Understanding a Retirement Gap Analysis

By Mike Zaccardi, CMT, CFA · September 20, 2022 · 7 minute read

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Understanding a Retirement Gap Analysis

A retirement gap analysis helps individuals identify a potential shortfall between how much they have saved and what they will need in retirement.

Tallying all accounts, projecting ahead, then comparing that amount to how much a fully funded retirement costs, given your unique circumstances, can help people bridge the financial gap between the present and retirement. It’s a great way to visualize how you are tracking towards your retirement goals.

Online resources are useful, and working with an experienced financial planner can help you see your retirement gap and then take steps to reduce it.

What Is a Retirement Analysis?

A retirement analysis is a report a financial advisor creates for individuals who want to know if they are on track for retirement. Saving for retirement is an important process for those who are looking forward to a secure future with a steady stream of income.

Knowing the difference between what you have saved versus what you will need in order to retire on time is valuable information. You can take extra steps to boost your savings rate once you have a retirement gap analysis and risk assessment performed; change your investing strategy; consider purchasing an annuity or other products, and more.

A retirement gap analysis considers a range of retirement assets to determine if you are on track for retirement. Your 401(k) through your employer, any individual retirement accounts (IRAs) you might own, annuities, individual taxable brokerage accounts, and even Social Security are common assets to tally in a retirement gap analysis. The sum of those assets is then compared to what you will need in the future, so that you can retire with confidence.

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How Do You Conduct a Retirement Gap Analysis?

Conducting a retirement analysis can be done using online tools or by meeting with a financial advisor. It’s all about knowing when you can retire. Often, individuals will take action to improve their financial habits and retirement savings when they see what they must do.

What Goes Into a Retirement Gap Analysis?

For example, a retirement gap on a chart can be a powerful visual to inspire people to save more. Performing a retirement analysis requires careful input of all assets and some assumptions about future rates of return, as well as a person’s spending habits and goals in order to determine how long their savings and other assets may last.

Assets and liabilities are analyzed, and future cash flow is projected. Conducting a retirement analysis also includes estimating how long somebody might live. Longevity risk is a key consideration, and Social Security and other annuities can help reduce the risk of running out of money. There are many facets to performing a retirement gap analysis. Seeking out the help of an experienced fiduciary advisor can be a smart move so that you are confident in your retirement plan.

How Does Communication Come Into Play?

A critical factor of a retirement analysis is the communication aspect. This is where a financial planner can show their skills.

Simply seeing numbers on a spreadsheet might not cause people to change course on their journey to retirement. Communicating a retirement gap in the right context can drive home the message that saving more today will lead to a better tomorrow.

How Does a 401(k) Plan Factor Into the Analysis?

A high-level retirement gap analysis should be mixed in with detailed cash flow planning.

Your 401(k) plan is a major account that is assessed during a retirement analysis. An employer retirement account is a large part of many workers’ overall retirement plan. A 401(k) gap can be found by analyzing the value of a participant’s pre-tax and Roth accounts versus what they will need to retire.

What’s great about a 401(k) account is that it often features an employer matching contribution, which is almost like free money so long as you meet the plan’s matching contribution requirements. Many plans will match, say, 50% of the employee’s contribution up to 6%. For a $100,000 salary, that means $3,000 per year of employer contributions, in addition to $6,000 from the employee. That’s $9,000 per year.

A 401(k) account, among other retirement plans offered through work, is a major piece of someone’s retirement asset pie. It’s simple to increase contributions to it without noticing much of a difference in your paycheck. Moreover, the auto-enrollment and auto-escalation features are great tools to help more people save more for retirement so that their 401(k) gap shrinks over time. A 401(k) analysis can be helpful for workers young and old.

Retirement Gap Analysis Example

Let’s run through a retirement gap analysis example to better show the steps involved.

Retirement Gap Analysis, Step-by-Step


Retirement Income Assessment: Summing all retirement savings accounts to find a portfolio value. Identifies any potential shortfall between required monthly income and total projected income between Social Security, retirement plans, and other accounts.
Review liabilities and future spending habits. No retirement gap analysis is complete without a thorough assessment of what you owe and current and future spending.
Analyze changes to an individual’s retirement date. Can make arriving at retirement easier if more time is allowed to increase saving.
Strategize about Social Security options. Delaying benefits until age 70 will increase total payout; might reduce longevity risk.
Outlining steps to take to shore up retirement income. Increasing a 401(k) contribution rate can help narrow the retirement gap. Reducing spending and increasing your savings rate are other actions.

How to Calculate Retirement Income

Knowing if your 401(k) is enough is important, but so too is a broader look at your assets and liabilities along with what income to expect in retirement. No retirement gap analysis is complete without it.

Calculating retirement income can be done using various online calculators, but you might want to sit down with a financial planner to map out what income you, personally, will need in retirement. Variables like your spending habits, inflation, discounted cash flow rates, and possible risks all must be considered.

You can also leverage the Social Security Administration’s Retirement Estimator calculator to find out what you should expect to receive when you decide to retire. While the output is just an estimate, it can go a long way toward bridging your retirement gap if you have a gauge of what income you will have in retirement.

Another way to calculate retirement income is to sum up your retirement assets, assume a contribution rate between now and retirement along with a rate of return, then take that asset base as an amount from which to draw income during retirement.

Many planners use the “4% rule”, which states that a retiree can withdraw up to 4% of their retirement account value each year without a high risk of running out of money. This is just a rule of thumb, however, and it might not work as well today as it did decades ago.

Investing for Retirement With SoFi

Identifying where you are on your retirement journey is an important part of financial planning. Doing a retirement gap analysis is an essential part of that process. As time passes, our lives and lifestyles, our goals, and often our physical health can change. All these factors can impact how much we’ll need to spend in the future.

By conducting a retirement gap analysis to identify any shortfalls in savings, it’s possible to make adjustments, and course-correct to get savings goals on track.

If you’re concerned about your retirement savings, you don’t need to wait. You can start investing today with SoFi by opening and funding an IRA online. SoFi offers traditional, Roth, and SEP IRA accounts that can provide tax-advantaged retirement savings. Establishing regular contributions to your 401(k) and a SoFi IRA can quickly get you in the habit of saving more for tomorrow.

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What is a retirement gap?

A retirement gap is a difference in the amount you have saved for retirement versus how much you will need. A retirement gap analysis can be performed to help identify how much more you will need to save for retirement. Once you know the amount, you can then take steps to boost your savings and investment accounts so that you can retire on time.

How do I find out if I have a retirement account?

Many individuals have a 401(k) or another retirement plan through their employer. Check with your HR department to see if there is an account set up for you. You might also have retirement accounts established on your own through investment brokerage companies. Also consider that you can likely collect a monthly Social Security benefit in retirement. Be sure to check with the Social Security Administration.

Will my retirement account be enough for me?

This is a tough question, but an important one. Knowing how much you will need for retirement is crucial to developing a retirement savings strategy and living a confident retirement. It’s wise to meet with a financial advisor to develop a plan. You can also use online resources, tools, and calculators to help determine if your current portfolio is enough to fund your retirement.

Photo credit: iStock/MicroStockHub

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