QLACs: Another retirement income planning option

QLACS also reduce the volatility of future retirement income streams because the deferred payments’ timing and amounts are known with certainty. (Assuming the client lives to the annuity’s start date, of course.) Those features can allow a client to currently spend more or invest more aggressively because the QLAC’s start date shortens the investment time horizon for at least part of their funds. Finally, QLACs provide a deferred lifetime income to the account’s beneficiaries.

Ready to roll?

DIA-sales have been experiencing solid growth but they still account for only a small fraction of total annuity sales. The option to buy a DIA in QLAC-form might grow sales slightly, bur the new regulations re unlikely to lead directly to increases sales, says Ross Goldstein, managing director, retail annuities with New York Life. The company has not yet started QLAC sales of its DIA product, he says, as they are “digesting the specifics of the regulations,” but the product rollout is a priority.

QLACs’ value derives from the added flexibility they will give advisors and clients, he says: “The big thing this is going to do for the advisor is it’s going to level the playing field between their clients who are primarily planning with qualified dollars versus their clients who have more flexibility between qualified and non-qualified.”

A final consideration is the value of the financial benefit QLACs can provide. In other words, are they worth it? Michael Kitces, CFP examined a hypothetical longevity annuity purchase scenario. His conclusion: the annuity’s internal rate of return under various longevity assumptions was not “very compelling” and traditional investments remained viable and more flexible alternatives. You can read his blog post.

It’s very early in the game for QLACs and we’re operating in an extremely low interest rate environment so it will be some time before we can gauge investors’ response. Nonetheless, the new regulations reflect a growing awareness of the need for lifetime income solutions and offer advisors another planning option for use with clients.