Many experts tell you to base decisions on your “gut” reaction, and often that is a good and accurate way to make up your mind, such as when you meet a politician face-to-face for the first time or your daughter brings home a new boyfriend.
But when you are making decisions about your financial future, it’s usually better to rely on reason and fact, such as numbers that you can calculate. After you have looked at the analysis and the potential results, you can make a decision that fits your life and personal preferences.
How about your advisor’s gut?
I had a discussion on this topic with a woman who had visited the Go2Income.com website and decided that a QLAC might be a good addition to her retirement plan. She learned that a QLAC is a deferred income annuity designed for a rollover IRA that begins paying lifetime benefits later in retirement – usually after you have reached 80 or 85 – and reduces the amount of taxable RMDs until that date.
She mentioned her interest in QLAC to a Certified Financial Planner, who quickly told her to forget it. When she called me and related the story, I wondered whether her CFP really knew much about what a QLAC is. He certainly did not take the time to crunch the numbers for this potential client — and she still had questions about how to design a QLAC solution for herself.
We talked about how soon she can start receiving income, how to protect her daughter as beneficiary under a QLAC, and how much of her rollover IRA savings she could devote to a QLAC.
Figuring the numbers
Analyzing the return for any form of income annuity, including QLAC, is complicated because the annuity’s benefits depend on the length of your life. It’s not like investing in bonds, with a fixed rate for a set time, or stocks, which depend on the health of the underlying business or the economy.
Go2Income works because we have reverse-engineered the metrics that insurance companies use to price income annuities. We can tell whether you are paying a fair premium, whether specific products will support your retirement decisions, and how the insurance company crediting rates will compare to current interest rates.
The main benefit of an income annuity, of course, is that the payments are guaranteed to continue for the rest of your life, so the amount and length of time of the payments is known.
Ask these questions
So why did this woman’s financial planner tell her not to pursue a QLAC?
Was he reacting to internet headlines about annuities in general that are meant to alarm and attract readers? Does he have detailed knowledge of QLACs? Is he even licensed to sell QLACs? Or does it just not fit his/her business model?
A planner who had the tools to analyze the numbers could have helped the potential client decide whether a QLAC would be a good addition to her portfolio.
Remember! You are allowed to question your financial advisor to determine whether they know what they’re talking about.
The reality of retirement is that the solutions that are best for you may come from multiple sources: savings, stocks and bonds, the value of your house and income annuities. Educate yourself on the basics and work with knowledgeable professionals who can bring their own real analysis to aid you.
If you want to crunch the numbers to determine how an income annuity might fit into your retirement plan, go to Go2Income.com.