{"id":5037,"date":"2014-12-29T08:44:00","date_gmt":"2014-12-29T08:44:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=5037"},"modified":"2023-05-22T10:52:34","modified_gmt":"2023-05-22T10:52:34","slug":"invest-longevity-annuity","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/longevity-annuities\/invest-longevity-annuity\/","title":{"rendered":"Is a QLAC Right for You?"},"content":{"rendered":"
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Here is a reason to enjoy a long retirement.\u00a0<\/em><\/strong><\/p>\n\n\n\n

If you\u2019re a retiree with a higher-than-average aversion to taxes and want to double down on financial security very late in life, you may be interested in a particular and highly specialized annuity. It\u2019s called a Qualifying Longevity Annuity Contract (QLAC for short), which allows you to substantially delay the payment of required minimum distributions (RMDs) in a piece of your IRA. <\/p>\n\n\n\n

Retirees have to start paying taxable RMDs at age 72 or 70 \u00bd, depending on their age, taking a bite out of their savings whether they want to or not. Folks can put up to $135,000 of their IRA assets into a federal government-approved QLAC and avoid paying RMDs on this money until as late as age 85. Since most people don\u2019t live many years beyond this, this can be a relatively substantial savings in taxes. <\/p>\n\n\n\n

Is this worth it? It depends \u2013 but probably.  <\/p>\n\n\n\n

\u201cThe properties of a QLAC are wonderful for people who want to avoid at least part of their minimum distributions and make their IRAs last longer,\u201d says one certified financial planner familiar with the product. \u201cPeople tend to spend their RMDs. So a QLAC forces people\u2014in a good way\u2014to leave more money in their IRAs.\u201d<\/p>\n\n\n\n

Nonetheless, the fact is that QLACs — approved by the U.S. Treasury more than seven years ago \u2013 haven\u2019t generated all that much interest. According to the Secure Retirement Institute, QLAC sales totaled only $1.9 billion in 2020, compared to $219 billion in total annuity sales. Many people don\u2019t want to wait longer to retrieve retirement funds, even that increases their tax burden. In addition, QLAC returns are guaranteed but modest, also undermining their appeal. <\/p>\n\n\n\n

To give you an idea of what a QLAC pays, let\u2019s consider the case of a 65-year-old couple that puts $130,000 in one. Each spouse is a joint annuitant. If the couple waits until age 80 to begin receiving payments, it would pay out $19,713 per year (as long as either spouse is alive). If they wait until age 85, the maximum, that payment jumps to $33,408 per year.<\/p>\n\n\n\n

Most QLAC buyers are 55+ and concerned about possibly outliving their savings. The maximum purchase age is typically 80. The government decided to introduce QLACs because people are living longer than ever and pensions have become relatively rare.<\/p>\n\n\n\n

Choosing when to begin liquidating a QLAC depends on how many years you can live on the rest of your savings and how long you think you\u2019re going to live, as uncertain as that can be. If you\u2019re 65 and in poor health, you don\u2019t want to wait until age 85 or even 75 to start receiving income payments. In fact, you may not be a good candidate for a QLAC at all. The date when payments start can often be changed, but only before payments have yet to be received.<\/p>\n\n\n\n

Even if you\u2019re healthy, QLACs aren\u2019t free of downsides. The key drawback is the low fixed rate they pay, giving up the chance of higher growth via other means.<\/p>\n\n\n\n

One way to manage this risk is to \u201cladder\u201d QLACs by purchasing a series of smaller QLACs over several years, betting that payout rates might increase in the future.  This makes sense especially today, given the current economic rebound. Even if rates don\u2019t rise, the longer you want to buy a QLAC, the higher your payout, because your longevity has declined.<\/p>\n\n\n\n

Despite the durability of QLAC and other annuities, you should check the financial rating of the issuing company. Very late in life, when healthcare typically drains more money from budgets, is usually the worst time to fall short on money. Consequently, you might even consider purchasing QLACs from more than one firm to spread the risk.<\/p>\n\n\n\n

The bottom line is that these can be a helpful addition to your retirement plan if you\u2019re worried about outliving your nest egg and like the idea of counting on a guaranteed income stream later in life. But the product isn\u2019t right for everyone. So consult a financial adviser to make sure they\u2019re right for you. <\/p>\n\n\n\n

For more information about the product mentioned in this article contact us here:<\/strong><\/p>\n\n<\/div><\/div>\n\n

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<\/path><\/svg><\/span>Related Content<\/span><\/h2>\n\n\n\n
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<\/a>What is a Longevity Annuity?<\/a><\/h3>\n<\/div>\n\n\n\n
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<\/a>Top Longevity Annuities<\/a><\/h3>\n<\/div>\n\n\n\n
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<\/a>Financial Strength Rating<\/a><\/h3>\n<\/div>\n<\/div>\n\n<\/div><\/div>\n<\/div><\/div>","protected":false},"excerpt":{"rendered":"

Here is a reason to enjoy a long retirement.\u00a0 If you\u2019re a retiree with a higher-than-average aversion to taxes and want to double down on financial security very late in life, you may be interested in a particular and highly specialized annuity. It\u2019s called a … <\/p>\n

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