Mike McGlothlin CFP®, CHFC®, CLU®, LUTCF®, NSSA®
If only there was a wand you could waive that guaranteed all your clients a healthy and secure retirement. Although we haven’t found it yet, there is a tool that comes pretty close and it’s called a qualified longevity annuity contract, or QLAC.
In my opinion, a QLAC is one of the most underutilized tools in our box. If you’re not familiar with a QLAC, it’s a retirement strategy that allows your clients to defer a portion of their required minimum distributions (RMDs) until a certain age.
Under current rules, you can put up to $135,000 or 25% of your qualified assets (whichever is more) into a QLAC, and therefore defer RMDs until age 85 and one month.
Although there are some techniques that we think are better used at age 80 to give your clients more flexibility, there is certain legislation out there that will actually push out RMDs. So, there’s a push to make sure that more clients have more time to wait until they disperse their qualified account balance.
In fact, there’s some pending legislation that made it out of the House Ways and Means Committee called Securing a Strong Retirement Act of 2020 that bumps the QLAC limit up to $200,000 and eliminates the cap of 25%.
Here’s why that’s so important. Taking longevity off the table is a critical risk factor that you must decide how to handle with your client.
QLACs have been available for the past four years. And for each of those years, we’ve conducted an annual study and found that each of the 48 cells in our study has 5,000 simulations. So more than 240,000 simulations go into the study. We started putting money into an account at ages 55, 60, 65 and 70. We then went back and ran that exact same portfolio with a QLAC. 48 times out of 48 we improved the probability of success.
If you’d like to see that study, download it at ashbrokerage.com or give us a call at (800) 589-3000. Ask our retirement income team about the QLAC study and we’ll get it out to you.
And, if you’re looking for a magic wand to make sure that your clients do not run out of money, have a secure retirement and increase the probability of their success, then talk to them about QLAC.
If you’re looking at lessening the impact longevity has on your clients’ finances in retirement, consider a QLAC. It’s one of the most valuable tools in your box.