Your Retirement Income Gap: What Social Security Leaves You to Fund

A pension is a paycheck someone else promised to pay you in your seventies. If you run your own business, you are the someone else.

Nobody is going to promise you that check, so you have to build it, fund it and keep it from running dry. I covered the basic idea in No Pension, No Boss. This piece is the arithmetic: how to find the income you have to replace and what to do with the number.

Educational content, not financial, tax, legal or investment advice. Talk to a licensed professional about your situation.

What did a pension actually do?

It turned a working life into a monthly check. The Department of Labor describes a defined benefit plan as one that promises a specified monthly benefit at retirement, often using a formula based on salary and years of service.¹

A defined contribution plan does the opposite. It does not promise a specific amount, and the final benefit is contributions plus or minus investment gains or losses. A 401(k) is one, and the DOL says people in these plans assume responsibility for their retirement income.¹

How common are pensions today?

Not very. In March 2025, 14% of private industry workers had access to defined benefit plans, while 70% had access to defined contribution plans.²

The shift matters for you because it moved the risk. When a pension pays, someone else carries the investment risk. When you self-fund, you carry it, and the DOL notes that the value of a defined contribution account will fluctuate with the investments.¹

What does Social Security give a self-employed owner?

A base layer, not a lifestyle. For 2026, SSA lists the self-employed tax rate at 15.30%, and one credit of coverage is earned for each $1,890 of covered earnings, up to four credits a year.³

The estimated average monthly benefit for all retired workers in January 2026, after the 2.8% cost-of-living adjustment, is $2,071. The maximum benefit for a worker retiring at full retirement age is $4,152 a month.³

That is an average across all workers, not a promise about yours. What you receive depends on your earnings record and when you claim.

How is the benefit figured?

SSA uses the highest 35 years of indexed earnings.⁵ Years with little or no covered earnings drag the average down, which is one more reason the salary-versus-distributions decision has a long tail.

When should you claim?

You can start as early as 62, but the benefit is reduced for each month before full retirement age. For people born in 1960 or later, full retirement age is 67, and claiming at 62 reduces a $1,000 benefit to $700.⁴ Waiting beyond full retirement age earns delayed retirement credits.⁴

I am not telling you when to claim. I am telling you it is a math question you should answer on purpose.

How do you find your own gap?

Start with the life, then do the subtraction. The answer is your own gap, and it is personal.

Rob Berger, who answers retirement questions on his channel, gave the same instruction in a video posted on October 10, 2025:

It is a dull habit and a powerful one. Your statement is the only place the gap stops being a guess.

Plays here, from YouTube

Here is a made-up illustration. Suppose you want $6,000 a month and your estimate is the national average.

The $6,000 is invented, and the $2,071 is the average, not yours. The point is the shape: Social Security covers part of the target, and everything above it must come from somewhere you built.

What does self-funded really require?

Layers, built in order.

Notice that the first two layers are not investments. I wrote about them in the two-cash-buffers piece for a reason. A plan with no buffer is forced to sell at the wrong time.

Do not forget inflation

Cash feels safe, but the SEC notes that the principal concern with cash equivalents is inflation risk, the chance that inflation outpaces and erodes what your cash earns.⁷ Over a retirement that may last decades, that matters.

Where does your work fit?

Some owners plan to keep doing something they enjoy. That is income too, but I would treat it as a bonus rather than the plan. Plans built on "I will never stop" tend to be tested at the worst moment.

What if the gap looks too big?

Almost everyone's first gap looks too big. That is information, not a verdict.

A gap has only a few levers: spend less in retirement, work longer or part time, claim Social Security later, or save more now. Each one has a cost and each one is a conversation to have with a licensed professional, not a guess.

The hardest lever to pull later is the one you can pull today: contributions. A smaller amount on a schedule starts the clock, and time does a lot of the work. I show how that works in the piece on index funds, fees and time.

What are the common traps?

• Treating the business as the pension. A business can be sold, shrink or stop. It is an asset, not a paycheck you can count on.
• Ignoring the earnings record. Check it for errors while you can still fix them.⁶
• Claiming early without doing the math. Do the 62-versus-67 comparison on paper first.⁴
• Waiting for a bigger number. A smaller amount on a schedule beats a perfect amount that never starts.

When my grandmother asked, So what's your retirement plan?, the honest answer was that nobody hands a self-employed person a pension. It has to be built. The practical build starts with the accounts, which I laid out in the Solo 401(k) vs SEP IRA comparison.

The rest of the series on money outside the business is at Investing and Retirement.

Keep building.Ekai