How to Close the Retirement Income Gap in 2026

The $73 Problem: Why a Small COLA Won’t Save Your Retirement

When early projections for the 2026 Social Security cost-of-living adjustment landed at roughly 2.2%, I wasn’t surprised — but I was concerned. For the average retired worker currently receiving about $1,976 per month, that translates to approximately $73 in additional monthly income. After Medicare Part B premium increases are subtracted, many retirees will pocket even less.

In my 15 years working in consumer finance — including my time at the Consumer Financial Protection Bureau — I’ve watched this pattern repeat. A modest COLA arrives, costs keep climbing, and the retirement income gap quietly widens. According to a 2025 Employee Benefit Research Institute survey, 45% of retirees now say they’re depleting savings faster than planned, up from 33% just three years ago.

The good news? Closing that gap doesn’t require a windfall or a radical lifestyle change. It requires a clear-eyed audit of where your money goes, where it comes from, and what levers you still have to pull. Let me walk you through exactly how to do that.

Understand Your Actual Retirement Income Gap

Before you can fix the gap, you need to measure it. What I see most often is retirees who have a vague sense of “not enough” but haven’t calculated the precise monthly shortfall between their guaranteed income and their actual expenses.

Map Your Guaranteed Income Sources

Start by listing every dollar that arrives predictably each month:

• Social Security benefits (check your exact amount at ssa.gov)
• Pension or annuity payments
• Required minimum distributions from IRAs or 401(k)s (these aren’t “guaranteed” but are mandatory after age 73)
• Rental income or other recurring sources

Track Your Real Monthly Spending

I often tell my readers: don’t estimate — track. Pull three months of bank and credit card statements and categorize every outflow. The Bureau of Labor Statistics reports that Americans aged 65 and older spent an average of $57,818 annually in 2024, or roughly $4,818 per month. Your number may be higher or lower, but you need to know it precisely.

The gap between those two numbers — guaranteed income minus actual spending — is your retirement income gap. For most retirees I’ve worked with, it falls somewhere between $400 and $1,200 per month. That’s the number we’re going to close.

“The average retiree’s income gap isn’t a crisis — it’s a math problem. And math problems have solutions. The retirees who struggle most aren’t the ones with the smallest savings; they’re the ones who never measured the gap in the first place.”

Optimize Social Security Before Anything Else

Social Security remains the bedrock of retirement income for roughly 90% of Americans over 65. Even a small optimization here can close hundreds of dollars of your monthly gap — permanently.

Review Your Claiming Strategy

If you haven’t claimed yet, delaying benefits past your full retirement age (currently 67 for those born in 1960 or later) increases your monthly check by 8% for each year you wait, up to age 70. That’s a guaranteed return you won’t find anywhere else. For a married couple, coordinating claiming strategies can mean tens of thousands of additional dollars over a 20-year retirement.

If you’ve already claimed, consider whether your spouse might still benefit from a delayed filing. Survivor benefits lock in at the higher earner’s amount, so this decision echoes for decades.

Reduce the COLA Erosion Effect

A 2.2% COLA sounds reasonable until you realize that housing costs in many metro areas rose 4–6% over the past year, and out-of-pocket healthcare costs for seniors climbed roughly 5.8% according to the Kaiser Family Foundation. The COLA is based on the Consumer Price Index for Urban Wage Earners (CPI-W), which doesn’t perfectly reflect senior spending patterns.

This structural mismatch means you need to build your own “personal COLA” through income growth strategies that outpace the official adjustment. For a deeper dive on this dynamic, I recommend reading Inflation and Retirement Savings: Myths Seniors Must Stop Believing.

Cut the Three Expenses That Drain Retirees Fastest

When I analyzed complaint data at the CFPB, three expense categories consistently drove seniors into financial distress. Targeting these first gives you the biggest return on effort.

Healthcare and Medicare Costs

The average 65-year-old couple retiring in 2025 will need an estimated $351,000 to cover healthcare expenses in retirement, according to Fidelity’s annual study. That number makes headlines, but the actionable question is: are you overpaying right now?

• Review your Medicare Advantage plan during Open Enrollment (October 15 – December 7) every single year. Plans change formularies, provider networks, and premium structures annually. According to Medicare.gov, more than 33 million Americans are enrolled in Medicare Advantage plans for 2026, but many haven’t compared options since they first enrolled.
• If you’re on Original Medicare, evaluate whether a Medigap plan switch could save you money — especially if your health status has changed.
• Ask your doctor about generic alternatives for every brand-name medication. The FDA reports that generics save Americans $338 billion annually, and seniors benefit disproportionately.

Housing Costs

Housing is the single largest expense for Americans over 65, consuming roughly 35% of total spending. If you’re carrying a mortgage into retirement, refinancing at a lower rate — or aggressively paying it down — can free up hundreds per month. If you own your home outright, property taxes and maintenance still add up.

For homeowners exploring whether to stay put, How to Make Your Home Safe for Aging in Place in 2025 covers both the financial and practical dimensions of that decision.

Debt Payments

Here’s a number that alarms me: Federal Reserve data shows that Americans aged 70–79 now carry an average of $20,400 in non-mortgage debt. Credit card interest alone at today’s average rate of 22.76% can consume $375 or more per month on that balance. Eliminating high-interest debt should be priority one — it’s the equivalent of earning a guaranteed 22% return.

Build Additional Income Streams That Actually Work for Seniors

Closing the retirement income gap isn’t just about spending less. For many retirees, generating even $300–$600 in supplemental monthly income transforms their financial picture.

Strategic Portfolio Withdrawals

The traditional “4% rule” — withdrawing 4% of your portfolio annually — was developed in 1994 when bond yields and market conditions looked very different. Many financial planners now recommend a dynamic withdrawal strategy that adjusts based on market performance and your remaining life expectancy.

If you have both traditional and Roth retirement accounts, the order in which you withdraw matters enormously for taxes. I’ve seen retirees save $3,000–$8,000 per year simply by restructuring which accounts they draw from first. The IRS offers detailed guidance on required minimum distributions, but a qualified tax advisor can help you build a withdrawal sequence that minimizes your lifetime tax burden.

Low-Risk Investment Income

With the Federal Reserve holding rates steady through mid-2026, high-yield savings accounts, Treasury I-bonds, and short-duration bond funds still offer meaningful yields in the 4–5% range. A $100,000 allocation to a Treasury ladder can generate roughly $4,500 annually with virtually zero credit risk.

For a comprehensive look at where to park your money safely, check out 7 High-Return Low-Risk Investments for Retirees in 2026.

Part-Time or Freelance Work

The Bureau of Labor Statistics reports that labor force participation among Americans aged 65–74 has risen to 26.6% in 2025, the highest on record. Many retirees find that 10–15 hours per week of consulting, tutoring, or skilled freelance work generates $800–$1,500 monthly while providing social connection and purpose.

Be mindful of earnings limits if you’re collecting Social Security before full retirement age. In 2026, the annual exempt amount is expected to be approximately $23,400 — earn above that, and SSA temporarily withholds $1 for every $2 over the limit.

Protect What You’ve Built

Closing the income gap means nothing if a scam, a bad investment, or an unplanned expense blows a hole in your savings. Protection is the final — and most overlooked — step.

Guard Against Financial Fraud

The FBI’s Internet Crime Complaint Center reported that Americans over 60 lost $3.4 billion to fraud in 2023, a 11% increase from the prior year. The most common schemes targeting retirees include tech support scams, investment fraud, and government impersonation.

I cannot stress this enough: never send money or share account information based on an unsolicited phone call, email, or text — no matter how legitimate it sounds. For a practical fraud-prevention checklist, read How to Protect Yourself From Financial Scams in 2025: A Step-by-Step Guide.

Plan for Long-Term Care

Roughly 70% of Americans turning 65 today will need some form of long-term care, according to the Department of Health and Human Services. The median annual cost of a private nursing home room now exceeds $116,000. If you don’t have a long-term care insurance policy or a dedicated savings strategy for this expense, it can wipe out decades of careful planning in a matter of months.

Hybrid life insurance/long-term care policies have become increasingly popular because they provide a death benefit if care is never needed, eliminating the “use it or lose it” concern of traditional LTC insurance.

Build an Emergency Buffer

Every retiree should maintain 6–12 months of essential expenses in a liquid, FDIC-insured account. This buffer prevents you from selling investments at a loss during a market downturn or racking up credit card debt after an unexpected expense. In my experience, this single step prevents more financial crises than any investment strategy ever could.

“A 2025 survey by the National Council on Aging found that 60% of retirees who reported financial stress had less than $5,000 in accessible emergency savings. Building that buffer isn’t optional — it’s the foundation everything else rests on.”

Create Your Annual Financial Review Habit

The retirees who maintain financial security over 20- and 30-year retirements share one common habit: they review and adjust every year. Markets change, tax laws shift, health needs evolve, and Medicare plans restructure their benefits annually.

Set a recurring calendar date — I suggest September, before Medicare Open Enrollment begins — to review the following:

• Your projected income vs. actual spending for the year
• Investment allocation and whether it still matches your risk tolerance
• Medicare plan options and prescription drug coverage
• Tax withholding and estimated payment accuracy
• Beneficiary designations on all accounts
• Credit report review for unauthorized activity (free at AnnualCreditReport.com)

This annual check-up takes two to three hours and can save you thousands. Research from Investopedia and Vanguard consistently shows that retirees who work with a financial advisor or follow a structured self-review process extend the longevity of their portfolios by an average of 5–8 years compared to those who don’t.

The Bottom Line: $73 Is a Starting Point, Not a Solution

A $73 monthly COLA increase is welcome, but it won’t keep pace with rising costs for most retirees. The retirement income gap is real — and it’s growing. But it’s also fixable.

By measuring your specific shortfall, optimizing Social Security, targeting the three biggest expense categories, building supplemental income, and protecting your savings from fraud and unplanned costs, you can close a gap of $500–$1,000 per month without taking on excessive risk.

I’ve spent my career studying how financial systems impact everyday Americans, and I’ll tell you this: the retirees who thrive aren’t necessarily the ones with the most money. They’re the ones who treat their finances like a living plan — one they revisit, adjust, and protect year after year. Start with one step today, and build from there.