Often talked about.

What is it, what are some of the causes, why does it matter, do you have it, what are some of the unrecognized factors that may contribute, and what to do about it?

What is it?

The gap is the difference between your retirement expenses and your retirement income from all sources including pensions, social security, rent etc.  Inflation plays a part as well as unexpected expenses, healthcare, children and grandchildren come to mind. Determining your gap, or even if you have a gap is the first step. Analyzing the causes of your gap is a second step. Creating a strategy to alleviate the gap is the third step.

What are some of the causes? 

We are living longer. Rising healthcare costs. Lower interest rates. Tax rate increases. Everyday costs or inflation are increasing. Periodic market volatility. They are fairly well known, there are a number of other factors that are less recognized as well, which we will address in a bit.

Why does it matter?

Having too little is problematic.  Retiring and then finding out you have a shortfall is a crisis situation.  The first step is evaluating where you are, do you have a problem?  The sooner you know the better poised you are to address the issue. If you determine you have a gap, you have the opportunity to gather data and understand strategies that might be available to solve the gap. In discussions with clients no one wants to be a burden on their loved ones.  They all want to maintain independence and lifestyle.

How to determine if you have a gap?

Simply subtract budgeted anticipated expenses from income sources to determine if there is a shortfall. Look at your current budget, project that into the future. Make sure you budget for variable income and expenses that will likely occur during your lifetime.

What other factors may contribute toward a gap?

  • There are a number of less recognized factors that may affect your investments:
  • Little known fees; understand the fees associated with each source of retirement income
  • Tax efficiency; understand the impact of taxes on your income sources
  • Risk diversification; how are you managing risk? What is your strategy?
  • Time horizon; how long until you retire and how long do you anticipate being retired.

What do you do about it now?

  • Understand what it is.
  • Evaluate where you are.
  • What are your factors.
  • Do you have a gap?
  • Get help if you need it to evaluate where you are.
  • Get a plan, write it down.
  • Get the team on board (Spouse, kids etc).
  • Frame and prioritize the issues (boulders first, pebbles after).
  • Set goals in 90-day increments (track your progress).
  • Execute your plan, track your progress.
  • Evaluate plan achievement, done or not done.
  • Work the problem.
  • Remember discipline equals freedom

If you would like to understand more, the first step is to determine your current status.  We have developed a free evaluation tool that can help you identify some of the less recognized factors.  Click here to evaluate where you are.

The photo – being gapped in racing is not a good thing either.