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 “If not done correctly, investors may experience a 50% tax penalty on any amount not withdrawn by the annual deadline.”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.

Screen Shot 2017-06-14 at 10.35.02 AM

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:

Screen Shot 2017-06-14 at 10.47.59 AM

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

Read More…

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.