QLAC to Lower IRA RMD, and QLAC's in general
 

Opinions please

This could be fun.

:popcorn:

Wow. Another annuity product to enrich insurance companies and their salespeople. The insurance lobbyists must have put in a lot of overtime to get Congress to approve it. I would run away from that product.

Wonder what Parody would say? Rumor has it he has never seen an annuity he does not like

Did he start this tread??

:clap2:

hmmm, insurance companies lobbyists got their interests added to the tax code. .

There are other ways to lower your RMD, and doesn't require annuities nor insurance companies, and you have control over your finds. .

Also, 200K limit only benefits small retirement accounts. Large retirement accounts' RMDs won't be substantially effected after a QLAC. .

Ask your financial advisor to optimize the balances of taxable accounts, IRA/401k and Roth accounts so that you don't have to pay more than the lowest incremental tax bracket for your level of social security income after the RMD.

This is the golden tax ratio of retirement. .

Never mind

ROTH Example instead of a QLAC
 

Starting assumptions for future ROTH needs to pay for lifestyle exceeding social security income after tax

2024 Year ending Age: 66
2024 Married, Both Collecting Max Social Security: 94,000 per tables
starting 2025, Jan 1
2024 Lifestyle Cost: 85,000 per year
2024 Life Expectancy Male (lowest) : 83

IRS/Social Security Inflation: 3%
IRA/Roth Annual return: 5%
Actual TV cost of Living Inflation: 5%

2024 Ending IRA/401K : ZERO, 0
2024 Ending Taxable Investment Savings : ZERO, 0

2024 Ending ROTH IRA size needed to pay for lifestyle through 2041: 10,000

There are so many variations on this type of scenario. . married vs single
lifestyle cost, IRA/401K starting point. . etc

The biggest variable is the Lifestyle cost,
which equals
Home ownership cost : $30-$35K per year currently
Food, vehicles, entertainment, travel: $50K per year
Total Lifestyle Cost = $85K per year

Married with Zero IRA, Zero Savings Account
Max Social Security

..........................Life style Cost................ROTH Needed to Cover Cash flow deficit through 2041
2024 Annual.......85,000..............................5 ,000
..........................100,000................. .........210,000
..........................115,000................. ........420,000

Throw in some IRA/401K savings, and your Roth doesn't need to be so high.
Throw in some investment savings, and your Roth doesn't need to be so high.

So instead of getting an QLAC, put a bunch of money in a Roth and you get to keep the money, watch it compound, and use it if you need it. . from which you may not ever need to withdraw

Same example, same assumptions, add a 300,000 IRA combined

.........................Life style Cost................ROTH Needed to Cover Cash flow deficit through 2041
2024 Annual.......85,000..............................2 ,000
..........................100,000................. .........105,000
..........................115,000................. .........315,000

sorry, made a typing error when typing the roth amounts


good luck

QLAC

I had never heard of this product so looked it up. Bet it is very profitable for both the salesperson $$$$$ and the insurance company $$$$$ but not so good for the sucker...er...I mean purchaser.

[QUOTE=manaboutown;2375109]QLAC

I had never heard of this product so looked it up. Bet it is very profitable for both the salesperson $$$$$ and the insurance company $$$$$ but not so good for the sucker...er...I mean purchaser.[/QUOTE

The benefit of a QLAC is that it can convert a 401K into a quasi-traditional pension plan. A current disadvantage is that insurance companies and their associated high costs are involved. Maybe future versions will be better.

And you would be wrong. I am not a fan of QLACs necessarily. The only use case I actually can see is maybe for long term care. However, these were actually created by the IRS and are DIAs (differed income annuities), which do not have huge fees like say a Variable annuity or possibly an indexed annuity. They are basically SPIAs that are deferred. They are commodity products and do not have huge commisions (although what that has to do with anything is still beyond me), and are not "super profitable" (whatever that means) for the insurance companies.

Most sales people make good commisions in general - it is a tough job, and they earn them. Heck, the same people who begrudge an insurance salesman a commision will pay a financial advisor 1% EVERY YEAR and not realize it is WAY more.
Ed

Well, I have never paid a "financial advisor" anything. 1% of AUM is over 14% of a 7% return. I also steer clear of annuities which are only sold, never bought as they are commission driven $$$$$.