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A Retirement Gap analysis investigates an individual expected retirement income streams, such as:

  • Retirement accounts and Social Security which include old-age and disability pensions, TAP and SCP
  • Certificates of deposit (CDs), a fixed term product with fixed interest rate and to be held until maturity
  • Savings accounts
  • Endowments, a financial contract offered by life insurance companies which gives a fixed payout and a lump sum after a specified term.

It also reviews what you expect to spend during retirement for example;

  • Health care
  • Housing
  • Food and clothing
  • Entertainment and travel

A retirement gap is identified when a shortfall is predicted between income and expenses. This will lead to the next step in the analysis which is to determine how to bridge the gap by looking at how big the difference is and identifying what steps can be taken on both the income and expense sides to lessen the gap, if possible.

With the analysis shown a negative gap between incomes and expenses, you might want to spend less in your working years and save more.

Money saved can be put into investments with higher return base on individual risk appetite. Likewise, you may want to revise your expectation of retirement and reduce your retirement income, so that the capital sum will not be so huge as to be unattainable. Or you may want to retire at a later age.

A positive gap means that you have a better financial health and have better cash flow. You may want to continue that way and perhaps look into some investment products and diversify some of your portfolio so as to achieve your retirement goal earlier.

Our Personal Financial Planners can guide you by taking an in-depth look at income, expenses, cost of living and the goals of your retirement lifestyle and interprets the data to make recommendations that are appropriate to you.

It is never too late to begin a retirement gap analysis. Spend more time planning for your retirement and take a look at your financial plan annually to make sure you are in a comfortable position.

Illustration of Retirement Gap Analysis

Client Mr. A would like to have an estimate amount of $130,000 when he reaches his retirement age of 60 years old. He would like to spend some of the savings on holiday and also to pass on for his children in the future.

  • Mr. A has a monthly income of approximately $3,150 and monthly expenses of around $2,800. His average monthly saving is $320.
  • Although he has a liquid savings of $15,000 in his savings account and fixed deposit, this amount is far short from retirement amount that he wishes to have.
  • Knowing that he has 27 years to retirement, he should have an estimate saving of $118,680 ($320 savings every month + $15,000 existing savings) when he stopped working at the age of 60.
  • For the retirement gap in this case ($118,680 and $130,000), Mr. A should either increases his income, maximize his investment and/ or reduce his expenses.
  • As increases of income will take years and experiences in his job, reducing his expenses might affect his lifestyle and eventually stagnant. He may want to look into maximizing his investment by putting some of his funds into Life Insurance.
  • In this case, with the estimated total savings of $308 per month and at the age of 33, client may use this existing fund to put into an insurance endowment plan for example TMAE 21. Mr. A will receive an amount of approximate $96,000 at age of 54 when the policy start to mature.
  • With another 6 more years working before reaching his retirement age. Mr. A could save an additional $23,000 on top of his insurance savings.
  • Hence, Mr. A may achieve an estimate of $134,000 ($96,000+$23,000+$15,000) when he retire at the age of 60.
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