I swear, I laugh out loud sometimes reading the negative articles on QLACs or the comments on QLAC or supposed financial experts that destroy QLACs, and they're comparing them to investments, and it's hilarious. I'll give you an example. One of the most brilliant guys in the room, if there's a Mount Rushmore of financial advice you have, Wade Pfau there, and you have Michael Kitces there. I read his stuff, and I'm a follower, a smart person. But he destroys QLAC, "I hate QLAC. You could do better with your investments..." I hope so, Michael! Investments are investments. QLACs are contractual guarantees. I understand his argument. Mike, if you're reading this, I know you are. Power to you, brother. But I'm telling you, you're making an apple and oranges comparison and leading people astray. I know in your world, there are great financial advisors that are fiduciaries doing the right thing and that they're managing money and they're very good. But in the rest of the world, in the hinterlands over flyover America, there's a lot of garbage out there and things being pitched.
QLACs are great products. In the perfect world that I want to live in, where unicorns chasing the butterflies, catch the butterflies, and then let them fly off after giving them a sweet kiss. In that world, Qualified Longevity Annuity Contracts would be the number one selling annuity type on the planet. It's an emotional buy, even though it's a contract, it's an emotional buy, and I will tell you why after this.
Let's talk about why Qualified Longevity Annuity Contracts can be an emotional buy. Now, in 2014 when Qualified Longevity Annuity Contracts were first introduced by the Department of the Treasury and our friends at the IRS, yes, those were the people that designed QLACs, I was in Chicago at the time being Stan The Annuity Man and doing some media. I locked myself into a lovely hotel room and wrote an owner's manual, the first owner's manual that I've written, and I've written six. But a Qualified Longevity Annuity Contract was the first because I wanted to know how this worked out there. The reason it's emotional is that for me, I can have an IRA, and I can attach the lovely Christine, my wife, as the joint lifetime payment with a QLAC using my IRA. I love that. It can be set up to where the income can start in the future. I can start it at age 72 or 75 or 76 or 80, or as late as age 85. I can use it to hedge against inflation, and we are still determining what inflation will be. In my opinion, it's emotional. My wife, the lovely Christine, could care less about annuities, could care less about finances, could care less about Wall Street, could care less about any of that. All she wants to do is see the kids. Seriously, that's all she cares about. "Do we have enough money to do that? Hey Stan, do I have enough income to see my kids and hopeful grandkids when you die?" Yes, you do with Qualified Longevity Annuity Contracts!
Now at the time of this blog, the rule for funding a Qualified Longevity Annuity Contract, eligible participants can use up to $200,000 (indexed) to purchase a QLAC. In the past, the maximum premium for a QLAC could not exceed the lesser of 25% of the account balance or $125,000. The threshold age also increased from 72 to 73 for taking required minimum distributions (RMDs) from traditional IRAs and workplace retirement plans.
Now Qualified Longevity Annuity Contracts, let's say you put $135,000, and that $135,000 is not part of your RMD calculations. I'll give an example: that guy who bought the $135k out of the million? He'd take $135k, and the QLAC is not part of his million-dollar calculation. So, a million minus $135k is what he is basing his calculation on for RMDs. Can that save you some taxes? Yeah, it has the potential to save you on taxes, which is always a good thing. Now, is it a huge tax savings? Probably not. Do you buy a QLAC just for that tax savings? No. You buy a QLAC for two primary reasons, in my opinion. Lifetime Income that you can attach your spouse to the QLAC for Lifetime Income. So, if you die, it will continue to pay for the rest of his or her life as long as they're breathing, and we can structure it so that when they die, 100% of the money goes to the listed beneficiaries of the policy. Okay, that's the first reason to do it, period.
The second reason is inflation. You could split it up and take the $135k and say, "I'm going to take half of that, have income start at age 80, and then have income start at age 85." So, for all the masters of the universe that are throwing darts at QLACs and saying, "Whoa, the return on investment is not that good, and I could beat it with a good portfolio and solid money management." Of course, you can! Come on, player! That's crazy, and that's apples and oranges. Annuities are contracts, and investments are investments. But annuities aren't Investments. Get it? You're either putting in contractual guarantees at the income floor, and for a QLAC, you're putting in an income floor for the future to combine with social security and a pension, if you're so fortunate, work for the government or a good union. Less than 10% of the people out there that's worked have a pension in place from their employer in the private sector. The other 90% of us have to create our own pension.
How do you do that? Let me think. What kind of product type offers Lifetime Income, regardless of how long you live? Annuities! Qualified Longevity Annuity Contracts were specifically put on the planet for use in traditional IRAs and other qualified-type plans. Now, some 401ks even offer it, which is excellent! Once again, it should be the number-one-selling annuity type on the planet. The reason it's not is most agents and advisors need to learn what a QLAC is.
First of all, if you're using anyone but me, then I understand that you're using your brother-in-law or sister-in-law that's in the business; I get it. Or your frat brother that has the pictures, you have to use them. I get that. But everyone else? You should be using me, Stan The Annuity Man, the top independent agent in the country, licensed in all 50 states, period.
Let's talk about going to the QLAC calculator page and running a quote. First of all, we don't sell your name, and we don't share any information. Everything is confidential, everything is held right here within The Annuity Man, period. So, feel confident to use that calculator 24/7, 365. You're going to have to put in your name, and you're going to have to put in your email address. You're going to put in the quote, and the quote's going to pop up, but then we're going to email you that quote for you to look at in the future and put in your file if you're thinking about it and just trying to look at what the guarantees are. So, you put in your name and your date of birth. If you want to add your spouse, add their date of birth and the state you're in because this is a fixed annuity issued at the state level. Then obviously, IRA because it's a QLAC. Then when you want that income to start and the amount of money that you qualify for. Remember, eligible participants can use up to $200,000 (indexed) to purchase a QLAC. Then you hit "Run the quote." You put in that lump sum, run the quote, and you will see the top carriers that are offering the best contractual guarantees for your specific situation.
Understand that QLAC quotes, Immediate Annuity quotes, and Deferred Income Annuity quotes are like a gallon of milk. It expires every 7 to 10 days and you can only lock in that number by going through the application process. No, that is not a sales pitch. But you have to lock in a quote with XYZ annuity company. Not going to use any of the names out there. But let's just say you chose one QLAC. You said, "Okay, this is the one I want." That carrier will have to give you and apply an actual contract number to that contractual guarantee. It makes sense if you think about it. So you have to go through the process to lock that in. You can't just get the quote and a month later say, "That's the one I want," because they expire like a gallon of milk. And these are commodity products. Think about buying a QLAC or an Immediate Annuity, Deferred Annuity, or whatever it is. In this case, a QLAC, it's like buying a plane ticket. You punch all your specific details in, and then you see the guarantees, and you can lock in that guarantee.
I got a call the other day about QLACs, and I sent the person my books, which you can get here for free and under no obligation. One of the owner's manuals is on QLACs. He thought that was a good idea because his wife was not interested in the markets and was not interested in taking what he does daily to manage the money. All she wanted was a guaranteed Lifetime Income stream. So he was inquiring about purchasing the QLAC, obviously joint life with his spouse, and deferring it as far out as age 85 so that there would be an income stream for her for the rest of her life using his IRA assets, even though he was holding his nose the whole way. He was taking Michael Kitces' approach: "I can manage the money better than the QLAC guarantee." Well, yeah. I mean, it's apples and oranges, and I told the guy the same thing. Yeah, of course, as long as you're coherent, on the ball, knocking the cover off the ball, and managing the money and understanding. But if you want to set something up in the future for your wife so that it is a guaranteed income stream that they can never outlive, then we can structure it so that 100% of the money is going to go to somebody, even if she passes away early, and he was all for that. Even though he knew that he could manage the money better and potentially get a better return, he was locking in that guaranteed income floor for his spouse and putting a transfer risk lifetime income stream in place for her.
Think about it; that might be your situation. I encourage you to book a call, run quotes, use that QLAC calculator, and go in there and work some numbers and see how that works. Remember that a Lifetime Income stream is primarily based on your life expectancy or life expectancies at the time you take the payment, not interest rates.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.