026.

Build a Tax-Smart Withdrawal Strategy

Here’s where my CPA brain really lights up, because taxes are one of the biggest — and most controllable — drains on retirement income. The order in which you pull money from different accounts can save or cost you tens of thousands of dollars over a 20- to 30-year retirement.

Know Which Accounts Get Taxed and How

• Traditional IRA/401(k) withdrawals: Taxed as ordinary income at your federal rate (10% to 37% in 2025)
• Roth IRA withdrawals: Tax-free if the account has been open at least five years and you’re over 59½
• Social Security benefits: Up to 85% of your benefit may be taxable depending on your “combined income” (AGI + nontaxable interest + half your Social Security)
• Taxable brokerage accounts: Only gains are taxed, and long-term capital gains rates (0%, 15%, or 20%) are often lower than ordinary income rates

Use Roth Conversions in Low-Income Years

If you retire before Required Minimum Distributions (RMDs) kick in at age 73, you may have several years where your taxable income is unusually low. Converting portions of a traditional IRA to a Roth during those years — paying a modest tax bill now — can save you from much higher taxes later when RMDs force larger withdrawals.

For 2025, a married couple filing jointly pays just 12% on taxable income up to $96,950. I routinely help clients “fill up” the 12% bracket with Roth conversions, effectively locking in a low tax rate on money that would otherwise be taxed at 22% or more down the road. The IRS provides current bracket details and conversion rules on their website.

Watch the IRMAA Cliff

Income-Related Monthly Adjustment Amounts (IRMAA) can increase your Medicare Part B and Part D premiums dramatically if your modified adjusted gross income exceeds certain thresholds. For 2025, a single filer earning above $106,000 starts paying higher premiums. A poorly timed IRA withdrawal or capital gain can push you over the edge, costing an extra $1,000 to $5,000+ per year in Medicare surcharges. I’ve seen this surprise too many people who didn’t plan ahead.

Generate Safe, Supplemental Income

When Social Security and pensions aren’t enough, you need to fill the gap without taking on reckless risk. At this stage of life, preserving capital matters as much as growing it.

Consider a Bond or CD Ladder

With current yields still relatively attractive compared to the near-zero rates of 2020–2021, a laddered approach — spreading your money across bonds or CDs maturing at staggered intervals (6 months, 1 year, 2 years, 3 years) — provides predictable income while maintaining liquidity. As of mid-2025, 1-year Treasury yields hover around 4.2%, and FDIC-insured CDs from online banks offer similar rates.

Explore Part-Time or Freelance Work

The Bureau of Labor Statistics reports that labor force participation among adults 65–74 has grown from 20% in 2002 to nearly 27% in 2024. Many of my clients consult, tutor, or take seasonal work — not out of desperation, but because even $500 to $1,000 a month in earned income closes the gap while keeping their minds active.

Just be mindful: if you’re under full retirement age and still collecting Social Security, earnings above $22,320 (2024 threshold, adjusted annually) trigger a temporary benefit reduction of $1 for every $2 earned over the limit. Once you hit full retirement age, the earnings test disappears entirely.

Annuitize a Portion — But Be Selective

A single-premium immediate annuity (SPIA) can convert a lump sum into guaranteed monthly income for life. For a 70-year-old, a $100,000 SPIA currently pays roughly $700 to $750 per month. That’s not a bad deal if longevity runs in your family. But I caution clients to never annuitize more than 25% to 30% of their liquid assets — you need flexibility for emergencies and healthcare surprises.

Cut the Hidden Costs Draining Your Budget

Closing the retirement income gap isn’t only about earning more. It’s about plugging the leaks you might not even see.

Audit Your Insurance Annually

Medicare Open Enrollment runs October 15 through December 7 every year. I’m continually surprised by how many retirees haven’t reviewed their Part D drug plan in years, even as formularies and premiums shift. According to Medicare.gov, beneficiaries who compare plans during Open Enrollment save an average of $400 or more annually.

Also review your auto, home, and umbrella insurance. Bundling, increasing deductibles slightly, and dropping coverage you no longer need (like collision on a 12-year-old car worth $4,000) can free up $50 to $150 per month.

Eliminate Subscription Creep

The average American household spends $219 per month on subscriptions, according to a 2024 C+R Research study. Many retirees I work with are shocked when they tally streaming services, magazines, apps, gym memberships, and auto-renewing software they barely use. Cutting just three or four unused subscriptions can save $600 to $1,200 a year.

Watch for Fraud and Scams

Financial fraud costs Americans over 60 an estimated $3.4 billion annually, according to the FBI’s 2023 Internet Crime Report. A single scam can wipe out years of careful saving. If you’re not already taking steps to protect yourself, this expert guide on elder fraud prevention is essential reading.

Build a Simple Monthly Action Plan

Strategies only work when you actually implement them. Here’s how I suggest my clients organize their approach:

• This week: Log into your Social Security account and verify your earnings record. Pull three months of bank statements and calculate your personal income gap.
• This month: Schedule a meeting with a fee-only financial advisor or CPA to review your tax withdrawal strategy and Roth conversion opportunities.
• Before October 15: Set a calendar reminder for Medicare Open Enrollment. Use the Medicare Plan Finder tool to compare drug and Advantage plans.
• Quarterly: Review your budget, rebalance investments if needed, and cancel any subscriptions or services you’re not actively using.
• Annually: Recalculate your retirement income gap. Adjust your strategy as Social Security COLAs, tax brackets, and IRMAA thresholds change.

The Bottom Line: $77 Is a Starting Point, Not a Ceiling

A $77-per-month COLA increase isn’t going to transform your retirement. But it was never supposed to — Social Security was designed to be a foundation, not the entire house. What I’ve learned after two decades of working with retirees is that the people who close the retirement income gap successfully aren’t the ones with the most money. They’re the ones who pay attention, ask the right questions, and take small, consistent actions.

You don’t need to overhaul your entire financial life in a weekend. Pick one strategy from this guide, implement it this week, and build from there. That’s how you turn $77 into real financial security.