Hi Ferrari, I bought a QLAC last summer, here is the original discussion thread.
I spend $200,000 out of my tax-deferred IRA (I’m 62, the youngest age allowed to buy a QLAC), no tax impact in 2023, and at age 82 it pays me $73,622 per year until I die. Of course, NY Life and I are placing opposing bets on how long I will live. In the aggregate, the always win… they’re the house after all, right? But individuals may win if they have longer than average lifespans.
The exact problem I was trying to solve was the following:
- I can’t add any more benefit to my LTC policy which pays max $500,000 over my lifetime, they won’t let me, and anyway I hate paying for something I might get priced out of or not use, and yet I’m sensing that inflation is going to rip $500,000 apart pretty quickly over the rest of my life (3% inflation over 30 years turns $500k into $200k)
- The QLAC gives me 100% certainty of a large “pulse” of cash late in life, and I don’t have to make any claims, meet any conditions, it’s not conditional on the stock market, or my investment savvy, and I make no further payments. THERE IS NOTHING I CAN DO TO STOP THIS MONEY FROM COMING. They have my checking account info, starting on my 82nd birthday there will be monthly deposits of $6135.
- If I die, my heirs get my initial $200,000 back, guaranteed
- Using the QLAC pushes some of my RMD into the future - I have a large IRA, and I have a looming RMD problem, don’t get me wrong, it’s a great problem to have, but I have to engineer around it nonetheless or else I am going to get hit on the head
I am very satisfied with the purchase. I bought it from one of Clark’s favorite children - Fidelity.
People have raised the concern - “you could do better in the stock market”. That’s a false equivalency. You cannot compare basically risk-free cash flows with stock market returns. QLAC has to be compared to Treasuries or AAA or AA rated investment grade bonds. If I live as long as I think I will live (based on family history) the QLAC beats any bond I could ever possibly buy by miles and miles.
It’s a bond replacement that I cannot outlive - and I still take large bets in the stock market with the rest of my portfolio. So I get these nice non-correlated returns. QLAC is like a self-funded private pension for old people. Nothing bad about that.