What Is A Qualified Longevity Annuity Contract?
“The need for guarantees, lifetime income, safety, and safety make choosing the right plane essential” Philip Richardson
An annuity is a type of contract offered by insurance companies. When someone buys an annuity, they are, in most cases, contracting to exchange a lump sum of cash gain a guaranteed monthly income. Social Security, which forms the basis of most peoples’ retirements, is itself a type of annuity.
Each “flavor” of annuity products created is designed to solve a specific need. There are hundreds of varieties of annuity contracts on the market. This diversity, along with the inherent risk-averse quality and contractual guarantees, gives annuities a high degree of flexibility and safety when planning for retirement.
For these reasons, your current financial advisor may be reluctant to recommend an annuity. He or she probably has not had the specialized training and exposure necessary to use annuities properly. If your goal is to create income in retirement that you cannot outlive, provide a legacy for your loved ones, get guaranteed protection of your principle, or help with long term care costs, you want to at least research annuity products. If you think this might be something you’ll add to your portfolio, you should seek an annuity specialist’s services.
One type of annuity- The QLAC and how it’s different from other annuities
There are five major categories into which most annuities fall. These are variable annuities, fixed-indexed annuities, deferred annuities, deferred annuities, and immediate annuities. Within those broad categories, you’ll find a plethora of specialized contracts with various enhancements and features. There are far too many types of annuities to list in this short article. However, it might be useful to take a more in-depth look at one of the more popular varieties of annuity products, one that works well for some people with 401(k) or IRA plans.
This particular type of annuity contract is in the deferred annuity family. Known as a “Qualified Longevity Annuity Contract,” it can be funded from a qualified retirement plan or IRA.
So long as a QLAC complies with IRS rules, it is not subject to the “required minimum distribution.” (RMD) The annuitant and insurance company will specify the start date for payouts for the annuity, but they must begin before age 85. The primary benefit of a QLAC is the deferral of taxes that go along with RMDs, allowing the money to grow for a more extended period. Currently, individuals can spend up to 25%, or a maximum of $135,000, whichever is less of their qualified plan money to purchase a QLAC. QLACs also provide guarantees that can shield your money from the stock market’s volatility and help reduce the possibility of running out of money in retirement.
The Transfer of Risk Helps Create More Retirement Security
When you purchase a QLAC, you transfer your risk of living too long to an insurance company. This transfer enhances your financial well-being, especially as you get older. A QLAC eliminates much of the guesswork when planning your retirement income by offering a predictable stream of income that you won’t outlive. QLACS may also help offset long-term care expenses and other medical costs.
QLAC’s are not suited for everyone
QLACs are just one type of annuity available in today’s market.
They may not be the ideal choice for everyone. For one thing, you may die too soon to use your QLAC money.
Also, QLACs do not offer any form of inflation protection, as do other types of annuities. You must be particularly careful to determine how much inflation-adjusted income you will need in the future.
Summary
Americans realizing the need for more income in retirement are turning to many types of annuity products to meet that need. Those with qualified plans and IRAs may consider purchasing a QLAC. Whatever annuity you choose, always meet with a professional who understands the products and best fits for your retirement goals.
