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Worth Noting Annuities have great commissions. If an advisor leads with an insurance product for a savings or investment objective, be wary.
50 MILITARY OFFICER FEBRUARY 2017 What Is a QLAC?
Recently, qualifi ed longevity annuity contracts (QLACs) have received a lot of attention. Lt. Col. Shane Ostrom, USAF (Ret), CFP®, provides an overview of this insurance annuity option.
A qualified longevity annuity con- tract (QLAC) is an insurance annuity purchased within your retirement ac- count that guarantees a lifetime income stream (individual or joint) and starts later in life. The retirement account money used to purchase a QLAC is not included in the formula to determine your required minimum distribution (RMD) amount at age 70½ . Income from the annuity must begin no later than age 85 and is considered a taxable RMD. The longer you delay income payments, the greater the amount of income. As is the case with my articles, aware-
A qualified longevity annuity con- longer you delay income payments, the
ness is my intent. For a more in-depth look at QLACs, search “QLAC” at
investopedia.com. A fi nancial advisor pitched a QLAC
to a retired MOAA member, who had adequate (but not excessive) retirement income. Is a QLAC appropriate or not? To fi nd the answer, we fi rst need to focus on your fi nancial objectives. Does your primary objective match the pri- mary objective of the QLAC’s protection against an income shortage in the future? Any other QLAC features are secondary. If you anticipate a shortage of income in the future, a QLAC is an option. If not, you probably don’t need one. What other cost-effi cient, eff ective, and fl exible fi nancial options are avail- able to meet your objective? Develop a list of all possible options before jumping into a specifi c product.
For example: How can you restructure your other investments? Do you mind using a purchase amount you might not see again? Most QLACs do not off er a refund if the purchase price is not used. This is a risk with an annuity. Can you aff ord to do without sizable assets for an extended period of time? How confi dent are you that you won’t need those assets from now until the QLAC payments start? A QLAC can help you minimize taxable RMDs initially, but what will the de- ferred payment amount be in the future? How will the QLAC payments down the line aff ect future RMDs and taxes? Is infl ation an issue? Most QLACs lock in the future income amount at the time of purchase. What will $36,000 a year be when you’re 85 years old, for example? How does your Social Security benefi t planning synchronize with a QLAC? What are your other sources of income? If you are worried about future in-
come, can we assume you also are wor- ried about depleting your current assets, with a lack of assets being the issue? Those lacking assets should consider
carefully whether they can aff ord to sink a chunk of money into an annuity that will be unavailable for many years.
MO
— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit
moaa.org/fi nancialcenter for other resourc- es. Email specifi c benefi t and fi nance inquiries to
beninfo@moaa.org.
PHOTO: SEAN SHANAHAN
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