How large of a QLAC should I purchase?

When deciding what size QLAC to purchase, it helps to think about what your goals are. Do you want to generate a specific amount of income in retirement? Or, are you looking to reduce your required minimum distributions? The amount that you can spend on a QLAC will also depend on your 401(k) or IRA balances. QLAC purchases can not be more than 25% of of those balances and is capped at $130,000 regardless of your savings.

Let’s dive deeper into your goals to arrive at the right QLAC size for you:

Generating Retirement Income

If you’re buying a QLAC to cover your expenses in retirement, you’ll need to calculate your income gap. How much money do you plan to spend monthly or annually? And, how much income do you already have coming in, such as from Social Security, a pension, a rental property, etc? If your expenses are greater than your income, you have an income gap that could be funded with a QLAC. In this case, you’ll want to use the QLAC Quote Tool to solve for the QLAC size that’ll cover your income gap. Some things to keep in mind:

  • If you aren’t able to cover your full income gap, try delaying the income start date. You’ll have to withdraw from your other savings accounts to cover the gap for a while, but that’ll be easier when you know all your expenses will be covered once the income begins.
  • If you need more income than that QLAC premium limits will allow, you can add on a qualified or non-qualified Deferred Income Annuity (DIA) which are very similar products but do not have premium limits.

Reducing RMDs

If your goal is to reduce your IRA or 401(k)’s required minimum distributions, it’s likely that you’ll want to maximize your QLAC purchase. If your IRA or 401(k) has more than $520,000, your QLAC can be $130,000. Otherwise, your QLAC is limited to 25% of the IRA or 401(k) balance.

Blueprint Income is here to assist you if you need help performing a spending analysis, determining your income gap, and/or deciding how much you want to contribute to your QLAC.

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You’ll find more information about the QLAC, how it works, and how to approach the buying process in the QLAC Guide.