Retirement Gap
What Is the Retirement Gap?
The retirement gap is the difference between the income a person expects to need in retirement and the income they are projected to have from savings, pensions, and government benefits.
It represents the shortfall that could make it difficult to maintain a desired lifestyle during retirement.
Why It Matters
Many individuals discover that their projected retirement income will not fully cover their expected expenses. Identifying a retirement gap early allows individuals to increase savings, adjust investment strategies, or reconsider retirement timing.
Closing the retirement gap is a central goal of retirement planning.
How the Retirement Gap Works
The retirement gap is calculated by comparing two figures:
- expected retirement income
- projected retirement expenses
If expected expenses exceed income, the difference represents the retirement gap.
Strategies to close the gap may include:
- increasing retirement contributions
- delaying retirement
- reducing expenses
- adjusting investment strategies
Retirement Gap vs Retirement Readiness
- The retirement gap measures the financial shortfall.
- Retirement readiness evaluates overall preparedness for retirement.
FAQs About the Retirement Gap
What causes a retirement gap?
Insufficient savings, longer life expectancy, inflation, or unexpected expenses.
How can someone close the retirement gap?
Saving more, investing wisely, or adjusting retirement age.
Is the retirement gap common?
Yes. Many individuals underestimate retirement costs.
Related Terms
