Kiplinger’s September issue of the Retirement Report featured the Golden Retirement website, Go2Income.com, in an article about Qualifying Longevity Annuity Contracts, or QLACs. Here’s what the article said about the website.
Golden’s firm, Golden Retirement Advisors, created go2income.com to help consumers shop for QLACs. If you’re interested in a QLAC, you’ve got homework to do and may need the help of an adviser. Golden emphasizes that the first step is to design the policy. Death benefit or no? Single or joint life? Cost-of-living adjustments or not? Then shop for the best deal.
During his interview with me, the reporter and I discussed why QLACs are not more popular. As he wrote, in the first quarter of 2016, only $87 million of the $729 million invested in deferred annuities went to QLACs.The view that I expressed to him is that while the product and tax features of a QLAC are attractive, QLACs should be positioned as a component of an overall retirement plan – not as a standalone product. That’s when it makes sense: As an addition to most retirement plans.
As I wrote in the blog post QLAC Introduction, “the IRS published regulations in July 2014 that allow savers to use a portion of their rollover IRA or 401(k) to purchase a QLAC, which will provide guaranteed lifetime income starting at an age you choose (but not later than age 85).”
How I am Using My QLAC Purchase
The Kiplinger article even included a description of how I integrated a QLAC into my own retirement planning. In my situation, I bought a QLAC to help pay premiums on a life insurance policy purchased as part of my estate planning. Here is how Kiplinger’s reported my QLAC decision:
Jerry Golden, a longtime insurance company executive and annuity expert, opted not to take a death benefit when he purchased a QLAC with IRA assets last year at age 71. The $125,000 policy will deliver about $40,000 a year in payments starting when he reaches 85. He plans to use the money to fund soaring late-in-life premiums on a life insurance policy that’s part of his estate plan. He’s currently paying much lower premiums on that policy and, if he dies before age 85, the insurance will provide the funds for his estate.
QLACs’ Rate of Return
The tax treatment of QLACs is another reason they often make sense in a retirement plan.
The money I used to buy the QLAC came from a rollover IRA. Rather than being forced to take out Required Minimum Distributions from my rollover account that would be taxable, by purchasing the QLAC, I have pushed a portion of the taxable income forward until I am 85. Under the regulations, you can only use up to 25% of the money in the IRA, or no more than $125,000.
As a numbers person, of course I created a spreadsheet to calculate the after-tax rate of return on the entire transaction. Suffice it to say, it far exceeds the return on leaving the money in the rollover IRA account and taking taxable distributions.
The important step is to design the financial plan that is specific to you, and then select a QLAC that fits your needs for both the first and second stages of retirement. While some people might defer their QLAC payments as long as possible, others might want a QLAC that pays out at a younger age. You can even create multiple QLACs that pay out at different ages for needs you choose.
You don’t have to be a Kiplinger’s reporter to see the value in that.
Go2Income will allow you to quickly evaluate the QLAC you design and get the best quotes from the leading insurance companies that offer annuities.