Should I get a QLAC?

[Red Rover]

I have always been on the no annuity train but I'm now considering a QLAC. I 'think' the QLAC is good for my situation but I don't know if I'm not seeing something I should and it will bite me later.

Here is my situation. Can you please let me know, given my circumstances, whether you think I should get it? If you don't think I should please let me know why. Thank you.

My situation:

I am 55, single, no heirs. I have worked for myself for the last 23 years. Some years were good, some not so good. The business is now on a downturn and I'm trying to eke out enough income from it to get to retirement. I have my money in various Vanguard funds as well as savings and they have done well but I feel like that is more the market than any great investing sense on my part.

Obviously I can't predict my longevity but most people in my family live into their 90s or early 100's. My parents are both 85 and still in good shape mentally and physically.

I won't have any help when I'm older and my biggest stress is not knowing if I will outlive my money. It keeps me up at night. I'm freaked I won't have enough.

I figure I will need $80,000 in income a year. That may be too much but I would rather overestimate than underestimate.

I could spend $200,000 now from my IRA for a QLAC from an A+ rated company (Mutual of Omaha) which would get me $144,000 per year when I am 85 and would pay that amount for the rest of my life. I do not plan to claim SS until I'm 70 so with SS and the QLAC payments I'm estimating at least $164,000/year from the time I'm 85 until I die.

According to FireCalc, if I am able to work for another 5 years and not put any new savings in to what I have now I will have enough money to retire with a 100% success rate.

So, basically, with the QLAC I would be set up for 2 retirements - one from my savings/IRA that will get me to at least 85 and another one after I'm 85 from the QLAC.

I know there are a lot of good investors on here but I am not confident enough in my investing that I think I can turn the $200,000 into $2,000,000 which is what I will get from the QLAC if I live to 100.

I feel like getting a QLAC is a no-brainer for me giving my circumstances and I feel really relieved just thinking about having a secured income that comes from somewhere else other than my savings that I can count on but I wonder if I'm not seeing something that I should with it.

Thoughts? Thank you.

 

[braumeister]

Fidelity had an article about QLACs recently.

https://www.fidelity.com/viewpoints/retirement/rmds-to-retirement-income-for-life

 

[RetMD21]

I feel like getting a QLAC is a no-brainer for me giving my circumstances and I feel really relieved just thinking about having a secured income that comes from somewhere else other than my savings that I can count on but I wonder if I'm not seeing something that I should with it.
.

Your plan makes sense to me. I think the main risk with the QLAC is inflation. I read Wade Pfau's "safety first retirement planning" and my impression is that annuities can be a good substitute for part of the fixed income part of a portfolio but you might want to have a substantial allocation to equities as well.

 

[Red Rover]

Thank you. It's nice to be able to run this by people who are as into a financially secure retirement as I am and get their feedback.

 

[MarieIG]

It is almost an alternative to long term care insurance - although you could use it for any of your needs. (You may be able to obtain a policy which annuitizes a bit earlier, i.e. 80 in lieu of 85 - although it would pay less.)

Or you could split the payout. Half turns on at 80 - half at 85.

 

[Texas Proud]

There was a long discussion on this awhile back... from what I remember most did not think it was a good idea...


I do not know enough to opine...

 

[gauss]

Have you found Jim Otar's book yet? I believe it has been discussed here and over at Boggleheads. I believe the title is "UNVEILING THE RETIREMENT MYTH".

If you were not planning to wait until age 70 to draw SS, I would have suggested that you do that first in that delaying has been described as "the world's cheapest annuity."

-gauss

 

[FIREd_2015]

My thoughts on annuities have evolved quite a bit over the past few years. I was initially against them but as I get older and see how age can affect people's mental capacity I worry whether or not I will be able to make the right financial decisions when I'm 80 y.o. It would be nice to just sit back and collect another check and not have to worry about finances. I considered getting an immediate annuity for longevity insurance but am now leaning towards a QLAC instead because of the tax benefits and the recent increase to $200k. I haven't decided when I want to start taking payments - leaning towards when I turn 80 y.o. Since the Feds are expected to raise rates at least one more time I'm planning to wait until after the Feds are done raising rates since the payout should increase with higher rates.

 

[BGH1]

I know some annuities have a COLA built in, or at least that’s an option if desired, that’s what we have. We used a portion of our nest egg, so between SS and the annuity it will be a nice check monthly (piece of mind for us!)

Will let the remainder of portfolio grow.

 

[RetMD21]

I know some annuities have a COLA built in, or at least that’s an option if desired, that’s what we have. We used a portion of our nest egg, so between SS and the annuity it will be a nice check monthly (piece of mind for us!)

Will let the remainder of portfolio grow.

You can get annuities with a built in fixed increase and you can hope that index annuities will adjust but I am not sure that you can buy an annuity with a true CPI based adjustment

 

[dknighd]

I have always been on the no annuity train but I'm now considering a QLAC. I 'think' the QLAC is good for my situation but I don't know if I'm not seeing something I should and it will bite me later.

I've always been on the annuity train. I'm essentially buying a pension, as needed. My plan is SS, plus annuities, will cover our "comfortable enough" spending when I claim SS at 70.

I won't have any help when I'm older and my biggest stress is not knowing if I will outlive my money. It keeps me up at night. I'm freaked I won't have enough.

Honestly, that would be enough for me. If buying a QLAC, or any other product, would help me sleep better at night, I'd buy it. A good nights sleep is invaluable!

Thoughts? Thank you.

I do not think I'd buy a QLAC, or any other kind of annuity, before I retired. If you are earning money, and have money in the "bank", you should be able to sleep at night. I'd seriously consider either SPIA or QLAC when I was about to retire. I bought my first SPIA the day I retired. Then another a few years later. Current plan is I buy one more when I claim SS.


Really it is up to you, and what makes you sleep better at night. For me an SPIA made more sense. For you a QLAC might make more sense. Who knows, when I'm 70 I might decide to do QLAC instead of SPIA. Or I might decide neither is required.

 

[LateToFIRE]

I'll just point out that for me the issue with paying for insurance for a need that is decades down the road (i.e. LTC, QLAC, etc.) is that you are banking on a single company being solvent and in business over the next 30, 40, 50 years. Just feels like a really long bet. So, if were me, I would wait as long as possible before making that bet. But, these are emotional, as well as financial decisions, and getting a good nights sleep is very important!

 

[dknighd]

I'm still worried that the USA will decide to cut SS one day. I hope that never happens. SS is an integral part of my plan. But I try not to loose sleep over it. Some things are out my control, I've learned to accept that