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How Can You Avoid One of the Biggest Threats to Having a Secure Retirement?

Many people may have the savings to achieve a comfortable retirement, but don't know how to protect themselves from one of the biggest threats once they've retired: underestimating how much money they need to live on, particularly in the early years. Identifying if you're at risk for a retirement income gap is the first step in making sure your retirement savings will be there for you down the road.

What is a retirement income gap?

It is the financial gap between your expected income sources, such as a company pension or Social Security, and your actual retirement expenses. Not too long ago, these two sources of guaranteed income could take care of most retirement needs. But today, with escalating healthcare costs and other unexpected expenses, these traditional forms of retirement income may no longer be enough — creating the potential for a significant income gap.

What factors cause an income gap?

You may begin retirement with enough savings, but several factors could cause you to have an income gap during your retirement years:

Living longer. Many people underestimate how long they will live — and need their retirement money to last. Did you know there is a one-in-three chance that a woman retiring today at age 65 will live beyond age 90?* That means having savings large enough to fund at least 25 years of retirement expenses.

Rising cost of living. Have you factored in the erosion of your buying power due to inflation? Even the basics — the price of a loaf of bread, a tank of gas and other essentials can rise over time. Your retirement income needs to be able to adjust for those increased costs.

Unexpected expenses. No one plans to be sick or need expensive medical care, but that is the top worry of most retirees — being wiped out by the unexpected costs of healthcare.

Poorly performing investments. The challenging investment environment of the last several years has upset the retirement plans of millions of Americans. Fixed income investors, for instance, have suffered a significant drop in interest rates, which can create an income gap between their retirement expenses and their ability to cover those expenses.

Even those who thought they would be comfortable in retirement are realizing that they need new solutions to close the gap in their income — and in their expectations.

How can I reduce a retirement income gap?

One of the other important steps you can take is to get a clear picture of your retirement expenses, which fall into two categories: essential and discretionary.
- Essential expenses include expenses such as food, housing and healthcare.
- Discretionary expenses include "extras" such as non-essential travel, leisure activities and hobbies.

How should I be allocating my money to secure enough income to meet both types of expenses?

Financial professionals often suggest a flexible approach to securing enough income to meet expenses — one that allows you to match your income sources with the type of expenses they are meant to cover. Typically, they recommend that you consider the following:

Annuities for essentials. Invest a portion of your retirement savings in annuities which can provide a guaranteed income for life, much like Social Security or a pension. This can provide peace of mind that your basic living expenses are covered.

Investments for discretionary expenses. Invest another portion of your savings in investments with market exposure for growth potential — such as stocks, exchange traded funds, mutual funds and growth-oriented annuities. That will allow you to keep up with rising costs or handle unexpected expenses.

Please note that mutual funds, stocks and exchange traded funds, may carry fees, expenses and risk, including the possible loss of principal amount invested. Some investments, such as mutual funds and exchange traded funds, are generally sold by prospectus. Investors should carefully read the prospectus before investing.

Avoid the trap of a retirement income gap — talk to an Allstate financial professional today.

Make sure your retirement savings will be there for you to meet the essentials, as well as the unexpected expenses in retirement. We can help match your savings and risk tolerance to the right mix of annuities and other investments for a more secure retirement.

*Mark Hulbert, "Beyond the Longevity Tables," The New York Times, October 11, 2009
Please note that Allstate or Lincoln Benefit Life does not provide tax or legal advice. Please consult your tax advisor or attorney prior to making any tax-related decisions.

AFS, LLC Broker-Dealer disclosure: Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE 68506. (877) 525-5727)

Please note that mutual funds, stocks and exchange traded funds, may carry fees, expenses and risk, including the possible loss of principal amount invested. Some investments, such as mutual funds and exchange traded funds, are generally sold by prospectus. Investors should carefully read the prospectus before investing.

Distributions taken prior to annuitization are generally considered to come from the gain in the contract first. If the contract is tax-qualified, generally all withdrawals are treated as distributions of gain. Withdrawals of gain are taxed as ordinary income and, if taken prior to age 59 ½, may be subject to an additional 10% federal tax penalty.

Allstate Life Insurance Company, as a parent company, bears no direct responsibility for the obligations of its subsidiaries. Riders may not be available in all states. Guarantees are based on the claims-paying ability of the issuing insurance company

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