QLACguru Blog

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Articles, wit and wisdom about retirement planning, tax management and living a long life.


Ron Ryan
Ron Ryan
Ron Ryan is a QLACguru.com co-founder and directs Marketing and Operations.

In 2009, Mr. Ryan founded Ron Ryan and Associates, a management consulting firm based in Knoxville, TN. Mr. Ryan’s practice has specialized in operations and profitability improvement.

Prior to founding his consulting business, Mr. Ryan held VP of Operations and SVP Product Management roles at Answer Financial, Inc. Acquired in 2009 by Allstate, Answer Financial is a comparison shopping company and sister company to online auto insurer, Esurance.

Mr. Ryan began his career as a management consultant for The MAC Group. Based in Cambridge, Massachusetts, and later in Rome, Italy, and London, England, Mr. Ryan consulted to government entities, technology companies, major clearing banks, insurance companies, and international brokerage firms throughout the United States, Latin America and Europe.

Mr. Ryan received a Bachelor’s degree in History and Literature cum laude from Harvard College with an honors (magna cum laude) thesis in History and Literature. Mr. Ryan holds an MBA in Finance from the Wharton School of the University of Pennsylvania. Mr. Ryan is also named inventor for several issued US patents relating to financial services systems. He holds Series 7 and 63 FINRA Registrations. Mr. Ryan is a licensed insurance producer in the State of Tennessee.


A No-Regrets Retirement Guide for Procrastinators

 It is utterly false and cruelly arbitrary to put all the play and learning into childhood, all the work into middle age, and all the regrets into old age.  -- Margaret Mead

In your fifties or sixties? 

If you’re like most people our age, you may have a regret or two. 

Research by Cornell Psychology Professor, Thomas Gilovich, shows what we regret most in life is not the mistakes we’ve made in the past. Instead, the things we didn’t do produce the most regrets. It turns out that we regret the most are the times we failed to act.

Regrets and Retirement Planning

Nowhere is this truer than in retirement planning. For most of us, our regrets span both saving for retirement (never enough) and failure to manage our retirement once it has started.  

Rare is the individual who can say that they have it completely together in planning and managing their retirement.  If you feel this failure applies to you, it turns out you are in good company. A 2018 Northwestern Mutual study found that 21 percent of Americans of all ages have nothing at all saved for the future. Another 10 percent have less than $5,000 saved for their golden years. A 2017 study by Government Accountability Office (GAO) analyzed retirement savings.  The study found the median retirement savings for Americans between age 55 and 64 were $107,000.  The reasons for our nation’s savings shortfalls are as varied as people themselves. Examples include: 

  • Failure to get into the retirement savings habit;
  • Unexpected and uninsured loss of an income provider;
  • Divorce; 
  • Protracted family illnesses; 
  • Education expenses or debt; 
  • Investments that have gone awry. 

Professor Gilovich would tell us that no matter what the reasons are, they don’t matter now. What is important is what happens next. Professor Gilovich advises that we tackle our potential future regrets head-on. “As the Nike slogan says: ‘Just do it’; Don’t wait around for inspiration, just plunge in. Waiting around for inspiration is an excuse. Inspiration arises from engaging in the activity.”

How to “Just do it” for your retirement?

What follows is a short guide to “just doing it.”

1. Start by calculating retirement assets and income. Your first step should be to look at your financial situation with the long view in mind. First, add up your existing assets. Factor in social security (click here to see the social security administration’s benefits estimator). The benefits estimator tool may provide you with some important insights into how long you will want to keep working. For example, while you may start to receive Social Security at age 62, you should study your options. The Social Security Administration pays a smaller benefit to people who begin receiving payments at age 62. It pays more, for example, to people who wait until age 66 or age 70. If you enjoy what you are doing, are in good health, and can keep working, you may enjoy receiving benefits later. Indeed, Social Security benefits increase every month you do not take them until you reach age 70. After a retiree’s 70th birthday, there is no economic benefit for continuing to wait. For more on this topic go to the Social Security Benefits Planner. You may also find useful an article about the tradeoffs between taking early and late distributions in this article by the Motley Fool.

2. Project Living Expenses in Retirement. You need to look at what you are going to need in retirement to cover your expenses.  Be sure to include rent, food, medical expenses and other costs of day-to-day living. If there is a shortfall – and there is for many of us – don’t panic.  No matter how small your savings is now, the most important thing you can do at this stage is to begin. Start by projecting what your expenses are. 

3. Start Problem-solving. Here are some examples of places in your budget where you can find money:

a. Save on Housing Expense. A smaller home or apartment may make sense now.  Many of us with grown children live in houses that are far too large for our needs.  Moving to a smaller home in a different state, county, or even a school district can be liberating. Such a transition can mean less monthly living expense and less day-to-day maintenance. Often, the result is a net improvement in the quality of life.

b. Save on Debt. This time of life is often a great time to pay off credit card debt built up over the years.  Helping your kids through their various stages in life can create credit card debt.  Debt consolidation either using home equity or other forms of credit can make sense. Also, it may be a good time to explore refinancing to a 15-year mortgage. A fifteen-year mortgage may move you to a net higher payment. Paying off your mortgage in your fifties and sixties paves the way to rent-free living in your seventies and eighties. Even more enticing, after age 62 a reverse mortgage becomes an option. 

c. Save on Day-to-day Expenses. Don’t be ashamed to grab senior discounts, they are everywhere. Look for them in grocery stores, movie theaters, ballparks, hotels. Finding and using these discounts can become a part of your routine. To get you started, here is a list of senior discounts

d. Consider Small Investments that Reduce Your Living Expenses. For example,  you can reduce your electricity costs. Many states provide incentives for residential investments in solar power and geothermal heating and cooling. The Federal Government also provides an investment tax credit for these kinds of investments.  Start a garden. If you spend a lot of money watering on your property, a humble rain barrel can provide decades of savings on irrigation.

e. Consider Working Longer. For those who are able, keeping working post-retirement is a sensible way to fill up the savings tank. This may mean a transition to a second career which may be different from what you pursue in the present. For example,  after working many years in larger companies, you may move to more entrepreneurial endeavors. Self-employment means never having to face mandatory retirement! Whatever you choose, remember that you have many, many life skills you can leverage.

f. Increase Retirement Savings as You Can. There is good news from the US government. Believe it or not, Uncle Sam has created incentives for you to save in your later years. Provisions for retirement planning procrastinators include “catch-up contributions.” The catch-up contribution provides for accelerated retirement savings after age 50. The limit for employees aged 50 and over who take part in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan (2019) is $6,000. The catch-up contribution limit for individuals aged 50 and over to the Individual Retirement Plan is $1,000. To learn more follow the link to IR-2018-211 released by the Internal Revenue Service on November 1, 2018.

g. Reduce your Medical Expenses with Medicare. If you are within three months of your 65th birthday, you can sign up for Medicare. Medicare is the national health insurance program for people age 65 or older. Part A helps pay for inpatient care in a hospital or skilled nursing facility. Part B helps pay for doctors’ services and many other medical services. Most people age 65 or older are eligible for free Medicare hospital insurance (Part A) if they have worked and paid Medicare taxes long enough. You should sign up for Medicare hospital insurance (Part A)  3 months before your 65th birthday.  Sign up even if you do not want to begin receiving retirement benefits at that time. Anyone who is eligible for free Medicare hospital insurance (Part A) can also enroll in Medicare medical insurance (Part B).  You enroll in part B by paying a monthly premium. Some beneficiaries with higher incomes will pay a higher monthly Part B premium. If you do not choose to enroll in Medicare Part B and then decide to do so later, your coverage may be delayed and you may have to pay a higher monthly premium. To learn more about Medicare, follow this link to the Social Security Administration’s Medicare Page

h. Postpone Income and Required Minimum Distributions. As of January 1 2020, retirees who reach the age of 72, have until April 1 of the next year to take their first Required Minimum Distribution (RMD) from their qualified retirement plan(s).  They have until the next December 31 to take their second distribution. Those individuals whose employer retirement plans allow it and who may continue to work after their 72nd birthdays may wait until the year they retire to take their first Required Minimum Distribution. For more on this topic see the IRS Topic Page on Required Minimum Distributions

i. Use a Qualified Longevity Annuity Contract (QLAC) to Cover Income Needs in Later Retirement Years. For many, retirement funds are limited. If you are concerned about outliving your retirement assets, a QLAC is a great way of assuring yourself income later in retirement.  QLAC income must begin before you reach your 85th birthday but can last for the rest of your life. Click here to watch a seminar by QLACguru Ray Ryan describing this strategy then try our Failsafe (sm) Maximize Income Calculator to see how this strategy might work for you.

j. Mark your Calendar. Retirement is not a single event, but a process to be managed. To get started, follow the link to Calculate the important future dates of your retirement. Start studying your options and setting goals.  Be prepared to address each of the milestones as they arise at age 50, 55, 62, 65, 70 and 70 and one-half. 

Once you’ve done this homework, it may be time to hire on a financial advisor to help you grow your assets. But pick her or him carefully. Like Charles Barkley, you need to, “take the shame out of your game.”   Never allow a prospective advisor to ridicule the size of your portfolio. If he or she does, find another who won't.

After all, it’s not about what you have now, but what you can have in the future.  

Welcome to the next 30 years of your life!

Want to learn more? Check out our videos page to see additional QLACguru videos.  See our calculators page to develop an anonymous RMD calculation and estimated QLAC quote. Answer specific questions by going to our Knowledgebase page.  Visit our blogs page for in-depth articles on a variety of topics including how QLACs help with sequence Sequence Risk, how QLACs are similar to and different from Social Security, as well as many other topics. Free Consultation.  If you would like us to develop a free RMD analysis and illustration of how a QLAC might work for you, please click here.

A Women Over 60? Here's Why A QLAC May Be Your Best Friend

By Betsy Ryan and Ron Ryan

Are you old enough to remember, “Diamonds Are a Girl’s Best Friend?” The song is from the 1953 Musical, Gentlemen Prefer Blonds starring Marilyn Monroe?[1]

The French are glad to die for love.
They delight in fighting duels.
But I prefer a man who lives
And gives expensive jewels!
A kiss on the hand.
May be quite continental,
But diamonds are a girl's best friend!

A kiss may be grand,
But it won't pay the rental
On your humble flat
Or help you at the automat.


Source: Marilyn Monroe - Diamonds Are A Girls Best Friend Lyrics | MetroLyrics 

Here is why these lyrics are relevant even today – more than 50 years later.  The average life span in America is growing, and women are living much longer than men.  A 2014 longevity study[i] predicts a 60-year-old woman has a 32 percent chance of surviving to age 90. If a woman celebrates the 80th birthday, there is a 42 percent chance of living to 90! A husband’s survival rates are much lower than those of his like-aged wife.  A woman's chances of outliving her husband at age 60 are a whopping 57 percent. [ii] Social Security actuaries developed these observations from the entire social security database, which includes the whole United States population.  If you are a 60-year-old woman who does not smoke and are generally in good health, the probability of outliving your spouse is even higher than the above percentages.

How to pay for all those Golden Years? 

In retirement, a QLACs may be - to borrow from the song -  “A girl’s best friend.” Here are a few basics:

  • A QLAC stands for Qualified Longevity Annuity Contract.
  • Available only since 2014, a QLAC provides a pension-like stream of annuity payments in the later years of retirement. 
  • A woman may buy a QLAC today, lock in lifetime monthly income starting at a future date of her choosing.
  • A QLAC allows her to defer benefit payments until age 75, 80 or 85 -- or anywhere between. The longer she waits for the payout, the higher the QLAC’s benefit payment. 
  • An IRA owner may buy a QLAC with IRA assets without incurring a tax penalty. She can use the lesser of 25% percent of IRA assets or $135,000 out of her qualified retirement account to buy a QLAC.  (For 2020 and after, the maximum QLAC limit increases from $130,000 to $135,000.)
  • The IRS calculates this limit per individual taxpayer. If both a woman and her spouse have IRAs, each may buy a QLAC.
  • Until benefit payments start, no required minimum distributions are payable on the QLAC assets. So, she defers taxes on whatever money she put into her QLAC.

Once the annuity starts, QLAC benefits will continue for as long as she lives.    Benefits will continue while she is alive -- even if she lives to age 100 or older. 

R-E-S-P-E-C-T Might Mean Q-L-A-C!

High net worth individuals do not often worry about running out of assets in retirement. They can use the so-called  ‘four percent rule’ to liquidate their portfolios.   With smaller portfolios (e.g., IRA assets between $100,000 and 1 million dollars), that 4% rule does not make sense. A Qualified Longevity Annuity Contract is an excellent alternative strategy. A QLAC can provide a reliable stream of payments throughout even the most extended retirement.  Indeed, a QLAC can outlast diamonds, gold, and stocks, and bonds, and (probably) your husband.  Although they have different start dates, social security and QLACs share the common attribute of payments for life to the beneficiary – even if that period is the next thirty or forty years.  

Now, before you go out and buy a QLAC, here are a few things to consider:

  • A QLAC is irrevocable. Once purchased, you cannot get the money back from a QLAC -- until it compensates you in the form of benefits. To make sure you get your premium amount back, you can buy the QLAC with a so-called “return of premium" rider.  A return of premium rider is a kind of death benefit. The benefit will pay your estate any unreturned premium in the event of death. Be aware that such riders come with a reduction of lifetime benefits.
  • A QLAC Payout Is Fixed. One of the main advantages of a QLAC is that it allows you to know today what you will receive in the future. If you think inflation is a risk, you can buy a rider that guards against inflation.  As with a return of premium rider, a cost/benefit tradeoff exists for the Cost of Living Adjustment (COLA) rider as well.  You should study the alternatives.
  • A QLAC is a life annuity issued by an insurance company.  Because of the “for life” feature, a QLAC is more like social security benefits than it is like investing in stocks or bonds.  As a result, the rates of return are low if the beneficiary dies early and high if the beneficiary is long-lived. One comprehensive study has shown that life annuities, in general, are the best choice for individuals funding for their essential living expenses for the duration of their retirement. The stock or bond alternatives run “sequence risk” or the devastating outcome of incurring investment losses in the early years of retirement.  Stocks and bonds are appropriate for individuals funding lifestyles (e.g., around the world trip), legacies for heirs and buffer assets for the unexpected. A QLAC is an assurance that there will always be a check to cover one's retirement living expenses.
  • A QLAC reduces your asset-based advisor’s compensation. Is your retirement portfolio managed by someone compensated based on assets under management? If so, don’t expect that manager to support the idea of a QLAC. A QLAC will reduce their compensation by up to 25 percent.  Be sure to review a QLAC investment with a genuinely objective advisor.
  • As with Diamonds, Be Sure to Choose A Real One! A QLAC is a type of Deferred Income Annuity, but not all Deferred Income Annuities are QLACs. Also, a QLAC is not a variable or index annuity.  Both those types of annuity have their performance tied to the stock and bond markets.  (Variable and Index annuities pay much higher compensation to the seller.)  A QLAC is designed and sold by the life insurance carrier as a Qualified Longevity Annuity Contract.

The QLAC was created by IRS regulation to help seniors who are living longer. Below is a summary of QLAC required features:

  • Must be a life annuity – single or joint with a spouse;
  • Must be a deferred annuity starting no later than age 85;
  • Only defined contribution account funds (e.g., IRA) may be used;
  • Roth accounts and large pension plans cannot participate;
  • The 25%/$135,000 premium limit applies to each;
  • No surrender values, but Return of Premium election is allowed;
  • The annuity cannot be variable or otherwise indexed to a market;
  • Annuity benefits are backed by the good faith and credit of carrier;
  • Up to the specified limited noted above, withdrawal from the retirement account to fund the QLAC (e.g., IRA) is not taxed;
  • Withdrawals do reduce plan (e.g., IRA) assets for RMD computations;
  • QLAC Annuity deferred payments are 100% taxed when received, but this will occur in the future when you are likely to have less income.

QLACs and Diamonds?

Every woman over sixty may want to consider a new ‘best friend’ in addition to her diamonds. She should take a proactive look at retirement assets with an eye for the long term. Later in life, a QLAC may be a “girl’s best friend.”

 

Want to learn more? Check out our videos page to see additional QLACguru videos.  See our calculators page to develop an anonymous RMD calculation and estimated QLAC quote. Answer specific questions by going to our Knowledgebase page.  Visit our blogs page for in-depth articles on a variety of topics including how QLACs help with sequence Sequence Risk, how QLACs are similar to and different from Social Securitybest practices in buying a QLAC as well as many other topics. Free Consultation.  If you would like us to develop a free RMD analysis and illustration of how a QLAC might work for you, please click here.

   

 

[i] See https://www.ssa.gov/OACT/NOTES/as120/LifeTables_Body.html

 


[1] Modern entertainers from Madonna to Beyoncé have borrowed from this iconic production.  While no doubt anachronistic, the song does raise a vital challenge -- how to pay the rent in our later years!  

 


How to Buy a QLAC

 

So, you’ve decided you need a Qualified Longevity Annuity Contract (QLAC), pronounced cue-lack.  

You have decided that a QLAC purchase is an excellent way to insure against the risk of outliving your assets.  You have sufficient IRA retirement assets for the purchase to make sense.  Your good health makes it reasonable to expect you will need QLAC annuity income when you are in your late 70’s and 80’s and hopefully, after.  You’ve used QLACguru’s calculators, spoken with your advisors, and evaluated whether the purchase makes good sense from a tax perspective.  (Please see our previous blog post on 8 Signs You Need a QLAC).

Now what? 

Set out below is the step-by-step process for purchasing a QLAC.  (For an infographic summarizing this blog piece, click here.) While this process may vary slightly from carrier to carrier and agent to agent, here is guidance on what to expect along the way to owning a QLAC Annuity:[i]

1.       Select an Agent or Broker.  Given the newness of the QLAC product, there are relatively few agents who are well-versed in the sales and illustration of QLACs.  Whether you ultimately buy from an online agency or a local provider, we recommend starting with an online agency with a comparison quoting engine.  Why?  Annuity Carriers vary in terms of how they price different QLAC product features. Local agents typically represent only one or two carriers while online agents like immediateannuities.com will quote 7 or 8.  So, even if you are uncomfortable making your purchase online, it pays to start your QLAC journey comparison shopping multiple carriers online first, rather than go straight to a single, local provider.  

 Here are five questions we ask when selecting an agency:[ii]

  • How long has the agency been in business?
  • With how many carriers offering QLAC annuities does the agency work?
  • How many QLAC annuities has the agency sold?
  • What is the agency’s Better Business Bureau Rating?
 

2.       Select QLAC product attributes that are best for you.  If you are married, you will need to determine whether you want to have income over the length of one life or choose a Joint & Survivor benefit which will pay over the lives of both you and your spouse.  If you have children or other heirs in your retirement plans, you will want to choose between an annuity with a “Cash Refund” (Return of Premium -- ROP) feature which provides a return of the unpaid premium amounts upon your death and a “Life-only” annuity with no death benefit.  A Cash Refund/ROP annuity will provide a better outcome for your heirs if you die early but will pay a lesser benefit during your life than a Life-only policy.

3.       Select a carrier.  Each of the decisions about product features above includes economic trade offs.   Each of these features will be priced differently by different carriers.   Also, you will want to verify the claims-paying abilities of each of the carriers by checking their credit ratings (e.g., A.M. Best).

4.       Request Annuity Purchase Paperwork.  Know what you want? Ready to pull the trigger?    It is time to contact your agent or broker.  Together, you will review your plans.  Your agent will go through an application questionnaire with you, which will allow your agent to complete the carrier’s annuity application partially.  During the review of the application questionnaire, the agent will verify the amount of the annuity purchase, making sure you are meeting all the tax rules for a QLAC purchase, including limits on how much you can contribute to your QLAC annuity.   The Qualified Longevity Annuity Contract or "QLAC" premium purchase is limited to 25% of a retirement plan (i.e., assets held in tax-qualified accounts such as an IRA), but no more than $135,000 from all plans.  Your agent will request a copy of your end-of-prior-year IRA balances from your IRA account required for the paperwork.   Other questions in the questionnaire will include the name of your IRA Custodian and your IRA account number.  Your QLAC application will also include a funds transfer form, which allows your insurance carrier to request funds directly from your IRA custodian. This kind of transfer is called a trustee-to-trustee transfer, which means you will not need to write a check to buy your QLAC policy.     

5.       Complete and Mail Annuity Application Paperwork.  The agent will overnight the carrier application to you for your review and signature.  The agent will typically include a prepaid envelope which you will use, depending on the carrier, to mail the application and funds transfer form to the carrier for processing.  It is important to review your annuity application paperwork with your agent and sign all the forms including the funds transfer form. Once the application is completed, your work is done.  The agent or broker will follow up with the insurance company to make sure that the package was received and is in good order. 

6.       Sign Receipt of Policy Delivery Notification.  Over the next two weeks, the Insurance company requests funds using the form you signed, and the IRA custodian mails the check to the Insurance Company on your behalf to purchase the annuity.  Then your QLAC annuity contract is printed by the carrier and overnighted to your agent. Your agent will make sure that the contract is correct, and will then overnight the contract to you.  Once you receive the contract, you will be asked to sign and return a receipt of delivery notification.  This notification is to confirm that you have received the annuity contract.  Often, both the carrier and agent (or broker) will request a copy of this document.

7.       Calculate Your Lower Required Minimum Distributions!  Once the carrier funds your QLAC, it must file a 1098-Q identifying you as the owner of a QLAC.  The document includes your taxpayer ID and the balance of the newly formed QLAC.  After age 72, your Required Minimum Distributions will be reduced because the QLAC purchase price is no longer part of the IRA account balance. Because the distribution was made to purchase a Qualified QLAC, that IRA distribution is not as taxable. 

8.       Receive Yearly Annuity Account Correspondence.  You will receive an annual statement of account from the insurance company.   This statement typically includes the Income start date and the amount of the benefit.  Depending on your annuity contract features, some companies will allow you to adjust the annuity start date, moving it backward or forwards in time, typically in five-year increments.  This flexibility usually applies to cash refund (Return of Premium) policies only.  (If you think you’ll want this kind of flexibility, ask which carriers offer this flexibility before you buy the QLAC.)

9.       Decide How Annuity Payments Should Be Made.  One to two months before the income start date of your annuity, many carriers will send a letter offering to set up direct deposit.  You can choose to receive a paper check or direct deposit.  For this, you will need to provide a voided check and your checking account information.

10.   Enjoy Life-long Annuity Benefits Payments.  Congratulations!  Because of your careful planning, you will receive annuity payments from the insurance company for the rest of your life.  Uncle Sam will treat your QLAC annuity benefit payments as ordinary income.  You will receive a 1099-R from the insurance company at the end of each year recognizing this income to you.  The longer you live, the smarter you will feel about your QLAC purchase! 



Want to learn more? Check out our videos page to see additional QLACguru videos.  See our calculators page to develop an anonymous RMD calculation and estimated QLAC quote. Answer specific questions by going to our Knowledgebase page.  Visit our blogs page for in-depth articles on a variety of topics including how QLACs help with sequence Sequence Risk, how QLACs are similar to and different from Social Security, as well as many other topics. Free Consultation.  If you would like us to develop a free RMD analysis and illustration of how a QLAC might work for you, please click here.


8 Signs You May Need A QLAC

A Qualified Longevity Annuity Contract (QLAC)  – pronounced 'cue-lack' - is a new type of annuity product designed to insure against the risk of outliving retirement assets.  The QLAC investment was made possible by enabling legislation from the US Treasury in July 2014.  At that time, the Treasury issued final IRS regulations that defined QLACs.  The QLAC  product remains relatively unknown to the investing public. 

Briefly, an owner of a traditional Individual Retirement Account[1] (“IRA”) can transfer funds out of the IRA to pay a premium[2] to purchase a QLAC.  That transfer is not treated as a taxable event.  Instead, the asset balance in the IRA is reduced by the transfer/premium, thereby reducing required minimum distributions from the IRA.  (Go to qlacguru.com/calc to find a free tool to help project tax deferral amounts).  Only distributions from the QLAC are taxed to the owner, and such distributions can be deferred to as late as age 85.  Once distributions begin, they are paid for the life of the QLAC annuity owner[3], no matter how long he or she might live. (Click here to open a separate window on a partner site to see how much monthly income a QLAC purchase might generate.)

QLAC’s are not for everyone. Here are eight signs that you, an IRA owner, may be a candidate for a QLAC purchase. (For an infographic summarizing this blog piece, click here.)

1.       I am retiring or about to turn 72.  Age has an important bearing on when to make a QLAC purchase.  QLAC investors typically choose to make a QLAC purchase near retirement (for example, the early to late sixties), or upon reaching the age of 72.  Here is why.

·         At Retirement.  At retirement, many retirees choose to or are required to move their assets from their employer-sponsored retirement accounts (e.g., IRA, 401(k) or 403(b) accounts) into an individually managed IRA account. At that time, retirees are faced with their first decision whether to purchase a QLAC.

·         At Age 72  The next most common time to evaluate QLACs is when an IRA owner approaches age 72. This milestone is the age at which IRS accounts[4] will be required to begin taking  Required Minimum Distributions (“RMDs”), or the owner will subject to severe IRS penalties. For those outside the top 5% in income, the question becomes one of measuring the income security from a bond portfolio versus the guaranteed income from a QLAC.  Also, to be factored in is the tax cost of RMDs without a QLAC versus the savings from reduced RMDs with a QLAC. Go to  qlacguru.com/calc to find calculators that will help analyze how much one may contribute to a QLAC and the tax deferral impact of a QLAC purchase.

2.       I am healthy and expect to live for a long time.  Good health and likely longevity are key variables in deciding whether to purchase a QLAC.  For example, take a 69-year-old male smoker with a history of cancer and heart disease in his family.  This man is highly unlikely to see his 80th birthday. A QLAC is probably not for him. This is because the QLAC has no cash value and cannot be undone after purchase.[5] On the other hand, for a 69-year-old-female in great health and with a family history of great longevity, a QLAC purchase can make a good deal of sense.  QLAC annuities payments will continue for life, even if she lives to be 105!

3.       I have retirement assets.     Most insurance carriers offering QLACs have $15,000 minimum premium.  Immediateannuities.com prefers to sell QLACs with a minimum purchase amount of $20,000.  This translates to a minimum IRA balance of $60,000-$80,000. The overall premium limit of $125,000 is 25% of $500,000 of IRA assets. The Qualified Longevity Annuity Contract or "QLAC" premium purchase is limited to 25% of a retirement plan (i.e., assets held in tax-qualified accounts such as an IRA), but no more than $135,000 from all plans.  (The $130,000 lifetime limitation was increased to $135,000 on January 1, 202- and will increase from time to time thereafter.)  As the QLAC premium falls as a percentage of a persons’ IRA assets (over overall assets), the relative impact will decline.  But if two members of a couple each own separate IRAs, both members may purchase a QLAC, subject to the previously mentioned limits.

4.       I have an estate plan in place.  Most parents want to avoid becoming dependents of their offspring.  A QLAC is designed to do just that – lifetime income prevents one from becoming a dependent. On the other hand, a QLAC is not a tool to build an estate.  Typically, the QLAC purchaser’s gift to the next generation is freedom from the need to financially support and physically care for the prior generation.    Go to the Get Quote tab on the right-hand side of the page on QLACguru.com to see how much income a QLAC purchase would provide.

5.       I can use some help staying on budget.  By the time we reach our sixties, some of us are very good at living on a budget.  Others are not.   A person with too little discipline can easy spend away savings with a weakness for travel, new cars, expensive clothes, or lavish gifts for grandchildren.  For this individual,  a QLAC purchase can impose discipline by simply making the assets out of reach.   Socking away up to 25% of your retirement assets now into an instrument that will begin paying fixed amounts during later years, can be a clever way of budgeting for future retirement income needs.  Ironically, this can allow one to be less concerned about the adequacy of savings early retirement years, safe in knowing that the income needs anticipated in later years have been addressed by the QLAC purchase.

6.       The Investment climate is uncertain.  The current stock market, bond market, and interest rate returns can have an important bearing on the decision to purchase a QLAC. If returns to investors are high, as they were during the 1990s, for example, then an IRA owner may be able to apply the 4% rule of thumb, selling off 4% of the IRA assets each year and applying the proceeds to living costs. If, on the other hand, the investment returns climate is more uncertain (as it has been in recent years), then that IRA owner may want to purchase a QLAC and lock in an annuity payment for the future. The QLAC will deliver a fixed return and remainder of assets in the IRA will still subject to market gains or losses.  The QLAC buyer has simply reduced his or her exposure to market fluctuations.

7.       I have a lower tolerance for risk.   Some people lay awake at night and worry when there is turbulence in the markets. For these folks, a QLAC may be a good way to assure future income and current rest. If, on the other hand,  someone is comfortable with fluctuations in the market, even those that affect a retirement nest egg, then that person may be more comfortable self-insuring against the probability of running out of money in retirement.

8.       I want to defer taxes.  A QLAC offers two potential tax advantages, which may or may not be of consequence to different IRA owners.  When the IRA withdrawal occurs to pay a QLAC premium, that distribution is not taxed.[6]  QLAC distributions are fully taxable when paid.  As a result, the QLAC buyer gets a 10 to 20-year deferral of taxation between premium payment and benefit receipt.  Further, in most instances, the IRA owner is in a higher tax bracket at the premium purchase date than he or she will be when the QLAC pays benefits.  Both tax deferral and lower tax rates can mean more spending money for the OLAC buyer. The second QLAC tax benefit is that the QLAC premium is not deemed part of IRA assets – even though there was no distribution deduction treatment.  The RMD is determined by dividing the IRA assets (after the QLAC premium withdrawal) by a fixed factor that IRS sets for each age.   With the IRA assets reduced by as much as 25%, the RMD after a QLAC purchase reduces proportionately. When this reduced RMD is sufficient to meet living expenses, the IRA plus the QLAC should produce enhanced future retirement income over the IRA alone alternative.  Every person’s facts and needs are different. (Click here to open a calculator that can show how this might work based on your facts.) There will be exceptions to any generalization. 

Want to learn more? Check out our videos page to see additional QLACguru videos.  See our calculators page to develop an anonymous RMD calculation and estimated QLAC quote. Answer specific questions by going to our Knowledge base page.  Visit our blogs page for in-depth articles on a variety of topics including how QLACs help with sequence Sequence Risk, how QLACs are similar to and different from Social Securitybest practices in buying a QLAC as well as many other topics. Free Consultation.  If you would like us to develop a free RMD analysis and illustration of how a QLAC might work for you, please click here.


[1] QLACs can be purchased using funds from other tax-qualified savings vehicles such as IRC Section 401(k), 403(b) and 457(b) accounts.  No “Roth” accounts are eligible for QLAC purchases.   Herein, when we use the term “IRA”, it is implied that the same conditions and terms apply to the other accounts.

[2] The maximum premiums are a function of the IRA (or IRAs) asset balances.  Collectively, the limit is 25% of IRA assets or if less, $125,000. 

[3] Married couples can be designed as joint beneficiaries at the policy owner’s election.

[4] IRC Section 401(k) accounts have some unique exceptions which can allow distributions to be deferred past age 72.

[5] At inception, a buyer can elect a QLAC policy form that returns a minimum of the premium invested to the policy owners’ estate.  That amount is reduced by any benefit distributions received by the QLAC owner.

[6] IRA distributions are treated as fully taxable.  This treatment is the flip side of the IRS permitting contributions to IRAs being tax deductible. Very rarely, there can have been non-deductible contributions to an IRA.  Distributions relative to these contributions require special treatment.



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