- 2-Minute Article
A Secure Retirement
A QLAC helps clients protect their retirement income.
Many of us envision our golden years as a time to pursue favorite hobbies, travel the world, or relax with and enjoy family. But what if you don't have enough retirement income that will last to realize any of those hopes? Even worse: what if you don't have enough income to retire at all?
This is a concern plaguing many Americans. Perhaps it isn't surprising, considering it's been less than a decade since the 2008 financial crisis that decimated financial portfolios and jeopardized many retirement plans. So how can your clients protect themselves and ensure a guaranteed income stream that lasts well into their golden years?
A part of the answer may be found in the Qualifying Longevity Annuity Contract, or QLAC, a deferred income annuity introduced in 2014 as a result of new U.S. Treasury regulations. These regulations generally provide a method to defer taxable distributions for a portion of a qualified retirement plan and IRA assets until as late as age 85.
A QLAC IRA lets clients invest up to $125,000 or, if less, 25% of their qualified IRA retirement savings in an IRA annuity that will not be subject to required minimum distributions that otherwise would apply starting at age 70½. Clients can "turn on" that income when they need to, guaranteeing that they receive a certain amount of money each month according to the issuing insurance company's contractual guarantees.* From a tax perspective, the amount invested in a QLAC is tax deferred, until the participant withdraws it later in life. This offers a means of delaying some of the distributions that otherwise would have had to have been taken earlier.
Brighthouse Guaranteed Income BuilderSM deferred income annuity can be purchased as a QLAC, which allows income payments to start later in life, up to age 85. Clients can purchase a Guaranteed Income Builder QLAC between the ages of 40 and 82; however, distributions must commence no later than 30 years after the initial purchase payment.
The QLAC has many benefits beyond simply providing an alternate retirement savings option:
- Many people rely on Social Security and other investments, but some retirees have found great benefit to treating a deferred income annuity such as a QLAC as a type of personal pension plan.
- QLACs are not transferrable, but in the event that a retiree never taps into their QLAC investment, that investment can be paid to a spouse or another beneficiary by selecting a death benefit option.
- Above all, it provides clients with an income stream that can be combined with other income sources so they can meet their expenses in retirement and enjoy the lifestyle they planned for.
In addition to standard QLAC benefits, Guaranteed Income Builder QLAC gives clients flexibility. Even though clients decide upfront when to turn on the income, they have the option to change that date (either five years back or ahead) up to two times if their circumstances change. This can come in handy if a person decides they want to retire earlier or later than they had originally planned. The QLAC provides income for life, either for a single life or joint lives.
The Guaranteed Income QLAC option has been steadily gaining in popularity since it provides clients long-term income protection for their futures. Advisors generally counsel clients to expect to take four to five percent annually out of their plan during retirement, but people are living longer and life expectancy has risen dramatically in the last half century. This makes the flexibility of annuity distributions more attractive, providing insurance for the living and guaranteed income for life.