Under the Influence – Mind the Gap

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By Shawndi Purselley, CFP®, CDFA®, Owner and Co-Founder, Wealth Advisor

My husband and I recently purchased an older home.  It had gaps everywhere.  The foundation had shifted, the walls were cracked and not all of the windows closed properly.  Although these gaps appeared to be harmless, they were unattractive. They caused the house to be less energy efficient and the doors stopped closing and locking properly.   Just the other day I tripped on the uneven concrete driveway.   How many of you have ever tripped or stumbled in a gap between a curb or a sidewalk, between a boat and a boat dock or even between a train door and the platform?  Many times, gaps look small and insignificant.  However, if you fall in one, the outcome can be bad.  Most gaps you may not even notice until you are on the ground (or in the water).  If we had chosen not to fix these problems, the issues would have continued to escalate and cause more damage to the home later on.

The gaps in our house reminded me about some of the financial gaps my clients have faced over the years. I broke them down into five different types of financial gaps:

Paycheck Gap It’s highly unlikely that you’ll be able to walk away from your paycheck and immediately replace all of that income with Social Security and a pension (if you’re lucky enough to have one). How will you use your investments to fill the gap?

Social Security/Medicare Gap If you’re retiring before 62, you can’t start Social Security yet. It will eventually kick in, but how will you fill that gap until then? You may choose to not start your benefit at 62, which means you could have a gap for several years. The same is true with Medicare. If you’re retiring before 65, what will you do for health insurance coverage until you reach Medicare age?

Inflation Gap Most of the income streams that you’ll rely on in retirement aren’t going to keep up with inflation. Social Security recipients get a cost of living adjustment, but that adjustment is less than the actual rate of inflation. Pensions may or may not have an adjustment each year. Without a plan to outpace inflation, your buying power is going to decrease year after year.

Long Term Care Gap Retirement could be humming along just fine until you end up in a nursing home. Suddenly the $90,000 per year that provided a comfortable lifestyle needs to increase to $120,000 to pay for your care. Are you prepared to fill that gap?

Widow(er)’s Gap A lot of people don’t plan for the income gap that will be created at the death of the first spouse in a marriage. At the very least, the widowed spouse will lose the lesser of the two Social Security benefits. Pensions could be decreased or eliminated entirely depending on the spousal benefits.

While you may not experience all of these gaps, you should build a plan ahead of time just in case.  We help clients build plans for all types of financial situations.  Please give us a call and let’s sit down to see how “gap proof” your overall financial life is.

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