Retirement Income Gap

Retirement Income Gap

You’ve taken the initial steps – setting some money aside and investing it- you’ve set a course. How can you be sure that what you are doing will help you accumulate enough money for retirement?

You need to perform a retirement income gap analysis. This video will show you steps to uncover the gap and changes you can make to help you reach your retirement goal.

Here are a few things you need to establish.

  1. At what age are you going to retire?
  2. How much money you need during retirement?
  3. What are your saving balances, and your current saving plans
  4. Do the calculation and make the adjustments if it shows a gap

When to Retire?

Many people choose to retire at 62 because it is the earliest you can claim social security. However, if claim early, your benefits can be reduced by as much as 30%. If you can delay, you can increase benefits by 24%. Difference, 54%! So if you can wait, it might not be a bad idea.

Next you next to figure out your budget after retirement

How much do you need to live on? Make sure you factor in Medical Expense, Long Term Care Expense. Money for hobby or travel if you are not working anymore. What about your mortgage, has it been paid off? Do you still need money for college and parent support? Make sure you have those numbers down.

Now we look at the income. We have talked about the benefits of delaying Social Security Claim. If you have a pension or if you can live off your investment income and savings, if might be worth delaying your social security claim. But if that is still not enough, you might have to consider taking a part-time job for extra income.

You might be interested in a General Rule of Thumb in forecasting expenses. Financial advisors use a 70% to 90% pre-retirement income depending on your lifestyle and how much you make before you retire. If you don’t make much, you probably need a higher percent since you can’t eliminate much to begin with. That said, even those who make more spend more cause they have more time at their disposal.

Now we need to look at what you have accumulated. What are your saving balances for IRA, 401(k) and other saving vehicles? If you are still saving towards retirement, what percent of your salary are you saving? What is your investment allocations? Know that when you get close to or at retirement, most people normally downgrade their risks.

Retirement Gap Calculators. Here are two.

Please input information jointly for yourself and spouse: Age, Salary, Savings balances, current saving percent, Estimated Social Security Payouts, income replacement percent at retirement, asset allocation (% in equity, bond and cash), current and at retirement. Then click Calculate.

How did you do?

If your income sources can cover you till Age 95, then you pass. If your results indicated a savings gap, go back and modify your input parameters to try and improve your outcome.

Here are a few things you can consider:

  1. Delay Retirement for a couple of years
  2. Add in additional income by picking up some part time work
  3. Delay claim to Social Security to increase payouts
  4. Save more NOW
  5. Change your asset allocation. Can it be too conservative?

Adjust, recast and recalculate. Make it work!

This is the end. You’ve made it! Happy Retirement!

Congratulations! Click on the following links to read more and learn more on this important topic.

Read and Learn More Links:

Thank you for attending. Please send us questions. We are glad to help!

  1. Wade D. Pfau, Phd, CFA, Professor at the American College:
  2. Social Security: Office of Retirement and Disability Policy, “Income Replacement Ratios in the Health and Retirement Study” by Patrick J. Purcell.

See if you are on track with your savings for retirement.

Read: Do you have a retirement income gap?

Read: Four Ways to Bridge the Retirement Income Gap

Activity: T. Rowe Price’s Retirement Income Calculator

Are on track with your savings for retirement?




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