QLACs Can Help You Manage Your RMDs

Many baby boomers have started adopting a new retirement strategy: working until they’re age 70½ to maximize their Social Security, allowing their qualified plans to accumulate until mandatory RMDs force distributions. Now with the advent of QLAC, 25 percent of your total qualified plan can be deferred to any age up to 85. The deferred income annuity generates guaranteed income for the life of the annuitant. You could, in theory, purchase “blocks” of income at later times, like age 75, 80 or 85, in anticipation of increased medical expenses and long-term elder care later in life. Deferred income annuities generate guaranteed income with a combination of principal return, interest rate and mortality credits. Mortality credits are based on the actuarial theory of the law of large numbers. An insurance company’s mortality credits are a factor of their mortality experience. Mortality credits in annuities are not only the secret sauce that creates income, but they’re the insurance industry’s version of “alpha.” Watch the interview with financial planner and IRA specialist Frank Oliver as he outlines the basics of annuities in retirement. http://rightonthemoneyshow.com/qlacs-can-help-you-manage-your-rmds-frank-oliver/  It’s conceivable deferring up to 25 percent of your RMDs could also be a tax-management strategy to generate more net income from your Social Security benefits because the RMDs, which are subject to the provisional income test, are smaller.

The newest tactical thinking here is to divide retirement into two phases: from age 55 to age 70½ and age 70½ to life expectancy. This is not a recommendation, but you could take qualified distributions from your IRA at age 55 via IRS Section 72t without a penalty. This allows for a series of substantially equal periodic payments based on your life expectancy to generate income earlier than the traditional age of 59½. That’s one end of the spectrum. The other is managing post-age 70½. Managing income and taxation during this period has been challenging. But with QLACs, Stretch IRAs and non-qualified guaranteed lifetime annuities, you can structure your income scenarios in such a way to generate more net spendable income. It’s important to engage a financial advisor who knows the application of these strategies and tax ramifications to optimize your retirement income, because retirement planning is not a do-it-yourself activity.