Retirement income planning using QLAC for age 85

Major concern for retirees is the running out of money during retirement. You have accumulated a portfolio for the last three decades while working now you have to make that money last with pulling income for the next 25 years or is it 30 years or 35 years?

Here lies the problem. How many years will I live so I can figure out how much to pull from my portfolio every year without running out of money. Yet without knowing the time period, it’s impossible to know if you should be spending more or less and if the investments in the portfolio can be more conservatively invested or be somewhat more aggressive in your stock allocations.


QLAC, also known as a longevity annuity, provides guaranteed lifetime income later in life. The income start age is chosen by the owner at deposit which must begin by age 85.

The benefit of using QLAC in your income planning is to solve for the unknown time period problem. As an example a 65-year-old couple that purchases a QLAC with income starting at age 85 will cover all of their inflated income needs after age 85. Now the couple’s retirement income question just got simpler. They will now only need to solve for the income for the next twenty years (age 85), which is defined, as the QLAC will provide inflation adjusted income for life after age 85.


The 65-year-old couple has $1,000,000 and wants to spend $40,000 per year from their retirement portfolio for the rest of their lives and increase annual payment 3% per year for purchasing power in the future. $40,000 per year increase for inflation every year will be $72,244.45 per year at age 85 or in 20 years. Today the couple can purchase a QLAC also called a Longevity annuity for their future $72,244 per year, or $6,020 per month, beginning at age 85 for a one time deposit today of $260,000. The QLAC or Longevity annuity purchase will leave the remaining $740,000 of the retirement portfolio available to cover the next 20 years from age 65 to 85. Since QLAC has a limit of $125,000 deposit the amount can be split among both of their IRAs and or non-qualified longevity annuity. All have the same deposit and income payout terms.

The couples “problem” just got a whole lot easier to figure out now, instead of trying to invest $1,000,000 for a $40,000 per year inflation-adjusted retirement income for an unknown time period. The couple can invest $740,000 for a $40,000 per year inflation-adjusted income for exactly 20 years, secure in knowing that all payments beyond that point will be covered by the QLACs and backed by the longevity insurance company guaranteed lifetime income payments. The QLACs will also allow the couple to take more risk in their portfolio knowing the guaranteed lifetime income payments are not to far off to cover the unknown retirement income time horizon.

For a no annual fee QLAC and no free quote see where we compare all QLAC approved companies to find you the best income amount. 


When you turn 65 and apply for Medicare benefits from the government the choice seems to be straight forward and simple to complete. Your decisions at this time of your retirement can derail your income later in retirement. Choosing which Medicare plan to take at what monthly cost seems straight forward. Plan A & B. Supplemental Medicare plans purchased thru insurance companies help will the coverage gaps. What if I told you that if you make a certain amount of income after age 65 that your Medicare Plan could cost you more than your neighbor down the street. That is called a Medicare surcharge. What if I told you that a 55 year old couple today would not receive a social security deposit into their bank account every month because the cost of Medicare plans and external expenses would “eat” all the social security income deposits up every month. Would these statements derail your income plan in retirement?

According to a Nationwide study, 76% of retirees surveyed underestimated the external costs in retirement for medical expenses or could not calculate their costs. Medicare only covers about 62% of expenses associated with health care services.
The two factors that contribute to health care expenses rising and taking over your social security income deposits are high inflationary costs and Medicare surcharges to help offset Medicare costs for lower income retirees in the Medicare system.

COLA or cost of living adjustment to social security income has averaged around 2 percent a year for the last ten years with three periods of no increase to COLA. Combine that low social security income increase to the average 8% Medicare increase and you can see why in the longer period that health care expenses such as Medicare premium payments will consume the vast majority of social security income later in life. With well over half of American retirees relying on social security income as their only source of income in retirement this should be a concern going forward.

Medicare plan surcharges are based on a MAGI or Modified adjusted gross income schedule for single and couples. MAGI is the total of your household’s adjusted gross income plus any tax-exempt interest income. Examples of tax-exempt income would be life insurance loans, non-qualified annuity income, Roth IRA proceeds and longevity insurance or annuity income.

medicare surcharges

The Medicare surcharges for a single taxpayer start at $85,000 in yearly MAGI. Surcharge for Medicare premiums for couples start at $170,000. At both of these levels the surcharge is 37% increase than standard Medicare plan cost. These surcharges can increase all the way up to 204%. The key concern is that the surcharge income schedule range is NOT pegged to inflation; so as our earning power increase the schedule stays the same and more retirees will be effected.
For younger people not yet in their sixties these two cost increases will consume more social security income as most retirees count on social security checks to live on. Check out and for help on your Medicare benefits.

Fidelity Managed RMD Payout Funds Miss the Mark

Fidelity today announced the Simplicity RMD Funds. These managed-payout funds, which generally aim to provide investors with regular monthly payments (which aren’t guaranteed like annuity payments) have been around for ten years. Managed-payout funds in total represent less than 1% of the available target-date mutual funds available on the market. “Retirees often struggle to understand when, which assets, what amount and how to take the annually mandated withdrawal from their tax-deferred retirement accounts,” said Ken Hevert, senior vice president of Retirement at Fidelity Investments. “If not done correctly, investors may experience a 50% tax penalty on any amount not withdrawn by the annual deadline.”

These RMD payout funds are at the core a target date mutual funds which have a specific accumulation year in the future to better gage your investment risk. An example would be a later dated target date funds, such as the Fidelity Freedom 2020 fund. This funds has 60% percent equity and 40% fixed bonds investment exposure in the fund. It is built for accumulation of assets with a built in asset allocation model.

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The spin on Fidelity’s new RMD Simplicity payout funds are the same as a target dated fund except it has a built in RMD distribution linked to it with another fidelity withdrawal form required. You would still receive a notification from any other IRA investment that a RMD distribution is required if you are older than age 70 1/2 yrs old. So the RMD marketing spin is just that a way to capture assets at Fidelity from IRA holders. Look into a QLAC (Qualifying Longevity Annuity Contract) which the US Treasury has “blessed” as a way to totally defer RMD income payments until age 85 of 25% of your IRA balance or $125,000, whichever is the lesser of.

QLAC income is greater than the income from an investment, such as Simplicity RMD Funds from Fidelity, gaining 5% each year for 25 straight years. The below chart illustrates taking IRA portfolio RMD vs investing that $125,000 IRA into a QLAC and receiving guaranteed lifetime income payments at either 75, 80 or 85 yrs old. At age 90 you would have received $125,031 more income via a QLAC at age 80 than taking the RMD from a portfolio investment. See below for details:

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Annuity Income at age 80: Index vs QLAC


What is the better guaranteed income product for a retiree age 70 wanting guaranteed lifetime income at age 80; Index annuity or QLAC? 

Most popular choice has been the index annuity with almost $50 billion of deposits in 2015.  Allianz Life is the #1 carrier in indexed annuities, with a market share around 25 percent. American Equity Companies held on as the #2 carrier in the market; Security Benefit Life, Great American Insurance Group, and Athene USA followed-up in sales, rounding-out the top five. Allianz Life’s Allianz 222 Annuity was the #1 selling indexed annuity for the second consecutive quarter in 2015.  These index annuities have an optional GLWB (Guarantee Lifetime Withdrawal Benefit) income rider usually for up to 10 years where income is guaranteed for an annually fee above 1%. Fewer and fewer index annuities have income riders that guarantee an income payment for life as the current low interest rate environment is to blame.

The product that got the “blessing” from the Treasury Department in 2014 is the longevity annuity also know as a QLAC (Qualifying Longevity Annuity Contract).  This federally approved “blessing” allowed the RMD from IRA deposits to defer required minimum distributions until age 85.  Usually a one-time deposit for a guarantee lifetime income at a future date chosen by the policy holder. QLAC options include inflation income adjustments of 1% -4% along with CPI-U, death benefits of deposit and joint annuitant for income.


  1. Index Annuity with Income Rider (6.25% ”roll up rate” annually for 10 year, 6.8% withdrawal rate at age 80)  10 years at age 80  lifetime income is $12,842 annually

  2. QLAC or Longevity annuity 10 years at age 80  lifetime income is $15,950 annually

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Saving on Health Care and Medicare Premiums in Retirement

How do you save on health care expenses including Medicare premiums during retirement? It’s all based on your retirement income. I will explain later in the article. During retirement fixed costs are essential to be managed and kept low to maximize monthly income. One of the only constant fixed costs in retirement are health care and Medicare expenses which happen to be one of the most expensive in retirement. Medicare premiums are formulated for cost based on a retirees MAGI or modified adjusted gross income. Speaking from the Chicago Retirement Income Summit, Peter Stahl, CFP® stated “The savings are real,”. For example, moving a married couple’s tax bracket one threshold lower can save them $65,000 in Medicare costs over a 20-year retirement.



And the savings are especially important given “health care inflation isn’t grocery-store inflation or Home Depot inflation” — Medicare Part B inflation runs at 7.87% and Prescription Drug Plan Part D is at 7.12%. With the increase of boomers entering the “high medical use” years these already historically high inflations will likely increase in the coming decade.  Certain retirement income streams have tax advantages to keep income lower than traditional portfolio distributions that increase taxable income in retirement. QLAC or Qualifying Longevity Annuity Contract, non-qualified income annuities such as Longevity annuities that use non-IRA dollars, Roth accounts, health savings accounts and permanent life insurance loan distributions are all tax- advantaged way to lower a retirees tax bill with respect to Medicare premiums. Management of RMD, required minimum distributions at age 70 ½ from IRA is also key. Using a QLAC IRA, the deposit excluded in the RMD calculations for tax. The maximum deposit amount is lesser of $125,000 or 25% of your prior years combined IRA balance.  Excluding this amount will automatically lower a retirees RMD tax to over an estimated $20,000 in a retirees lifetime and in turn lower one’s modified adjusted gross income that is reported on your income tax return.

If you are looking for a QLAC that is right for you, then we can help. We work with many of the top insurance carriers in the longevity annuity marketplace today. To get live instant QLAC rates from the top companies click here.

If you have any additional questions, then please feel free to contact us directly toll-free, by dialing 800-325-1833. We are here to help.