Supplementing QLAC

Situation:

Don (age 60) has become aware of the late-in-retirement expenses his parents are incurring, while seeing them spending down their savings. While Don is reasonably well-off he doesn’t want that to happen to him, since he’d like to leave a legacy for his kids. Allocating $100,000 of his IRA account will provide him with $30,000 of lifetime Income (life only form of annuity) starting at age 80. He would also like to have additional guaranteed income.

Solution:

With DIA’s greater flexibility, Don constructs his own Income plan by purchasing a DIA that provides $25,000 for life starting at age 70, and another DIA providing $50,000 for life year starting at age 90. The DIA premium is $200,000 for the former and $100,000 for the latter. As a result, with a QLAC and the two DIA contracts, he has additional income as follows: 70 to 80 - $25,000; 80 to 90 - $55.000; and 90 and later - $105,000. For this peace of mind, Don allocated just $400,000 of his personal savings.

Sale of Business

Situation:

Marilyn (age 55) received a large amount of money ($1,200,000) on the sale of the business she started. She will remain as a consultant to the company and receive consulting fees for the next five years that should cover her basic living expenses. She has a small 401(k) balance that she wants to build up until age 70½. She also wants to delay electing Social Security until age 70.

Solution:

Since she needs income from 60 to 70 to cover all of her expenses, plus income starting at 70 to supplement her 401(k) and Social Security, after maxing out her QLAC election in her 401(k) with income to start at age 80, she allocated 30% of sale proceeds or $360,000 to purchase a DIA with income of $22,500 starting at her age 60. She supplements that income with dividends on the balance (70%) of her investment portfolio.

Exchanging a Single Premium Deferred Annuity (SPDA)

Situation:

Mike (age 62) has accumulated a substantial amount of money ($150,000) in a SPDA, but recent crediting rates have been lower than when he first purchased the contract. He’s thinking about taking withdrawals from the contract but understands they’re taxable, and he doesn’t need the cash now. He’s also aware any gain from his original premium investment of $80,000 will be taxable at ordinary income rates at his death. He just can’t predict how much the SPDA will be worth to him at his planned retirement in 10 years.

Solution:

Mike decides to exchange his SPDA for a DIA using the tax-free 1035 Exchange privilege. He elects to have income start at age 70 when Social Security and IRA withdrawals begin. With the $150,000 current balance he can purchase $20,000 of guaranteed annual income, of which a portion will be excluded from tax.

Depending on whether your objective is to "Reduce Current Taxes", "Predictability of Income Distributions", or "Income Security", you can select a QLAC Plan to help meet that objective.