Retirement Planning Gap Analysis

Do You Know Where You Stand?

Having a sound retirement plan is crucial to retiring on your own terms. To develop your retirement plan, you need to know where you stand today and what amount of income you will need in your retirement.

In general, to maintain the same standard of living you’re accustomed to, you’ll need a retirement income that’s 70% to 100% of the income you were earning prior to retirement.

And keep in mind that, with every passing year, Canadian life expectancy is increasing.

Detecting points of weakness

A retirement gap analysis can help identify any shortfall, as well as other points of weakness, in your financial situation. It’s an important tool we use to ensure your retirement plan is on track to get you where you want to go.

Typically, a gap analysis is conducted as part of a three-step process involving first determining your goals, next evaluating your assets and then determining how much more, if any, you need to save to reach your goals.

A retirement analysis should consider all facets of your financial life, including your assets, how much you’re saving, expected sources of retirement income (e.g., government pensions, RRSPs, TSFAs, workplace pension) and all anticipated expenses in your retirement years.

Each one of these financial planning elements is complex on its own, much less analyzed in relation to the others. The gap analysis process is also loaded with emotion because you’re often required to make hard decisions, including financial and lifestyle compromises. That’s why it’s a good idea to work with your financial advisor to conduct your retirement planning gap analysis.

Gaps are expected

When conducting a retirement gap analysis, you should expect that gaps will be detected:

  • If you’re starting out in life and developing your first retirement plan, it’s common to find multiple points of weakness because you’ve never gone through the process of identifying gaps and filling them.
  • If you already have a retirement plan and you’re conducting your annual review, chances are something in your circumstances will have changed, creating a new financial gap where none existed before.

When a gap is identified, you’re able to use this knowledge to make appropriate adjustments to your income, expenses or expectations in retirement.

Keeping your retirement plan up to date is crucial. It is only after you’ve conducted a comprehensive retirement gap analysis and fixed all the gaps that you can be confident in reaching your retirement goals.