Eight signs you may need a QLAC
A Qualified Longevity Annuity Contract or QLAC, (pronounced 'cue-lack'), is a great way to defer taxes and reduce risk in retirement. While a QLAC purchase is not for everyone, here are eight signs you may need one.
1. You’re of a certain age. Although a QLAC may be purchased any time before age 85, QLAC investors typically choose to make a QLAC purchase near retirement (e.g., your early to late sixties), or upon reaching the age of 70 ½.
2. You are in Good Health. Good health and likely longevity are critical variables in deciding whether to purchase a QLAC. Longevity is important because the QLAC has no cash value and cannot be undone after purchase.
3. You have retirement assets. Most carriers offering QLACs have $15,000 minimum premium. This minimum translates to a minimum IRA balance of $60,000. The overall premium limit of $130,000 is 25% of $520,000 of IRA assets.
4. Your estate plans are set. Most parents want to avoid becoming dependents of their offspring. QLAC lifetime income can help prevent this. While a QLAC is not a tool to build an estate, return of premium features can be used to pass on QLAC assets in the event of an untimely death of the beneficiary.
5. You’re not great a budgeting. A QLAC can impose discipline by merely putting the assets out of reach for a time. Socking away up to 25% of your retirement assets now into an instrument that will begin paying fixed amounts during later years can be a smart way of budgeting for future retirement income needs.
6. You’re in the right investment climate. If returns to investors are high, as they were during the 1990s, then an IRA owner may be able to apply the 4% rule of thumb. If, on the other hand, the returns climate is more uncertain and returns lower (as they have been more recently), then that IRA owner may want to purchase a QLAC and lock in an annuity payment for the future.
7. You have a lower tolerance for risk. Some people lay awake at night when the markets are turbulent. For these folks, a QLAC may be an excellent way to assure future income and current rest. If someone is comfortable with market volatility, then that person may be more comfortable self-insuring against running out of money in retirement.
8. You want tax deferrals. A typical QLAC buyer can have a 10-20-year deferral of taxation between premium payment and benefit receipt. Further, in most instances, the IRA owner is in a higher tax bracket at the premium purchase date than he or she will be when he or she receives QLAC benefits.