Qualified Longevity Annuity Contracts ("QLAC")

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Solve For Guaranteed Lifetime Income - Later

Investors planning for retirement want simple solutions with guaranteed future income. QLACs are an important retirement income planning tool created to do just that - if you need income later.

QLACs are one of the most efficient ways to activate a deferred stream of guaranteed lifetime income payments even if you live to 100 or beyond.

A QLAC is like getting an old-fashioned pension plan - but you build it yourself.

In 2014, the U.S. Treasury Department made the purchase of DIAs with qualified funds from Traditional IRAs a much more attractive option. Prior to the ruling, if you wanted to purchase a DIA, you were required to start your guaranteed income payments no later than age 70 ½, in order to satisfy the IRS mandated RMD (Required Minimum Distribution) rules at that time.

Now, if your DIA meets certain requirements, it is considered a QLAC (Qualified Longevity Annuity Contract), allowing you to defer the start of your income payments to as late as age 85, while at the same time bypassing the normal RMD rules on the funds allocated to the QLAC.

QLACs have a limitation on how much money you can place in the policy. In 2022, it was the lesser of $145,000 or 25% of the total of all your Traditional IRAs.

If both you and your spouse/partner have IRA accounts, then each of you can own a QLAC. For example, if you had $600,000 in your IRA, you could allocate up to $145,000 (the lesser of $145,000 or 25%) into a QLAC, and if your spouse/partner had $400,000 in his/her IRA, then he/she could allocate up to $100,000 (the lesser of $145,000 or 25%) into a QLAC. All dollar amounts allocated to QLACs completely avoid and are not included when calculating future RMDs (Required Minimum Distributions).

The great thing is when you put money in, you know exactly, to the penny, how much income you will receive at any future age. It's like getting an old-fashioned pension plan, but you build it yourself.

You can purchase a QLAC from an insurance company with a single, lump sum amount called a premium. In return, the insurance company promises to make regular payments to you starting at a specific time in the future. 

With the 2020 RMD guidelines, you have to start taking money out of your Traditional IRA(s) at age 72 (instead of the previous RMD guideline of age 70 ½). With a QLAC, a guaranteed income stream can begin as soon as age 72 and as late as age 85 for the reminder of your life.

Most QLAC investors typically choose to receive monthly payments, however, you may choose to receive quarterly, semi-annual or yearly payments instead. These payments can be sent directly to your bank account for ease of use.

For example, a 60-year-old preparing for retirement could deposit premium now, with the intention of activating a future monthly income stream for life later, beginning at age 72 to complement Social Security payments, when he/she plans to retire and will no longer receive a monthly paycheck from his/her employer.

In exchange for the future guaranteed lifetime income payments, you give up the right to demand the return of your original premium, so the purchase of a QLAC is usually an irrevocable decision that cannot be undone once the free-look period has expired following contract issue.*

* Some QLACs do offer a Cash Out Option that will allow you to cash out of your QLAC at a discounted amount (a lower amount) before the future income stream begins. You should review a QLAC Product Fact Sheet, for complete information and restrictions that may apply, prior to making any decision to purchase a QLAC.

Solve For Longevity Risk - The Fear Of Outliving Your Money

If your investment portfolio suffers significant losses as you near or are in the early stages of retirement, losses coupled with retirement income withdrawals can send your investment and retirement income portfolio spiraling downward, and you may suddenly find yourself in a serious dilemma on meeting your long term retirement income needs. 

During retirement, investors are typically conditioned to put their investments in some sort of traditional "balanced" asset allocation buy-and-hold portfolio of stocks and bonds which conventional wisdom says should perform well over the long run. But such "balanced" portfolios have failed before - and failed badly - as evidenced by the 2000-2002, 2007-2009 and 2022 bear markets which forever altered the future retirement income plans of countless investors.

Lifetime income guarantees act as a transfer of risk strategy from your investment portfolio, which is subject to stock market losses, to create your own personal "pension-like" guaranteed income stream for life, so you don't outlive your money.

QLAC Payment Term Options Can Be Adopted To Meet Your Needs

One of the many advantages of QLACs is that the payment term can be customized to meet your needs, the needs of you and your spouse, and/or potential legacy options for your children, grandchildren or other beneficiary(s). 

While the amount of income you receive depends on several factors, including your age and life expectancy, gender, premium amount, your chosen payment term option and interest rates in effect at the time the policy is issued, the income is primarily based on your life expectancy (or joint life expectancies) at the time income starts, with interest rates playing a secondary role. 

You can purchase a Joint Life QLAC if you want your income to also cover a loved one in retirement. By doing so, you can ensure that income will be paid to both of you throughout your lifetimes. 

Similar to your Social Security, the older you are when the QLAC income starts, the higher the payment (i.e. rate of return) because your life expectancy is less.  

Some of the available payment term options include: 

A. Single Life Annuities

- Single Life Only

- Single Life With Cash Refund

B. Joint Life Annuities

- Joint Life Only

- Joint Life With Cash Refund

C. Period Certain Annuities

The Single Life With Cash Refund is one of the most popular QLAC payment term options.

Single Life With Cash Refund

If structured correctly, this QLAC payment term option will pay income for one lifetime (and the lifetime of one other person if a Joint Life policy), starting at a predetermined time in the future. Additionally, this option guarantees that if the annuitant(s) die(s), the beneficiary(s) will receive a lump sum equaling the premium amount less all payments made to the annuitant(s).

The Life With Cash Refund payment term option ensures that all your money will go to you or your named beneficiary(s), and not a penny to the insurance company.

Help Solve For Legacy Planning

If structured correctly, the Life With Cash Refund payment term option guarantees that if the annuitant(s) die(s), the beneficiary(s) will receive a lump sum equaling the premium amount less all payments made to the annuitant(s). *

* Note: If the total payments received prior to the annuitant(s) death equal or exceed the initial premium paid for the policy, then no further payments will be made to the beneficiary(s) upon death. 

Following is a summary of key features and benefits that QLACs offer:

No annual fees

Simple

Once a QLAC is funded, the only work on your part is to collect your regular payments starting at a predetermined time in the future (which can be sent directly to your bank account).

Income can be deferred to as soon as age 72 and as late as age 85

Principal Protection

QLACs are not subject to market losses. Your principal is fully protected against stock or bond market downturns and is guaranteed by the assets of the insurer. We work with only the highest rated insurance companies in the industry.

Non-Correlated To The Stock Market

Sequence Of Returns Risk Mitigation

QLACs help protect your income from stock or bond market down turns which, as you near or are in retirement,  can help lower your stress level and give you Peace Of Mind.

QLACs Can Become A Part of Your Fixed Income Allocation Within Your Investment And Retirement Income Portfolio

Potential Higher Income Payments

Each annuity income payment you receive is comprised of three things:

(1) a return of your premium,

(2) interest, and

(3) a component from risk pooling (which only an insurance company can provide).

Can Be Used To Create Guaranteed Lifetime Income Annuity Ladders That Start At Different Ages In The Future 

Similar to laddering CDs or bonds, QLACs work well in conjunction with Social Security, SPIAs and DIAs to create guaranteed lifetime income annuity ladders.

Helps Solve For Longevity Risk

QLACs pay you a stream of guaranteed lifetime income payments (beginning at a later date) which can never be outlived.

QLACs Can Only Be Purchased From Qualified Funds In Traditional IRAs

Rolling some of your Traditional IRA money into a QLAC is an easy way to turn that money into exactly what is was intended for - a steady stream of income you can count on for the rest of your life (beginning at a later date) - like a good old-fashioned pension plan.

QLACs Funding Rules Differ From DIA Funding Rules

QLAC Assets Are Not Used To Calculate Your RMDs ("Required Minimum Distributions")

Lifestyle And A Smooth Transition

Lifestyle is knowing that you or your spouse will have enough money to live comfortably if something happens to one of you. QLACs can help provide a smoother transition for a surviving spouse who may not be as familiar with investing, so he or she can go about his or her life without having to worry about financial security.

Protection From Cognitive Decline

QLACs can help protect you and/or your spouse from the travails of cognitive decline, which could someday limit the ability to make complex decisions about suitable investments and withdrawal strategies.

QLACs Can Be Easily Structured For Legacy Planning To Create A Lump Sum Legacy For Your Heirs

There is a common misconception that the insurance company keeps what's left of your money when you die. If structured correctly, a QLAC can create a lump sum legacy for your heirs, with 100% of the unused premium passing directly to your beneficiary(s) upon your death.

May Avoid Probate

If an option with a death benefit is chosen, any remainder in your QLAC can usually pass outside of probate and be paid discreetly and directly to your heirs (not the insurance company) within days after all required paperwork is received in good order, in a lump sum or in installment payments over time (depending upon the selection you made when the contract was set up). That allows your loved ones to bypass the long, painful and costly probate process - saving them time, court costs, administrative costs and legal fees - and leaves your heirs money instead of family court battles and legal fees.