What are the benefits of purchasing a QLAC?

A Qualified Longevity Annuity Contract (QLAC) converts savings in your traditional IRA or 401(k) into a guaranteed paycheck you can’t outlive. Unique among other Deferred Income Annuities and qualified retirement savings vehicles, QLACs are not subject to required minimum distributions (RMDs) that begin at age 70½. Here are the benefits of purchasing a QLAC:

Longevity Insurance

How can you be sure your money will last for the rest of your life when you don’t know how long you’ll live? With a QLAC you can transfer the risk of outliving your savings to an insurance company by converting your savings into a guaranteed lifetime paycheck that continues for as long as you’re alive.

Fixed Retirement Planning Horizon

Similarly, deciding how much of your assets you can reasonably use each year is challenging when you don’t have a fixed spending horizon. A QLAC can help by being your reliable, steady source of income later in life. You can manage your assets up until age 85, for example, after which your livelihood will be funded by the QLAC.

RMD & Tax Deferral

The government requires you to begin withdrawing from your pre-tax savings accounts at age 70½, early for those with other sources of income and long expected lifespans. With a QLAC, you can reduce those required withdrawals and associated income taxes, making your money last longer. The money you transfer from your IRA or 401(k) to a QLAC is not subject to RMDs until as late as age 85.

Spousal Benefits

QLACs can be structured to sustain both your’s and your spouse’s retirements. Your first option is to opt for a joint life QLAC, which provides income as long as either you or your spouse are alive. Alternatively, adding a death benefit and naming your spouse as the beneficiary means that your spouse can receive the remaining value in the contract upon your passing as an annuity over his/her life (or in a lump sum).

Principal Protection

The years leading up to retirement are not the time to put principal at risk. Getting a portion of your assets out of the market and into a QLAC gives you good return potential via a guaranteed lifetime income stream while simultaneously protecting the principal you’ve worked so hard to accumulate. And, by choosing a cash refund payout option, you can rest assured that the full value of your annuity will be passed onto your heirs in the case of a premature death.

Clear, Simple Product

Unlike other annuities (namely variable and indexed annuities) or actively managed funds, QLACs are easy to understand and do not have fees that erode their value. Like other Deferred Income Annuities, QLACs very simply convert savings into a future guaranteed lifetime paycheck. They can be understood in simply 3 numbers: the premium you pay today, your future annual paycheck, and the age at which it starts.

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Head to the QLAC Guide to learn more about the product, how it works, and get tips for the buying process.