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Re: Anyone know the good, bad, ugly of QLAC's

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Message 1 of 11

I won't repeat the basics you can get by googling "what is a qlac."

What I can tell you is to think of it exactly like an immediate annuity with payments starting at age 85 (rather than now).

 

You do not want to buy a qlac or immediate annuity now because you get stuck with a very low interest rate.  THE INSURANCE COMPANY WILL NOT TELL YOU THE RATE!  (It would be very good for AARP to lobby for disclosure of the rate with the NAIC.  It is a clear and obvious taking advantage of seni0ors--those who buy these products--to not disclose the rate).  The insurance companies will tell you how much to deposit and how much you will get as a payout.  YOU need to calculate that compounded rate of return (you would think your financial advisor could do this, but most do not have the competence - ask your CPA).

 

If you die before age 85 or before you have recovered your initial deposit, you are guaranteed to get back whatever you invested (with 0% interest).

 

It occurs to me that an investor who has done well in stocks and wants to remain in stocks may be best suited for a QLAC (or a deferred longevity annuity). It allows the investor to take risk while knowing that they have a guaranteed income later in life (i.e, it is a good emotional tool)

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 2 of 11

People commenting here don't seem to know about QLAC's.  You specify the start date for receiving income, it does not start at age 95.  You actually cannot defer it past age 85.  You can do single or joint life.  Also surviver payments and and a Return of Premium death benefit less any payment that have been made to you.

https://www.immediateannuities.com/qlac-qualified-longevity-annuity-contract/

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 3 of 11

@retiredtraveler  I meant to give you personal kudos for your generosity to your family in my previous post!

"Never succumb to the temptation of bitterness." ~ Rev. Martin Luther King, Jr.

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 4 of 11

retiredtraveler wrote: 

    I have the happy problem of having too much RMD --- well, will have once I'm old enough in 4 years. DW and I remain pretty frugal and SS and dividends will more than cover our expenses. I'm going to be gifting my SS to the family, but that doesn't solve tax issues with RMD.

   Just trying to cover the bases.    


Lucky you!  Certainly you should collect as much information as you can and sift through all of it before making any decisions, but you strike me as a calculating, competent investor with an abundance of caution who would never do anything too risky.  We've all gotta do our "due diligence," right?

 

I've known one person who made it to 100, but only a couple who made it all the way to 94!  On that basis alone, I would say no to QLACs, but there's always the calculus of the unknown and the unexpected...slipping on a banana peel or getting hit by a car while crossing the street.  Age and infirmity will, many times, have nothing to do with someone's ultimate demise.

 

I'd sooner go to Vegas and risk my nest egg than take the chance that I'll reach my mid-90's with all of my faculties intact.  

 

Then again, I know you're not a big believer in having your DNA analyzed, but there's something called "telomeres" on the DNA...long telomeres = long life span.  Of course, if you slip on the proverbial banana peel, it doesn't matter anyway!

 

http://learn.genetics.utah.edu/content/basics/telomeres/

"Never succumb to the temptation of bitterness." ~ Rev. Martin Luther King, Jr.

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 5 of 11

"...C'mon,  surely you have boned up on it enough to know that the origin of these type annuities in the law is for -  guess what  - for folks who haven't saved enough in qualified retirement accounts to last them if they should live beyond 95  (That is not my figure,  nope, Forbes and others use that age as the break point on investment return)...".

 

That's what I have not determined yet. Some of my readings suggest that those of us with substantial assets should put some portion of our investments into a guaranteed annuity. But I have not found the specifics yet --- return on investment, how many years must it be held, when I could start taking out (that is, the contract terms). 

    I have the happy problem of having too much RMD --- well, will have once I'm old enough in 4 years. DW and I remain pretty frugal and SS and dividends will more than cover our expenses. I'm going to be gifting my SS to the family, but that doesn't solve tax issues with RMD.

   Just trying to cover the bases.    


Just think. The world was built by the lowest bidder.
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Re: Anyone know the good, bad, ugly of QLAC's

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Message 6 of 11

Oh my!  I was wondering just the other day where you and your dry wit were hiding!  I thought maybe you'd gone into the "Witness Protection" program!  Woman Wink

"Never succumb to the temptation of bitterness." ~ Rev. Martin Luther King, Jr.

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 7 of 11

"I'm trying to figure if I should be looking at these, or too many pitfalls......".

 

ret trav  -  To be real blunt  -  there really aren't too many pitfalls! 

 

Nope,  not too many.   Just one!   That you won't live to be 95 or 100! 

 

C'mon,  surely you have boned up on it enough to know that the origin of these type annuities in the law is for -  guess what  - for folks who haven't saved enough in qualified retirement accounts to last them if they should live beyond 95  (That is not my figure,  nope, Forbes and others use that age as the break point on investment return) 

 

Does that fit you?  The part about not having saved enough?  

 

After all,  the "L" in the acronym for Q "L" A C stands for Longevity. 

 

Not "Longjohns" underwear,  ya know Cat Wink

 

 

 

 

 

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Re: Anyone know the good, bad, ugly of QLAC's

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Message 8 of 11

retiredtraveler wrote:

 

"..  I know there are some major downsides like dying before you start receiving the annuity, in which case, none of it goes to your estate. It all goes to the company from whom you purchased (unless I misunderstand).  .."

  


That's ALL I need to know .. NOT interested!


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Re: Anyone know the good, bad, ugly of QLAC's

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Message 9 of 11

I thought the article you presented is very clear. It's an annuity that can be used to reduce your RMD. Of course, that's not the only idea. It's simply an investment vehicle to guarantee a lifetime of income.

   I know there are some major downsides like dying before you start receiving the annuity, in which case, none of it goes to your estate. It all goes to the company from whom you purchased (unless I misunderstand). A number of financial advisers are stating it's a pretty good idea, for someone with substantial assets, to put some portion of their portfolio into one of these. 

   I need to be sure I understand all the risks -- all the 'worst case' issues if I purchased one.

  

"....In 2014, the Internal Revenue Service (IRS) and the Department of Treasury revised rules regarding MRDs. These rules may provide you with greater flexibility for a portion of your pre-tax assets, allowing you to delay taking income payments until you may need them. A QLAC is a deferred income annuity that allows income to begin beyond age 70½ without conflicting with MRD rules. QLACs provide you with flexibility to defer the income start date until age 85 and can only be funded with assets from a Traditional IRA, or with assets from an eligible employer-sponsored qualified plan — 401(k), 403(b), and governmental 457(b). With a QLAC, you shift the risk of outliving your income to the insurer, who promises to pay you a certain amount of income for the rest of your life. The insurer also assumes your interest and market risk; even if the market and interest rates go down significantly during your deferral period, you still get the same guaranteed income stream...".

Just think. The world was built by the lowest bidder.
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Re: Anyone know the good, bad, ugly of QLAC's

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Message 10 of 11

@retiredtraveler - I've never even heard of them, and this article on Market Watch doesn't really explain what they are .. but I thought you might be interested in reading it. What exactly are they .. in layman's terms?

 

Market Watch on "QLACs"


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