When it comes to retirement, are you living in the gap or the gain?
First, what is the gap and the gain?
It's a concept from Dan Sullivan's entrepreneurial coaching program, Strategic Coach. Luckily for non-Stategic Coach members, Sullivan and author Ben Hardy wrote about the concept in their recent book, The Gap and The Gain.
It's good to be goal-oriented. Goals pull us forward and help us achieve more for ourselves and others. They help us become more of who we want to be.
However, we often measure our progress against preconceived notions of where we thought we would be.
Read that again.
We don’t measure our progress against where we were; we measure it against what we thought we would have achieved by now.
This is the Gap.
This very human predilection can be depressing. How can you match up to your highest aspirations? Are you even supposed to? Our aspirations seem to be ever-shifting because they pull us toward the future.
But in the present, we must measure our current self only against our past.
This is the gap and the gain. You often fall short when you measure yourself against a future notion of where you thought you'd be. It's demoralizing. This is The Gap.
But when you measure yourself against your past, you can see all the incredible gains that have taken place. This is the Gain.
The Gap and The Gain.
It’s a powerful concept.
Retirees Are Often in the Gap
I’ve worked with hundreds of retirees and noticed that individuals hoping to retire soon or recently retired are often in the Gap.
What does this look like?
Here are things I often hear:
I don’t have enough to retire.
My money won’t last.
I thought I’d be able to afford [a second house, bigger trips, a nicer car, etc.] in retirement
I thought I’d be able to retire earlier
I thought I’d be able to work longer
Often the comments have a kernel of truth. The individual wishes they had saved earlier or saved more. And real hardships happen. For example, a health matter causes you to lose employment, a tough situation to grapple with for any individual. But most of the time, the comments are untrue and a story they are telling themselves.
The individual lives in The Gap and needs to reframe their current situation.
The Technicals of Retirement Planning and the Mindset of a Health Retirement
Retirement planning involves the following:
Creating the proper investment portfolio
Reducing taxes over your lifetime
Maximizing monthly cash flow
Optimizing Social Security and Medicare benefits
Protecting against major risks.
Legacy and estate planning
Who would you like your money to support if you’re not around?
What important organizations or causes would you like your money to support?
Is there money you’d like to give to loved ones or charitable causes now?
How can we do so in the most tax-advantaged way possible?
But this is the technical stuff.
Retirement planning is also about ensuring a healthy retirement mindset and a sense of security and positivity in one's current position.
This is why we say retire on purpose. We want you to retire and live your post-retirement life with as much agency as possible, living days you look forward to, do activities you can’t wait to do and spend time with people you love spending time with.
But a corollary could be to retire in The Gain, not The Gap.
Case Study: Tim is in the Retirement Gap
Tim always planned to retire at age 62. He worked hard, saved diligently, and built up a considerable nest egg. However, at age 61, his mom became sick, and he had to take a sabbatical from work. When he and his financial planner re-ran his financial plan after Tim returned to work, they decided that working an extra two years until age 64 would be beneficial.
Tim just turned 62, but he has been down lately because he's comparing reality (retiring at age 64) to what he thought reality would look like (already being retired at age 62).
Tim is in the Gap.
In this case, The Gain can be found by looking back.
Tim’s financial advisor asks him the following question:
Tim, at age 40, what if I had told you that you'd be securely retired at age 64 and ready for adventure?
Tim would have been pretty excited!
That's the gain. You measure back toward where you came from.
Measuring Retirement Progress Against The Past
To summarize, The Gap measures your progress against a future ideal, while The Gain measures your progress against the past.
Notably, only one is real: the past. The other is a future that never existed anywhere but your head. The only reasonable approach to life is to measure your progress against the past. You'll live in The Gain and likely be much happier to boot!
The Gap and the Gain in Your Investment Portfolio
Suzie has been saving for decades. She was really excited for her portfolio to cross $2,000,000 because that was the 'number' she had in her head for when she could retire. Suzie has been planning for this day with her financial advisor since her late 30s when she only had a couple hundred thousand dollars in her portfolio.
However, the year she thought she would hit $2,000,000 between annual savings and market growth, the market took a downturn. Instead of crossing $2,000,000, she feels further from her goal!
Ouch!
Suzie is usually unaffected by market swings, but this latest one has demoralized her, and she's unsure how to proceed.
Suzie is the gap! She compares herself to where she thought she would be instead of seeing all the gains.
During a conversation with her financial advisor, Suzie reframes her situation.
She has $1,500,000! Wow! She used to have much, much less than that. She can comfortably retire; it’s simply a matter of when.
Instead of measuring her $1,500,000 against the $2,000,000 she anticipated, she measures it against where she started, with well over a million dollars less.
Living in The Gain, Suzie can look forward again. With the help of her financial planner, Suzie:
Rebalances her portfolio, selling holdings that are down less and buying holdings that are down low. Buy low, sell high!
She continues saving, effectively buying into a downmarket with her savings. When the market recovers, she will have more than she did before at the same price.
Last, she was able to harvest tax losses in her taxable account, which will allow her to pay lower taxes in the future.
Those are gains!
Are you interested in blending money with purpose? Subscribe to the newsletter below or buy my book, Money With Purpose: Receive the Dividends of an Undivided Financial Life.