Pillar 1: Retirement Planning
What Is the Retirement Gap and How Do You Fix It?
Impact! Partners Financial · Houston, TX · Investment advisory services through Foundations Investment Advisors, LLC, SEC-Registered Investment Adviser
The Bottom Line
The retirement gap is the difference between the income you expect to have in retirement and the income you may actually need to maintain your lifestyle. For many Texas pre-retirees, the gap can come from rising expenses, taxes, healthcare costs, inflation, market volatility, or claiming Social Security too early. The good news: once you identify the gap, you can build a written strategy to help close it.
Most people do not retire because they hit a certain age. They retire when their income plan gives them confidence that their money can support the life they want.
That is where the retirement gap matters. Even if you have saved diligently, there may still be a difference between what your portfolio, Social Security, pension, or other income sources can provide and what your retirement lifestyle may actually require.
For pre-retirees between ages 55 and 65, identifying this gap before retirement can be one of the most important planning steps you take.
What Is the Retirement Gap?
Your retirement gap is the shortfall between your projected retirement income and your projected retirement expenses.
Retirement Expenses
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Guaranteed + Portfolio Income
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Your Retirement Gap
For example, if you expect to need $7,000 per month in retirement but your reliable income sources only cover $5,500, you have a $1,500 monthly retirement gap that needs to be addressed.
Why the Gap Happens
The gap often appears because retirement expenses are underestimated or income sources are overestimated. Common causes include:
◆ Rising healthcare and Medicare-related costs
◆ Inflation reducing purchasing power over time
◆ Claiming Social Security before the optimal time
◆ Market losses early in retirement
◆ Taxes on retirement account withdrawals
How to Calculate Your Retirement Gap
1 Estimate your retirement expenses. Include housing, food, insurance, healthcare, travel, taxes, family support, and lifestyle spending.
2 List your income sources. Add Social Security, pensions, annuities, rental income, part-time work, and planned portfolio withdrawals.
3 Compare monthly income to monthly expenses. Any shortfall becomes the gap your plan needs to address.
4 Stress-test the numbers. Review how inflation, taxes, healthcare costs, and market downturns could affect the plan.
5 Build a written income strategy. Decide which accounts to draw from, when to claim Social Security, and how to protect against sequence-of-returns risk.
How to Fix a Retirement Gap
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Increase Income
Strengthen your income floor
✓ Delay Social Security if it fits your plan
✓ Create a reliable withdrawal strategy
✓ Consider guaranteed income options where appropriate
✓ Review part-time work, rental income, or pension timing
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Reduce Risk
Protect the plan
! Adjust portfolio risk before retirement begins
! Plan for taxes before required distributions begin
! Create cash reserves for market downturns
! Avoid relying only on market growth to close the shortfall
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The goal is not simply to have “enough saved.” The goal is to have a clear plan for turning savings into reliable, tax-aware income that can last through retirement.
Frequently Asked Questions
How do I know if I have a retirement gap?
Compare your expected monthly retirement expenses with your expected monthly income from Social Security, pensions, annuities, investments, and other sources. If expenses are higher than income, you have a gap that needs to be planned for.
Can I close the gap without working longer?
Possibly. Depending on your situation, you may be able to close the gap by changing withdrawal timing, delaying Social Security, reducing taxes, adjusting expenses, or adding more reliable income sources. Working longer is one option, but it is not the only one.
What is the biggest mistake people make with retirement income?
The biggest mistake is entering retirement without a written income plan. A portfolio balance alone does not tell you how much you can safely spend, which accounts to draw from first, or how taxes and market downturns may affect your income.
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Ready to find your retirement gap?
Schedule your complimentary 15-Minute Retirement Check-Up call and get personalized clarity on your income plan before retirement begins.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency. A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies. Comments regarding safe and secure investments and/or guaranteed income streams refer only to fixed insurance products and not any investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.