A Qualified Longevity Annuity Contract (QLAC) is an insurance annuity purchased now within your retirement account that guarantees you a lifetime income stream (single or joint lives) that starts later in your life. The retirement account money used to purchase the QLAC is not included in the formula to determine your required minimum distribution (RMD) amount at age 70½. The income from the annuity must start no later than age 85 and is considered a taxable RMD. The longer you delay the income payments, the greater the amount of income.

True story: A financial adviser pitched a QLAC to a retired MOAA member with adequate (but not excessive) retirement income. QLAC or not?

First, focus on your financial objective. Does your primary objective match the primary objective of the QLAC’s protection against an income shortage in the future? Any other QLAC features are secondary.

• Do you anticipate a shortage of income in the future? If yes, a QLAC is one option. If no, you probably don’t need a QLAC.
• To meet your objective, what other financial options are available that are cost-efficient, effective, and more flexible? Develop a list of all possible options before jumping into a specific product. Example: How can you restructure your other investments?
• Do you mind using a purchase amount you might not see again? Most QLACs do not offer a refund if the product is not used — you die before the income starts. That’s the risk with an annuity.
• Can you afford to do without sizable assets for an extended period? How confident are you that you won’t need the assets used for purchase before the QLAC payments start?
• A QLAC can help you minimize RMDs (taxes) initially, but what will the deferred payment amount be in the future? How will the greater future QLAC payments affect future RMDs and taxes?
• Is inflation an issue? Most QLACs lock in future income at the time of purchase. What’s $36,000 a year when you are 85, for example?
• How does your Social Security planning synchronize with a QLAC?
• What are your other sources of income?

If someone is worried about future income, can we assume they are worried about depleting their current assets? (Lack of assets being the issue.) People lacking assets should carefully consider whether they can afford to sink a chunk of money into an annuity policy that is unavailable for many years.

Annuities have great commissions. If an advisor leads with an insurance product for a savings or investment objective, tread lightly.

For more detailed information, search QLAC at Investopedia.com.