I’ve been asked to write some email marketing articles for their mailing list.
This is a sample of a larger piece.
An American man who makes it to the age of 65 today can expect to live until the age of 84 or later, and women can expect to live until almost 87. About one of every four of those 65-year-olds will live beyond the age of 90, and one in ten will survive past the age of 95.i Today’s 65-year-olds are also more likely to remain active and working. In 1995, the average age of retirement in the United States was 60; in 2015, it was 66.ii These trends aren’t new, and they’re not expected to go away any time soon. Advances in medical technology, changes in the way we do our work, and fluctuations in the economy mean that people are living longer and retiring later as time marches on. If you’re planning to finance your retirement with an IRA, a 401k, or a 403b, you can start taking your distributions at any time, but you must start taking your required minimum distributions (RMDs) when you turn 70 ½. If you wait until the age of 70 to take distributions and you’re one of the lucky ten percent who lives to be 95 of older, your retirement must last you at least 25 years.
If you know in advance that you’re going to live to be 90, you can build your income strategy with that in mind. But what happens to people who plan their retirement to last 20 years and then live to be 100? Fortunately, there is a way to help make sure that your retirement income lasts as long as you do.
Qualified Longevity Annuity Contract
A qualified longevity annuity contract (QLAC) is an annuity product that helps ensure that retirement income lasts as long as retirement. With a traditional retirement account (like an IRA, 401k, or 403b), you cannot avoid taking your required minimum distributions once you hit 70 ½, regardless of whether you feel that you need it or not. When you convert part of your traditional retirement account into a QLAC, you are purchasing an annuity which kicks in when you reach a specified age. With a QLAC, your annuity payments could continue for the rest of your life, regardless of how long that is. A longevity annuity could theoretically be purchased with after-tax dollars, but for many people who are approaching retirement, their retirement savings are largely held in retirement accounts that provide beneficial taxation. Until 2014, longevity annuities could only be purchased with after-tax dollars, but the Treasury Department made some adjustments that allow people to purchase a QLAC with their qualified retirement dollars.
What makes it qualified?
In order to qualify as a QLAC, an annuity must meet certain requirements.
You can’t put in more than 25% of an employment retirement plan (401k or 403b), or more than 25% of all pre-tax IRAs, into a QLAC.
You can’t put in more than $125,000 OR 25% (whichever is less). The $125,000 may change with inflation, so check with your financial advisor for the most current restrictions.
Each spouse who has their own retirement accounts may devote up to the limitations; these are individual limitations and not joint.
Payouts must begin by the age of 85 or earlier.
QLACs must have fixed payouts; they can’t use variable or equity-indexed annuities. However, the QLAC may have a provision for a cost-of-living adjustment.
The QLAC must be irrevocable, which means that you can’t surrender it for cash after it’s purchased. Some QLACs have a return-of-premium death benefit that’s paid to your heirs.
Advantages of a QLAC
When your required minimum distributions (RMDs) are distributed, the value of the QLAC is excluded from that calculation. This can help a retiree to hang on to a larger portion of the retirement account, as it reduces the amount of RMDs required. When a retiree reaches the age at which the QLAC begins making payments, the QLAC payments will not count for a retiree’s RMDs. As long as their retirement account is still funded, they will be receiving their RMDs and their QLAC payment for the same time period. A QLAC can supplement your current retirement strategy to help ensure that you don’t outlive your retirement dollars.
Disadvantages of a QLAC
Is a QLAC right for me?
If you’re considering a QLAC, your best option is to consult with your local annuities agent, or your personal financial advisor. These professionals can look at your retirement strategy and give you individual, tailored advice for your specific needs and objectives.
However, you might consider getting a QLAC if:
You have a family history of living past the age of 85
You have reason to believe that your medical or living costs may increase after the age of 85
Your retirement account may not have the money available to pay for your living expenses for more than 10-15 years
You have a strong desire to remain in your own home for the rest of your life and do not want to be forced into a nursing home or living with family because your retirement account runs out
You intend to remain active and retain a similar lifestyle as you age and want to ensure that your retirement account can support that
You do not have children who are financially capable of supporting you if you outlive your retirement income, or you do not want to ask your children for financial support if that happens
To find out more about a QLAC, you can contact your Crown Atlantic agent for a free, no-obligation consultation.
i Social Security Administration, https://www.ssa.gov/planners/lifeexpectancy.html
ii Gallup, http://www.gallup.com/poll/168707/average-retirement-age-rises.aspx
© Antle & Associates, 2016