Annuity appeal and QLAC interest is growing in 2025!

Annuities are growing in popularity as Pre-Retirees’ look to add safety and income to their retirement portfolio. Research shows nearly 51% of people nearing retirement would consider converting at least a portion of their nest egg into a Lifetime-Guaranteed Income Annuity.

In early 2022 401k’s and other defined contribution plans dropped 20% to 30%, giving people close to retirement a big scare. If you were one of the unfortunate people with a January or February retirement party planned, you saw nearly a quarter of your nest egg go poof! Therefore, it’s not a surprise that Principal protection and Guaranteed income are among the main reasons pre-retirees are shopping for annuities. Not to mention the financial security and peace of mind an annuity provides.

The ability to create guaranteed income through an employer plan, 401k, IRA etc is also gaining steam.

Yes, annuities through Defined Contribution/Employer plans are growing in popularity, and across the spectrum, from Gen X and Millennials to Baby Boomers.

If you are looking for peace of mind and not having to tell your spouse “sorry, we have to cancel the family vacation with the kids this year” because the stock market is down, you might want to look at an Annuity.

QLAC- Qualified Longevity Annuity Contract

One form of annuity gaining in popularity is the QLAC.

A QLAC is a basic income annuity, a very simple, plain, vanilla, annuity, it’s the equivalent of buying yourself a private pension. A QLAC is also referred to as a Deferred Income Annuity (DIA), you give your money to the insurance company, they pay you back at a future date with interest and mortality credits.

What makes QLAC’s unique:

You can use money from a Qualified account (hence the name) a Retirement account, a Tax-Deferred account, like a 401k, 403b, 457, Traditional IRA to fund the QLAC. You cannot buy a QLAC with after tax money, your checking account, investment account. You cannot buy a QLAC inside an inherited account, even though it’s tax deferred. So, basically, where a lot of people have accumulated retirement money, IRA, 401k, you can buy a QLAC.

You might be thinking, OK, why would I want to do that, buy a QLAC inside of an IRA or 401k? It’s the same reason why you’d buy an annuity in the first place. IRA’s, 401k’s are invested in stocks, bonds, mutual funds, ETF’s, things that have market exposure and therefore risk. So you buy it for guaranteed income and principal protection, tax deferred growth.

The QLAC is kind of a retirement plan for your retirement plan. You have this money in an IRA, 401k, maybe 1 million dollars, and you see it go up and down, in the beginning of 2022 DOWN 20% to 30%. With the QLAC inside the IRA you are in essence setting up a few things.

First, Longevity insurance, the L in QLAC, let’s say you have good family genes, you think you’ll live a long time, you can peel off up to $ 200,000 from the IRA and put it in a QLAC that could start at 80, 85. By delaying the start of the QLAC you’ll earn a higher interest rate which means a higher monthly payout on the lump of money you gave the insurance company to buy the QLAC.

Second, the QLAC allows you to defer RMD’s, required minimum distributions, out to 85. Let’s use the 1 million dollar example again, you have 1 mil saved in your 401k, IRA, 403B, at age 75 you will have to start taking out RMD’s. Which is fine, you probably need the money anyway, heck you probably started withdrawing money from the retirement account when you actually retired, but, by moving $200,000 of the 1 million, you are now left with $800,000, and the RMD’s are now based on $ 800,000 instead of 1 million. Less RMD’s equals less income, less income equals less taxes. Lower income could even mean lower Medicare premiums.

Third and Forth, the money from the QLAC can be used for health care, maybe at 85 you’ll need some assistance, now you have extra money to cover that expense. The QLAC can be set up as Joint Life, so if you die, well when you die, your spouse has the additional income until they die. And lets not forget that tax deferred compounding growth.

Every annuity serves a unique purpose, these are just a few that make QLAC’s different.

Why buy a QLAC (or any other Annuity)

If you want or need guaranteed income! You only have three choices for guaranteed income, Social Security, Pensions and Annuities. QLAC’s not only provide guaranteed income but at a very competitive return due to deferred payments.

If you are concerned about outliving your retirement funds, if you are healthy, you exercise, your parents lived a long life, you should consider an Annuity that pays till death for either you or you and your spouse.

If you want to cover at least the basics, a mortgage, car payment, Medicare costs, a QLAC or any annuity offer and “income floor”.

If you are risk adverse, if you lose sleep watching market go up and down, if your spouse is losing sleep watching the market go up or down.

You can ladder a QLAC like a Bond ladder. Put 1/3 of the $ 200,000 into a QLAC starting payments at age 78, 1/3 to starting payments at 80, 1/3 to starting payments at 85. Typically, longevity annuity ladders pay better returns than bond ladders and by staggering the farther you go out the better the return.

Tax savings, the $ 200,000 not included in your RMD calculation is reducing your income/tax bracket. For example, you have a $500,000 Traditional IRA, you buy a $200,000 QLAC, you’re only paying RMD’s on $300,000. A legal way to lower your tax liability on those IRA RMD’s.

But, hey if you have a lot of Social Security coming in, a big Pension, if no real risk of out- living your assets, maybe a QLAC or any Annuity is not a good fit.

Or don’t buy it if you think you might need access to the money quick, an annuity is irrevocable, meaning you can’t get the money back once QLAC starts.

Structuring the QLAC

You can structure it as Life with Cash Refund, so when you die, 100% of the unused money goes to the beneficiary.

Or Joint life, it will pay monthly income until you both die.

Other Factors to consider

Like all retirement planning there is a lot at play, each decision impacts another. If you are thinking about a QLAC or any deferred annuity you might also want to look at delaying Social Security. Nothing pays a better return than delaying Social Security.

Fixed income diversification, a QLAC can be a great add along with life insurance. You buy Life Insurance to cover beneficiaries if you die young. You buy an Annuity to cover living a long life, and not becoming a burden to your kids.

If interest rates are good, chances are the QLAC rate is very good!

In Summary

If you’re like a lot of people and have a big chunk of your retirement savings in an after-tax retirement plan like and IRA, 401k, a QLAC could be a good fit. The IRS and Government created the QLAC as way to move $ 200,000 of that qualified money into a “late retirement” plan that will lower RMD’s, pay a great rate, and gently nudge you towards planning for Longevity.

Sound Insurance Brokerage Group would love a chance to talk with you about retirement planning and how an Annuity is a great part of any retirement portfolio.